NEW PEOPLES BANKSHARES INC 10-Q/A

Item 1 Financial Statements NEW PEOPLES BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 (IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA) (UNAUDITED) September 30, December 31, 2022 2021 ASSETS Cash and due from banks 17,134 $ 14,952 Interest-bearing deposits with banks 97,406 45,766 Federal funds sold 378 228 Total Cash and Cash Equivalents 114,918 60,946 Investment securities available-for-sale 98,845 107,358 Loans receivable 579,874 593,744 Allowance for loan losses ( 6,593 ) ( 6,735 ) Net loans 573,281 587,009 Bank premises and equipment, net 19,675 20,735 Other real estate owned 321 1,361 Accrued interest receivable 2,174 2,112 Deferred taxes, net 4,570 1,673 Bank owned life insurance 4,602 4,685 Right-of-use assets – operating leases 3,816 4,062 Other assets 6,363 4,706 Total Assets 828,565 $ 794,647 LIABILITIES Deposits: Noninterest bearing 269,052 $ 251,257 Interest-bearing 454,862 456,256 Total Deposits 723,914 707,513 Borrowed funds 41,496 16,496 Lease liabilities – operating leases 3,816 4,062 Accrued interest payable 355 272 Accrued expenses and other liabilities 3,754 2,673 Total Liabilities 773,335 731,016 SHAREHOLDERS’ EQUITY Common stock - $ 2.00 par value; 50,000,000 shares authorized; 23,877,601 and 23,922,086 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 47,755 47,844 Additional paid-in-capital 14,556 14,570 Retained earnings 6,665 2,031 Accumulated other comprehensive loss ( 13,746 ) ( 814 ) Total Shareholders’ Equity 55,230 63,631 Total Liabilities and Shareholders’ Equity 828,565 $ 794,647 The accompanying notes are an integral part of these consolidated financial statements. 3 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) For the Three Months Ended For the Nine Months Ended September 30, September 30, INTEREST AND DIVIDEND INCOME 2022 2021 2022 2021 Loans including fees $ 7,010 7,602 $ 20,476 $ 21,483 Federal funds sold 2 — 3 — Interest-earning deposits with banks 559 28 738 69 Investments 505 388 1,422 969 Dividends on equity securities (restricted) 34 26 88 90 Total Interest and Dividend Income 8,110 8,044 22,727 22,611 INTEREST EXPENSE Deposits 418 522 1,252 1,780 Borrowed funds 492 104 810 349 Total Interest Expense 910 626 2,062 2,129 NET INTEREST INCOME 7,200 7,418 20,665 20,482 PROVISION FOR LOAN LOSSES 225 — 400 372 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,975 7,418 20,265 20,110 NONINTEREST INCOME Service charges and fees 1,069 1,001 2,973 2,674 Card processing and interchange 915 982 2,858 2,918 Insurance and investment fees 167 222 650 723 Net gain on sales of available-for-sale securities — 322 — 322 Other noninterest income 38 443 425 840 Total Noninterest Income 2,189 2,970 6,906 7,477 NONINTEREST EXPENSES Salaries and employee benefits 3,290 3,239 9,947 9,417 Occupancy and equipment expense 1,177 2,215 3,200 4,575 Data processing and telecommunications 607 609 1,762 1,835 Other operating expenses 1,525 2,004 4,787 5,313 Total Noninterest Expenses 6,599 8,067 19,696 21,140 INCOME BEFORE INCOME TAXES 2,565 2,321 7,475 6,447 INCOME TAX EXPENSE 579 476 1,645 1,354 NET INCOME $ 1,986 1,845 $ 5,830 $ 5,093 Earnings per share Basic and diluted $ 0.08 0.08 $ 0.24 $ 0.21 Average Weighted Shares of Common Stock Basic and diluted 23,893,224 23,922,086 23,910,287 23,922,086 The accompanying notes are an integral part of these consolidated financial statements. 4 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (IN THOUSANDS) (UNAUDITED) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 NET INCOME $ 1,986 $ 1,845 $ 5,830 $ 5,093 Other comprehensive (loss) income: Investment securities activity Unrealized losses arising during the period ( 3,614 ) ( 45 ) ( 16,369 ) ( 629 ) Reclassification adjustment for net gains included in net income — ( 322 ) — ( 322 ) Other comprehensive loss on investment securities ( 3,614 ) ( 367 ) ( 16,369 ) ( 951 ) Related tax benefit 759 76 3,437 199 TOTAL OTHER COMPREHENSIVE LOSS ( 2,855 ) ( 291 ) ( 12,932 ) ( 752 ) TOTAL COMPREHENSIVE (LOSS) INCOME $ ( 869 ) $ 1,554 $ ( 7,102 ) $ 4,341 The accompanying notes are an integral part of these consolidated financial statements. 5 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (IN THOUSANDS INCLUDING SHARE DATA) (UNAUDITED) Shares of Common Stock Common Stock Additional Paid-in- Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance, December 31, 2020 23,922 $ 47,844 $ 14,570 $ ( 4,979 ) $ 742 $ 58,177 Net income — — — 1,585 — 1,585 Other comprehensive loss, net of tax — — — — ( 415 ) ( 415 ) Balance, March 31, 2021 23,922 $ 47,844 $ 14,570 $ ( 3,394 ) $ 327 $ 59,347 Net income — — — 1,663 — 1,663 Other comprehensive loss, net of tax — — — — ( 46 ) ( 46 ) Balance, June 30, 2021 23,922 $ 47,844 $ 14,570 $ ( 1,731 ) $ 281 $ 60,964 Net income — — — 1,845 — 1,845 Other comprehensive loss, net of tax — — — — ( 291 ) ( 291 ) Balance, September 30, 2021 23,922 $ 47,844 $ 14,570 $ 114 $ ( 10 ) $ 62,518 Balance, December 31, 2021 23,922 $ 47,844 $ 14,570 $ 2,031 $ ( 814 ) $ 63,631 Net income — — — 1,921 — 1,921 Other comprehensive loss, net of tax — — — — ( 5,444 ) ( 5,444 ) Cash dividend declared ($0.05 per share) — — — ( 1,196 ) — ( 1,196 ) Balance, March 31, 2022 23,922 $ 47,844 $ 14,570 $ 2,756 $ ( 6,258 ) $ 58,912 Net income — — — 1,923 — 1,923 Other comprehensive loss, net of tax — — — — ( 4,633 ) ( 4,633 ) Repurchase of common stock ( 16 ) ( 33 ) ( 5 ) — — ( 38 ) Balance, June 30, 2022 23,906 $ 47,811 $ 14,565 $ 4,679 $ ( 10,891 ) $ 56,164 Net income — — — 1,986 — 1,986 Other comprehensive loss, net of tax — — — — ( 2,855 ) ( 2,855 ) Repurchase of common stock ( 28 ) ( 56 ) ( 9 ) — — ( 65 ) Balance, September 30, 2022 23,878 $ 47,755 $ 14,556 $ 6,665 $ ( 13,746 ) $ 55,230 The accompanying notes are an integral part of these consolidated financial statements. 6 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (IN THOUSANDS) (UNAUDITED) 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,830 $ 5,093 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,337 1,609 Provision for loan losses 400 372 Loss (income) on bank owned life insurance 83 ( 25 ) Net gain on sale of securities available-for-sale — ( 322 ) Net gain on sale of mortgage loans ( 27 ) ( 95 ) Loss (gain) on sale or disposal of premises and equipment 195 ( 149 ) Gain on sale of other real estate owned ( 70 ) ( 122 ) Loans originated for sale ( 1,503 ) ( 5,494 ) Proceeds from sales of loans originated for sale 1,530 5,869 Adjustment to carrying value of premises transferred to other real estate owned — 1,067 Adjustment of carrying value of other real estate owned 137 423 Net amortization/accretion of bond premiums/discounts 392 336 Deferred tax expense 540 1,351 Net change in: Accrued interest receivable ( 62 ) 250 Other assets ( 693 ) ( 491 ) Accrued interest payable 83 ( 146 ) Accrued expenses and other liabilities 1,136 212 Net Cash Provided by Operating Activities 9,308 9,738 CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in loans 14,039 41 Purchase of securities available-for-sale ( 19,790 ) ( 77,168 ) Proceeds from sale of investment securities available-for-sale — 7,686 Proceeds from repayments and maturities of securities available-for-sale 11,542 11,695 Net (purchase) redemption of equity securities (restricted) ( 964 ) 555 Payments for the purchase of premises and equipment ( 478 ) ( 2,217 ) Proceeds from sale of premises and equipment — 1,203 Proceeds from insurance claims on other real estate owned or premises 6 54 Proceeds from sales of other real estate owned 207 2,128 Net Cash Provided by (Used) in Investing Activities 4,562 ( 56,023 ) CASH FLOWS FROM FINANCING ACTIVITIES Net change in short term borrowings 25,000 ( 5,000 ) Net change in noninterest bearing deposits 17,795 31,718 Net change in interest bearing deposits ( 1,394 ) 13,759 Dividends paid ( 1,196 ) — Repurchase of common stock ( 103 ) — Net Cash Provided by Financing Activities 40,102 40,477 Net increase (decrease) in cash and cash equivalents 53,972 ( 5,808 ) Cash and Cash Equivalents, Beginning of the Period 60,946 92,350 Cash and Cash Equivalents, End of the Period $ 114,918 $ 86,542 Supplemental Disclosure of Cash Paid During the Period for: Interest $ 1,979 $ 2,275 Taxes $ 325 $ — Supplemental Disclosure of Non-cash Transactions: Other real estate acquired in settlement of foreclosed loans $ — $ 566 Loans made to finance sale of other real estate owned $ 711 $ — Transfer of premises and equipment to other real estate $ — $ 950 Change in unrealized losses on securities available for sale $ ( 16,369 ) $ ( 951 ) The accompanying notes are an integral part of these consolidated financial statements. 7 NEW PEOPLES BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 NATURE OF OPERATIONS Nature of Operations – New Peoples Bankshares, Inc. (New Peoples or the Company) is a financial holding company whose principal activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the Bank). 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. S. 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, 2022 and December 31, 2021, and the results of operations for the three- and nine-month periods ended September 30, 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 31, 2021. 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). 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. 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 are based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Certain 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. NOTE 3 EARNINGS PER SHARE Basic 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. For the three-month and nine-month periods ended September 30, 2022 and 2021, there were no potential common shares. Basic and diluted net income per common share calculations follows: Schedule of basic and diluted net loss per common share calculations (Dollars in Thousands, Except Share and Per Share Data) For the three months ended September 30, For the Nine months ended September 30, 2022 2021 2022 2021 Net income $ 1,986 $ 1,845 $ 5,830 $ 5,093 Weighted average shares outstanding 23,893,224 23,922,086 23,910,287 23,922,086 Weighted average dilutive shares outstanding 23,893,224 23,922,086 23,910,287 23,922,086 Basic and diluted Earnings per share $ 0.08 $ 0.08 $ 0.24 $ 0.21 8 NOTE 4 CAPITAL Capital Requirements and Ratios Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. To qualify as a "Small Bank Holding Company" under federal regulations, a bank must have consolidated assets of $3 billion or less. The primary benefit of being deemed a "Small Bank Holding Company" is the exemption from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (BASEL III rules) became fully phased in on January 1, 2019. Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer required is 2.50 %. At September 30, 2022, the Bank had a capital conservation buffer of 8.35%. Amounts recorded to accumulated other comprehensive income (loss) are not included in computing regulatory capital. Management believes as of September 30, 2022, the Bank met all capital adequacy requirements to which it was subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank’s actual capital amounts and ratios are presented in the following table as of September 30, 2022 and December 31, 2021, respectively. Schedule of capital requirements Actual Minimum Capital Requirement Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions (Dollars are in thousands) Amount Ratio Amount Ratio Amount Ratio September 30, 2022: Total Capital to Risk Weighted Assets 90,849 16.35 % $ 44,465 8.0 % $ 55,582 10.0 % Tier 1 Capital to Risk Weighted Assets 84,256 15.16 % 33,349 6.0 % 44,465 8.0 % Tier 1 Capital to Average Assets 84,256 9.86 % 34,166 4.0 % 42,707 5.0 % Common Equity Tier 1 Capital to Risk Weighted Assets 84,256 15.16 % 25,012 4.5 % 36,128 6.5 % December 31, 2021: Total Capital to Risk Weighted Assets 85,890 16.23 % $ 42,332 8.0 % $ 52,915 10.0 % Tier 1 Capital to Risk Weighted Assets 79,274 14.98 % 31,749 6.0 % 42,332 8.0 % Tier 1 Capital to Average Assets 79,274 9.86 % 32,145 4.0 % 40,181 5.0 % Common Equity Tier 1 Capital to Risk Weighted Assets 79,274 14.98 % 23,812 4.5 % 34,395 6.5 % 9 NOTE 5 INVESTMENT SECURITIES The amortized cost and estimated fair value of available-for-sale (AFS) securities as of September 30, 2022 and December 31, 2021 is as follows: Schedule of securities amortized cost and estimated fair value Gross Gross Approximate Amortized Unrealized Unrealized Fair (Dollars are in thousands) Cost Gains Losses Value September 30, 2022 U.S. Treasuries $ 12,639 $ - $ 993 $ 11,646 U.S. Government Agencies 10,451 4 695 9,760 Taxable municipals 23,338 - 5,560 17,778 Corporate bonds 3,515 - 340 3,175 Mortgage backed securities 66,301 - 9,815 56,486 Total Securities available for sale $ 116,244 $ 4 $ 17,403 $ 98,845 December 31, 2021 U.S. Treasuries $ 7,791 $ 2 $ 122 $ 7,671 U.S. Government Agencies 9,098 77 86 9,089 Taxable municipals 23,075 159 254 22,980 Corporate bonds 2,014 23 18 2,019 Mortgage backed securities 66,410 143 954 65,599 Total Securities available for sale $ 108,388 $ 404 $ 1,434 $ 107,358 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, 2022 and December 31, 2021. Schedule of fair value and gross unrealized losses on investment securities Less than 12 Months 12 Months or More Total (Dollars are in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses September 30, 2022 U.S. Treasuries $ 5,115 $ 283 $ 5,564 $ 710 $ 10,679 $ 993 U.S. Government Agencies 5,450 362 3,120 333 8,570 695 Taxable municipals 7,009 2,131 9,969 3,429 16,978 5,560 Corporate bonds 2,288 228 388 112 2,676 340 Mortgage backed securities 14,463 1,759 39,512 8,056 53,975 9,815 Total Securities available for sale $ 34,325 $ 4,763 $ 58,553 $ 12,640 $ 92,878 $ 17,403 December 31, 2021 U.S. Treasuries $ 6,200 $ 122 $ — $ — $ 6,200 $ 122 U.S. Government Agencies 977 10 3,434 76 4,411 86 Taxable municipals 13,040 237 387 17 13,427 254 Corporate bonds 1,482 18 — — 1,482 18 Mortgage backed securities 52,180 758 6,282 196 58,462 954 Total Securities available for sale $ 73,879 $ 1,145 $ 10,103 $ 289 $ 83,982 $ 1,434 At September 30, 2022, there were 216 securities in a loss position, of which 100 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 $ 28.3 million and $ 12.1 million at September 30, 2022 and December 31, 2021, respectively, were pledged as collateral to secure public deposits and for other purposes required by law. 10 The following table summarizes sales of AFS debt securities for the nine months-ended September 30, Schedule of summarizes sales of AFS debt securities (Dollars are in thousands) 2022 2021 Proceeds $ — $ 7,686 Gains — 322 Losses — — Tax provision (benefit) — 68 The amortized cost and fair value of investment securities at September 30, 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. Schedule of amortized cost and fair value of investment securities contractual maturity Weighted (Dollars are in thousands) Amortized Fair Average Securities Available-for-Sale Cost Value Yield Due in one year or less $ 1,777 $ 1,776 4.30 % Due after one year through five years 16,829 15,805 2.09 % Due after five years through ten years 14,663 12,832 1.98 % Due after ten years 82,975 68,432 1.82 % Total $ 116,244 $ 98,845 1.92 % The Bank, as a member bank of the Federal Reserve Bank of Richmond (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 $ 3.0 million and $ 2.0 million at September 30, 2022 and December 31, 2021, respectively. The stock has no quoted market value and no ready market exists. NOTE 6 LOANS Loans receivable outstanding as of September 30, 2022, and December 31, 2021, are summarized as follows: Schedule of Loans receivable outstanding (Dollars are in thousands) September 30, 2022 December 31, 2021 Real estate secured: Commercial $ 198,101 $ 206,162 Construction and land development 38,598 32,325 Residential 1-4 family 226,706 224,530 Multifamily 29,062 33,048 Farmland 17,467 18,735 Total real estate loans 509,934 514,800 Commercial 45,126 54,325 Agriculture 3,799 4,021 Consumer installment loans 19,602 18,756 All other loans 1,413 1,842 Total loans $ 579,874 $ 593,744 Included in commercial loans at September 30, 2022 and December 31, 2021 were $ 298 thousand and $ 6.4 million of Paycheck Protection Program (PPP) loans, respectively, that are guaranteed by the Small Business Administration (SBA). Also included in total loans above are deferred loan fees of $ 1.7 million and $ 1.8 million at September 30, 2022 and December 31, 2021, respectively. Deferred loan costs were $ 2.1 million and $ 2.0 million, at September 30, 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. 11 Loans receivable on nonaccrual status as of September 30, 2022, and December 31, 2021, are summarized as follows: Summary of loans receivable on nonaccrual status (Dollars are in thousands) September 30, 2022 December 31, 2021 Real estate secured: Commercial $ 273 $ 415 Construction and land development 735 37 Residential 1-4 family 2,636 2,314 Multifamily — 111 Farmland 43 48 Total real estate loans 3,687 2,925 Commercial 15 9 Consumer installment loans and other loans 4 7 Total loans receivable on nonaccrual status $ 3,706 $ 2,941 Total interest income not recognized on nonaccrual loans for the nine months ended September 30, 2022, and September 30, 2021, was $22 thousand and $445 thousand, respectively. The following tables presents information concerning the Company’s investment in loans considered impaired as of September 30, 2022, and December 31, 2021: Schedule of summary of impaired loans As of September 30, 2022 (Dollars are in thousands) Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Real estate secured: Commercial $ 92 $ 133 $ — Construction and land development 6 279 — Residential 1-4 family 1,662 2,008 — Multifamily — — — Farmland 268 437 — Commercial 24 32 — Agriculture — — — Consumer installment loans — — — All other loans — — — With an allowance recorded: Real estate secured: Commercial 291 361 69 Construction and land development 710 710 174 Residential 1-4 family 34 49 26 Multifamily — — — Farmland — — — Commercial — — — Agriculture — — — Consumer installment loans — — — All other loans — — — Total $ 3,087 $ 4,009 $ 269 12 As of December 31, 2021 (Dollars are in thousands) Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Real estate secured: Commercial $ 99 $ 140 $ — Construction and land development 24 298 — Residential 1-4 family 1,508 1,791 — Multifamily — — — Farmland 320 490 — Commercial — — — Agriculture — — — Consumer installment loans 2 2 — All other loans — — — With an allowance recorded: Real estate secured: Commercial 315 372 94 Construction and land development — — — Residential 1-4 family 340 372 53 Multifamily — — — Farmland 197 209 17 Commercial 28 35 2 Agriculture — — — Consumer installment loans — — — All other loans — — — Total $ 2,833 $ 3,709 $ 166 The following tables present information concerning the Company’s average impaired loans and interest recognized on those impaired loans, for the periods indicated: Nine Months Ended September 30, 2022 September 30, 2021 (Dollars are in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Real estate secured: Commercial $ 132 $ 4 $ 281 $ — Construction and land development 25 13 75 9 Residential 1-4 family 1,578 37 1,773 24 Multifamily — — — — Farmland 322 18 467 14 Commercial 12 1 — — Agriculture — — — — Consumer installment loans 1 — 3 — All other loans — — — — With an allowance recorded: Real estate secured: Commercial 442 3 1,010 3 Construction and land development 364 17 — — Residential 1-4 family 243 6 338 6 Multifamily 25 — — — Farmland 79 — 102 4 Commercial 34 1 129 1 Agriculture — — — — Consumer installment loans — — — — All other loans — — — — Total $ 3,257 $ 100 $ 4,178 $ 61 13 Three Months Ended September 30, 2022 September 30, 2021 (Dollars are in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Real estate secured: Commercial $ 94 $ 4 $ 122 $ — Construction and land development 9 9 56 5 Residential 1-4 family 1,553 23 1,764 10 Multifamily — — — — Farmland 275 9 452 5 Commercial 25 1 — — Agriculture — — — — Consumer installment loans — — 3 — All other loans — — — — With an allowance recorded: Real estate secured: Commercial 295 — 519 — Construction and land development 727 17 — — Residential 1-4 family 167 6 357 6 Multifamily 25 — — — Farmland — — 100 4 Commercial — — 29 — Agriculture — — — — Consumer installment loans — — — — All other loans — — — — Total $ 3,170 $ 69 $ 3,402 $ 30 An age analysis of past due loans receivable as of September 30, 2022, and December 31, 2021, is below. At September 30, 2022 and December 31, 2021, no loans over 90 days past due were accruing. Summary age analysis of past due loans receivable As of September 30, 2022 (Dollars are in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Real estate secured: Commercial $ — $ — $ — $ — $ 198,101 $ 198,101 Construction and land development 50 — 710 760 37,838 38,598 Residential 1-4 family 1,879 361 551 2,791 223,915 226,706 Multifamily — — — — 29,062 29,062 Farmland 43 — — 43 17,424 17,467 Total real estate loans 1,972 361 1,261 3,594 506,340 509,934 Commercial 65 — 15 80 45,046 45,126 Agriculture — — — — 3,799 3,799 Consumer installment loans 28 32 4 64 19,538 19,602 All other loans 28 — — 28 1,385 1,413 Total loans $ 2,093 $ 393 $ 1,280 $ 3,766 $ 576,108 $ 579,874 14 As of December 31, 2021 (Dollars are in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Real estate secured: Commercial $ — $ — $ — $ — $ 206,162 $ 206,162 Construction and land development 7 — 7 14 32,311 32,325 Residential 1-4 family 2,473 240 486 3,199 221,331 224,530 Multifamily — — 111 111 32,937 33,048 Farmland — — — — 18,735 18,735 Total real estate loans 2,480 240 604 3,324 511,476 514,800 Commercial 5 — — 5 54,320 54,325 Agriculture — — — — 4,021 4,021 Consumer installment Loans 56 5 — 61 18,695 18,756 All other loans — — — — 1,842 1,842 Total loans $ 2,541 $ 245 $ 604 $ 3,390 $ 590,354 $ 593,744 The 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: Pass - 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. Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. 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. Substandard - 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. Doubtful - Loans classified doubtful have all the weaknesses inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. 15 Based on the most recent analysis performed, the risk categories of loans receivable as of September 30, 2022, and December 31, 2021, was as follows: Summary of risk category of loans receivable As of September 30, 2022 (Dollars are in thousands) Pass Special Mention Substandard Doubtful Total Real estate secured: Commercial $ 193,557 $ 4,271 $ 273 $ — $ 198,101 Construction and land development 37,738 126 734 — 38,598 Residential 1-4 family 223,593 493 2,620 — 226,706 Multifamily 28,852 210 — — 29,062 Farmland 16,538 886 43 — 17,467 Total real estate loans 500,278 5,986 3,670 — 509,934 Commercial 44,208 903 15 — 45,126 Agriculture 3,799 — — — 3,799 Consumer installment loans 19,595 3 4 — 19,602 All other loans 1,413 — — — 1,413 Total $ 569,293 $ 6,892 $ 3,689 $ — $ 579,874 As of December 31, 2021 (Dollars are in thousands) Pass Special Mention Substandard Doubtful Total Real estate secured: Commercial $ 198,022 $ 7,725 $ 415 $ — $ 206,162 Construction and land development 31,366 922 37 — 32,325 Residential 1-4 family 221,342 915 2,273 — 224,530 Multifamily 32,499 438 111 — 33,048 Farmland 18,137 550 48 — 18,735 Total real estate loans 501,366 10,550 2,884 — 514,800 Commercial 53,162 1,154 9 — 54,325 Agriculture 4,021 — — — 4,021 Consumer installment loans 18,746 2 8 — 18,756 All other loans 1,842 — — — 1,842 Total $ 579,137 $ 11,706 $ 2,901 $ — $ 593,744 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 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 September 30, 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. The following table presents activity in the allowance for loan losses for the nine- and three-month periods ended September 30, 2022 and 2021, respectively. Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented as of September 30, 2022, and December 31, 2021, respectively. 16 Schedule of allocation of portion of allowance Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total Nine months ended September 30, 2022 Beginning balance $ 2,134 $ 189 $ 2,237 $ 254 $ 149 $ 1,099 $ 28 $ 108 $ 537 $ 6,735 Charge-offs ( 5 ) ( 149 ) ( 52 ) ( 111 ) ( 2 ) ( 29 ) — ( 454 ) — ( 802 ) Recoveries 33 3 87 2 14 29 — 92 — 260 Provision 42 394 ( 107 ) 97 ( 24 ) ( 429 ) 1 565 ( 139 ) 400 Ending balance $ 2,204 $ 437 $ 2,165 $ 242 $ 137 $ 670 $ 29 $ 311 $ 398 $ 6,593 Three months ended September 30, 2022 Beginning balance $ 2,162 $ 450 $ 2,239 $ 408 $ 141 $ 853 $ 29 $ 170 $ 364 $ 6,816 Charge-offs ( 5 ) ( 149 ) ( 28 ) ( 50 ) ( 2 ) ( 1 ) — ( 409 ) — ( 644 ) Recoveries 33 3 65 2 14 15 — 64 — 196 Provision 14 133 ( 111 ) ( 118 ) ( 16 ) ( 197 ) — 486 34 225 Ending balance $ 2,204 $ 437 $ 2,165 $ 242 $ 137 $ 670 $ 29 $ 311 $ 398 $ 6,593 Allowance for loan losses at September 30, 2022 Individually evaluated for impairment $ 69 $ 174 $ 26 $ — $ — $ — $ — $ — $ — $ 269 Collectively evaluated for impairment 2,135 263 2,139 242 137 670 29 311 398 6,324 $ 2,204 $ 437 $ 2,165 $ 242 $ 137 $ 670 $ 29 $ 311 $ 398 $ 6,593 Loans at September 30, 2022 Individually evaluated for impairment $ 383 $ 716 $ 1,696 $ — $ 268 $ 24 $ — $ — $ — $ 3,087 Collectively evaluated for impairment 197,718 37,882 225,010 29,062 17,199 45,102 3,799 21,015 — 576,787 $ 198,101 $ 38,598 $ 226,706 $ 29,062 $ 17,467 $ 45,126 $ 3,799 $ 21,015 $ — $ 579,874 Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total Allowance for loan losses at December 31, 2021 Individually evaluated for impairment $ 94 $ — $ 53 $ — $ 17 $ 2 $ — $ — $ — $ 166 Collectively evaluated for impairment 2,040 189 2,184 254 132 1,097 28 108 537 6,569 $ 2,134 $ 189 $ 2,237 $ 254 $ 149 $ 1,099 $ 28 $ 108 $ 537 $ 6,735 Loans at December 31, 2021 Individually evaluated for impairment $ 414 $ 24 $ 1,848 $ — $ 517 $ 28 $ — $ 2 $ — $ 2,833 Collectively evaluated for impairment 205,748 32,301 222,682 33,048 18,218 54,297 4,021 20,596 — 590,911 $ 179,381 $ 25,031 $ 222,980 $ 16,569 $ 18,368 $ 86,010 $ 4,450 $ 22,777 $ — $ 593,744 17 Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total Nine months ended September 30, 2021 Beginning balance $ 2,281 $ 233 $ 1,951 $ 151 $ 97 $ 2,275 $ 40 $ 163 $ — $ 7,191 Charge-offs ( 915 ) — ( 48 ) — — ( 92 ) — ( 55 ) — ( 1,110 ) Recoveries 2 6 25 — — 134 1 36 — 204 Provision 700 ( 69 ) 180 6 59 ( 842 ) ( 14 ) ( 42 ) 394 372 Ending balance $ 2,068 $ 170 $ 2,108 $ 157 $ 156 $ 1,475 $ 27 $ 102 $ 394 $ 6,657 Three months ended September 30, 2021 Beginning balance $ 2,151 $ 155 $ 2,046 $ 160 $ 137 $ 1,916 $ 28 $ 103 $ — $ 6,696 Charge-offs — — ( 38 ) — — — — ( 27 ) — ( 65 ) Recoveries — 6 8 — — 3 — 9 — 26 Provision ( 83 ) 9 92 ( 3 ) 19 ( 444 ) ( 1 ) 17 394 — Ending balance $ 2,068 $ 170 $ 2,108 $ 157 $ 156 $ 1,475 $ 27 $ 102 $ 394 $ 6,657 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 $ 2.1 million and $ 2.5 million in loans classified as troubled debt restructurings at September 30, 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 calculation. No loans modified during the three and nine months ended September 30, 2022 or September 30, 2021, were considered to be troubled debt restructurings. One loan totaling $6 thousand, secured by residential real estate, previously modified as a troubled debt restructuring, was in default during the three months ended September 30, 2022. Two loans totaling $73 thousand, previously modified as a troubled debt restructuring, that defaulted during the first nine months of 2022, were in compliance with the terms of the restructuring at September 30, 2022. During the nine months ended September 30, 2021, two loans to the same borrower, previously modified as troubled debt restructurings, totaling $1.1 million defaulted, resulting in charge-offs totaling $835 thousand. Generally, a restructured troubled debt is considered to be in default once it becomes 90 days or more past due following a modification. In 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. NOTE 9 OTHER REAL ESTATE OWNED The following table summarizes the activity in other real estate owned for the Nine months ended September 30, 2022, and the year ended December 31, 2021: Schedule of other real estate owned (Dollars are in thousands) September 30, 2022 December 31, 2021 Balance, beginning of period $ 1,361 $ 3,334 Additions — 566 Transfers from premises and equipment — 950 Proceeds from sales ( 207 ) ( 2,645 ) Proceeds from insurance claims — ( 54 ) Loans made to finance sales ( 711 ) ( 400 ) Adjustment of carrying value ( 137 ) ( 466 ) Net gains from sales 15 76 Balance, end of period $ 321 $ 1,361 18 NOTE 10 FAIR VALUES The 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 Financial Accounting Standards Board (the 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 prices. 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. The 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. In 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 fair value. Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. 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. Level 3: 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. A 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: 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. The Company’s available for sale securities, totaling $ 98.8 million and $ 107.4 million at September 30, 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. Loans - 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 value 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. The Company records impaired loans as nonrecurring Level 3 assets. Other 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 disposition. The Company records foreclosed assets as nonrecurring Level 3. 19 Assets and liabilities measured at fair value are as follows as of September 30, 2022 (for purpose of this table the impaired loans are shown net of the related allowance): Schedule of summary of assets and liabilities measured at fair value September 30, 2022 (Dollars are in thousands) Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) (On a recurring basis) Available for sale investments U.S. Treasuries $ — $ 11,646 $ — U.S. Government Agencies — 9,760 — Taxable municipals — 17,778 — Corporate bonds — 3,175 — Mortgage-backed securities — 56,486 — (On a non-recurring basis) Other real estate owned — — 321 Impaired loans — — 2,818 Total $ — $ 98,845 $ 3,139 Assets 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 (Dollars are in thousands) Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) (On a recurring basis) Available for sale investments U.S. Treasuries $ 7,671 — - U.S. Government Agencies — 9,089 $ — Taxable municipals — 22,980 — Corporate bonds — 2,019 — Mortgage-backed securities — 65,599 — — (On a non-recurring basis) Other real estate owned — — 1,361 Impaired loans — — 2,667 Total $ — $ 107,358 $ 4,028 For Level 3 assets measured at fair value on a recurring or non-recurring basis as of September 30, 2022 and December 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows: Schedule of significant unobservable inputs In level 3 assets (Dollars in thousands) Fair Value at September 30, 2022 Fair Value at December 31, 2021 Valuation Technique Significant Unobservable Inputs General Range of Significant Unobservable Input Values Impaired Loans $ 2,818 $ 2,667 Appraised Value Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 – 18 % Other Real Estate Owned $ 321 $ 1,361 Appraised Value/Comparable Sales/Other Estimates from Independent Sources Discounts to reflect current market conditions and estimated costs to sell 0 – 18 % 20 Fair 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. The 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, 2022, and December 31, 2021, are as follows: Schedule of estimated fair value of financial instruments Fair Value Measurements (Dollars are in thousands) Carrying Amount Fair Value Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) September 30, 2022 Financial Instruments – Assets Net Loans $ 573,281 $ 554,800 $ — $ — $ 554,800 Financial Instruments – Liabilities Time Deposits 179,709 178,702 — 178,702 — Borrowed funds 41,496 40,266 — 40,266 — December 31, 2021 Financial Instruments – Assets Net Loans $ 587,009 $ 580,024 $ — $ — $ 580,024 Financial Instruments – Liabilities Time Deposits 196,285 198,353 — 198,353 — Borrowed funds 16,496 15,649 — 15,649 — 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 and 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, 2022 and December 31, 2021, represent an approximation of exit price; however, an actual exit price may differ. 21 NOTE 11 LEASING ACTIVITIES As of September 30, 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 September 30, 2022 was 9.87 years. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to the lease term for each transaction. This methodology is expected to be used for any other subsequent lease agreements. The weighted average discount rate for the leases at September 30, 2022 was 3.24 %. For the nine months ended September 30, 2022 and 2021, operating lease expenses were $ 342 thousand and $ 421 thousand, respectively. The Company’s other operating leases were evaluated and determined to be immaterial to the financial statements. At September 30, 2022, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars are in thousands): Schedule of future minimum rental commitments under the non-cancellable operating leases 2022 $ 114 2023 455 2024 455 2025 455 2026 455 Thereafter 2,698 Total lease payments 4,632 Less imputed interest 844 Total $ 3,788 NOTE 12 BORROWED FUNDS Included in Borrowed Funds is a short-term FHLB Advance totaling $ 25 million at September 30, 2022. No short-term borrowings were outstanding at December 31, 2021. The outstanding advance at September 30, 2022, of $25 million, has a fixed rate of 2.60%, and matures December 19, 2022. NOTE 13 REVENUE FROM CONTRACTS WITH CUSTOMERS All our revenue from contracts with customers as defined in ASC 606 is recognized within Noninterest income. Refer to Note 23 in our Annual Report on Form 10-K for the year ended December 31, 2021 for a description of how each revenue stream is accounted for under ASC 606. The following table presents Noninterest income by revenue stream for the three and nine months ended September 30, 2022 and 2021: Schedule of revenue from contracts with customers For the three months ended For the nine months ended September 30, September 30, (Dollars in thousands) 2022 2021 2022 2021 Service charges and fees $ 1,069 $ 1,001 $ 2,973 $ 2,674 Card Processing and interchange income 915 982 2,858 2,918 Gain on sale of securities available-for-sale (1) - 322 - 322 Insurance and investment fees 167 222 650 723 Other noninterest income 38 159 425 840 Total Noninterest Income $ 2,189 $ 2,970 $ 6,906 $ 7,477 (1) – Not within the scope of ASU 2014-19 22 NOTE 14 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) 2022 2021 2022 2021 Advertising $ 23 $ 85 $ 115 $ 193 ATM network expense 806 368 1,553 1,113 Legal, accounting and professional fees 258 254 746 842 Consulting fees 98 58 227 206 Loan related expenses 65 198 265 448 Printing and supplies 35 29 107 89 FDIC insurance premiums 56 81 159 218 Other real estate owned expenses, net ( 35 ) 301 110 439 Other operating expenses 219 630 1,505 1,765 Total other operating expenses $ 1,525 $ 2,004 $ 4,787 $ 5,313 NOTE 15 SUBSEQUENT EVENTS 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. There were no subsequent events requiring recognition or disclosure. NOTE 16 RECENT ACCOUNTING DEVELOPMENTS The following is a summary of recent authoritative announcements: In June 2016, per ASU No. 2016-13, ‘Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,’ 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. 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. The new model has been constructed, initial assumptions have been input and historical loan and loss activity has been input and validated. The Company is running the new methodology parallel to the current allowance methodology, and will be assessing the comparative results for the first three quarterly calculations during the fourth quarter of 2022. 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, and to date this amendment has not had a material impact 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. 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. The Company does not expect this amendment to have a material effect on its financial statements. 23 In 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. 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. 24