What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-03-31 · 627 added, 689 removed, 729 unchanged (64% of the section changed)

Financial Statements and Supplementary Data

Statements and Supplementary Data

of Independent Registered Public Accounting Firm

7 unchanged sentences

the Shareholders and the Board of Directors of New Peoples Bankshares, Inc.

on the Financial Statements

have audited the accompanying consolidated balance sheet of New Peoples Bankshares, Inc.

and its subsidiaries (the Company) as of December

31, 2022, the related consolidated statements of income, comprehensive (loss) income, shareholders’ equity and cash flows, for

the year then ended, and the related notes (collectively, the financial statements).

In our opinion, the financial statements present

fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and

its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's

financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight

Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or

fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides

a reasonable basis for our opinion.

Audit Matters

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated

or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

for Loan Losses – Loans Collectively Evaluated for Impairment - Qualitative Factors

of the Matter

described in Note 2 (Summary of significant accounting policies) and Note 7 (Allowance for Loan Losses) to the consolidated financial

statements, the Company maintains an allowance for loan losses that represents management’s estimate of the probable losses inherent

in the Company’s loan portfolio.

The Company’s allowance for loan losses has two basic components:

the general allowance

and the specific allowance.

At December 31, 2022, the general allowance represented $6,641,000 of the total allowance for loan losses

of $6,727,000.

The general allowance is applied to non-impaired loans and uses historical loss experience along with qualitative factors,

including changes in lending policies and procedures, the nature and volume of the portfolio, experience of lending management, levels

and trends in delinquencies, nonaccrual loans, charge-offs and adversely rated loans, the loan review system, portfolio concentrations,

economic conditions, collateral values, and the competitive and legal environment.

The qualitative adjustments to the historical loss

rates are established by applying an additional loss factor to the loan segments identified by management based on their assessment of

shared risk characteristics within similar groups of non-impaired loans.

Qualitative factors are determined based on management’s

continuing evaluation of inputs and assumptions underlying the quality of the loan portfolio and contribute significantly to the allowance

for loan losses.

exercised significant judgment when assessing the qualitative factors in estimating the allowance for loan losses.

We identified the

assessment of the qualitative factors as a critical audit matter as auditing the qualitative factors involved especially complex and

subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.

We Addressed the Matter in Our Audit

primary audit procedures we performed to address this critical audit matter included:

Substantively testing management’s process, including evaluating their judgments and assumptions for developing the qualitative

factors, which included:

the completeness and accuracy of data inputs used as a basis for the qualitative factors.

the reasonableness of management’s judgments related to the determination of qualitative

the qualitative factors for directional consistency and for reasonableness.

the mathematical accuracy of the allowance calculation, including the application of the

qualitative factors.

Yount, Hyde & Barbour, P.C.

have served as the Company’s auditor since 2022.

of Independent Registered Public Accounting Firm

the Shareholders and the Board of Directors of New Peoples Bankshares, Inc.

and Subsidiaries

on the Financial Statements

have audited the accompanying consolidated balance sheets of New Peoples Bankshares, Inc.

have audited the accompanying consolidated balance sheet of New Peoples Bankshares, Inc.

and Subsidiaries (the Company) as of December

31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for

the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,

2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles

generally accepted in the United States of America.

31, 2021, the related consolidated statement of income, comprehensive income, stockholders’ equity and cash flows for the year

then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion,

the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and

the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted

in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

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and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

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is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits

As part of our audit

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

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Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or

fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

Our audit also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

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provide a reasonable basis for our opinion.

Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated

or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

elliottdavis.com

for Loan Losses

described in Note 6 and Note 7 to the Company’s financial statements, the Company’s loan portfolio and associated allowance

for loan losses (the “Allowance”) totaled approximately $593.7 million and $6.7 million, respectively, at December 31, 2021.

As described in Note 1 and Note 7 to the financial statements, the Company’s Allowance is an estimate of probable credit losses

as of the balance sheet date and considers both unimpaired and impaired loans.

Management’s determination of the allowance for

loan losses related to the Company’s loan portfolio segment is generally based on the credit risk ratings and historical loss experience

of individual borrowers, supplemented, as necessary, by credit judgment to address observed changes in trends and conditions, and other

relevant environmental and economic factors such as concentrations of credit risk (geographic, large borrower, and industry), economic

trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level

of net charge-offs (qualitative factor adjustments).

the Company’s Allowance involved a high degree of subjectivity due to the judgment involved in management’s identification

and measurement of qualitative factor adjustments included in the estimate of the Allowance for loan losses.

primary procedures we performed to address this critical audit matter included the following, among others:

evaluated the relevance and the reasonableness of assumptions related to evaluation of the loan portfolio, current economic conditions,

and other risk factors used in development of the qualitative factors for collectively evaluated loans.

evaluated the reasonableness of assumptions and data used by the Company in developing the qualitative factors by comparing these data

points to internally developed and third-party sources, and other audit evidence gathered.

procedures were performed to evaluate changes that occurred in the allowance for loan losses for loans collectively evaluated for impairment.

Elliott Davis, LLC

have served as the Company's auditor since 2011.

served as the Company's auditor from 2011 to 2021.

South Carolina

elliottdavis.com

PEOPLES BANKSHARES, INC.

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thousands except 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

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

Right-of-use assets – operating leases

Noninterest bearing

and due from banks

Interest-bearing

Total Deposits

Borrowed funds

Lease liabilities – operating leases

Accrued interest payable

Accrued expenses and other liabilities

Total Liabilities

Commitments and Contingent Liabilities (Notes 19 and 20)

STOCKHOLDERS’ EQUITY

Common stock - $ 2.00 par value;

deposits with banks

cash and cash equivalents

securities available-for-sale

for loan losses

premises and equipment, net

real estate owned

interest receivable

owned life insurance

assets – operating leases

Interest-bearing

liabilities – operating leases

interest payable

expenses and other liabilities

and Contingent Liabilities (Notes 19 and 20)

SHAREHOLDERS’

stock - $ 2.00 par value;

50,000,000 shares authorized;

23,922,086 shares

issued and outstanding at December 31, 2021 and 2020, respectively

Additional paid-in capital

Retained earnings (deficit)

Accumulated other comprehensive (loss) income

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

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

and 23,922,086 shares issued and outstanding at

31, 2022 and 2021, respectively

paid-in capital

other comprehensive loss

shareholders’ equity

liabilities and shareholders’ equity

accompanying notes are an integral part of these financial statements.

PEOPLES BANKSHARES, INC.

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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

Federal funds sold

Interest-earning deposits with banks

Dividends on equity securities (restricted)

Total Interest and Dividend Income

interest expense

Borrowed funds

Total Interest Expense

NET INTEREST INCOME

PROVISION FOR LOAN LOSSES

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

INTEREST INCOME

FOR LOAN LOSSES

INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

charges and fees

processing and interchange income

and investment fees

on sales of available-for-sale securities

noninterest income

Service charges and fees

Card processing and interchange income

Insurance and investment fees

Net gain on sales of available-for-sale securities

Other noninterest income

Total Noninterest Income

noninterest income

and employee benefits

and equipment expenses

processing and telecommunications

operating expenses

noninterest expenses

Salaries and employee benefits

Occupancy and equipment expenses

Data processing and telecommunications

Other operating expenses

Total Noninterest Expenses

INCOME BEFORE INCOME TAXES

INCOME TAX EXPENSE

Income Per Share

Basic and Diluted

Average Weighted Shares of Common Stock

Basic and Diluted

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

BEFORE INCOME TAXES

Weighted Shares of Common Stock

accompanying notes are an integral part of these financial statements.

PEOPLES BANKSHARES, INC.

STATEMENTS OF COMPREHENSIVE INCOME

STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

THE YEARS ENDED DECEMBER 31, 2022 AND 2021

in thousands)

Other comprehensive income:

Investment securities activity:

Unrealized (losses) gains arising during the year

Reclassification adjustment for net gains included in net income

Other comprehensive (losses) gains on investment securities

Related tax benefit (expense)

TOTAL OTHER COMPREHENSIVE (LOSS) INCOME

TOTAL COMPREHENSIVE INCOME

comprehensive loss:

securities activity:

losses arising during the year

Reclassification

adjustment for net gains included in net income

comprehensive losses on investment securities

OTHER COMPREHENSIVE LOSS

COMPREHENSIVE (LOSS) INCOME

accompanying notes are an integral part of these financial statements.

PEOPLES BANKSHARES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

THE YEARS ENDED DECEMBER 31, 2022 AND 2021

thousands including share data)

Retained Earnings

Other Compre-hensive

Income (Loss)

Stockholders’

December 31, 2019

of Common Stock

Paid-in- Capital

Comprehensive

income, net of tax

Income (Loss)

Shareholders’ Equity

Balance, December

comprehensive loss, net of tax

December 31, 2021

comprehensive

loss, net of tax

comprehensive loss, net of tax

Cash dividend declared

($0.05 per share)

of common stock

December 31, 2022

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are in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by

operating activities:

Provision for loan losses

FLOWS FROM OPERATING ACTIVITIES

to reconcile net income to net cash provided by

for loan losses

(income) on bank owned life insurance

Gain on sale of securities available-for-sale

Gain on sale of mortgage loans

Loss on sale or disposal of premises and equipment

Gain on sale of foreclosed real estate and repossessed assets

Loans originated for sale

Proceeds from sales of loans originated for sale

Adjustment of carrying value of foreclosed real estate and repossessed assets

Net amortization/accretion of bond premiums/discounts

Deferred tax expense

Net change in:

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 sale of investment securities available-for-sale

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

Net sale (purchase) of equity securities (restricted)

Payments for the purchase of premises and equipment

Proceeds from sale of premises and equipment

Proceeds from insurance claims on other real estate owned

Proceeds from sales of other real estate owned

Net Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVIES

Net change in short term borrowings

Net change in noninterest bearing deposits

Net change in interest bearing deposits

Net Cash Provided by Financing Activities

Net (decrease) increase in cash and cash equivalents

Cash and Cash Equivalents, Beginning of the Year

Cash and Cash Equivalents, End of the Year

Supplemental Disclosure of Cash Paid During the Year for:

Supplemental Disclosure of Non-Cash Transactions:

Right-of-use assets obtained in exchange for new operating lease liabilities

Loan made to finance sale of premises and equipment

Other real estate acquired in settlement of foreclosed loans

Loans made to finance sale of foreclosed real estate

Transfer of premises and equipment to other real estate

Change in unrealized gains on securities available for sale

on sale of securities available-for-sale

on sale of mortgage loans

on sale or disposal of premises and equipment

on sale of foreclosed real estate and repossessed assets

originated for sale

from sales of loans originated for sale

of carrying value of foreclosed real estate and repossessed assets

Net amortization/accretion

of bond premiums/discounts

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 (purchase)

sale of equity securities (restricted)

for the purchase of premises and equipment

from sale of premises and equipment

from insurance claims on other real estate owned or premises

from sales of other real estate owned

Cash Provided by (Used in) Investing Activities

FLOWS FROM FINANCING ACTIVIES

in short term borrowings

in noninterest bearing deposits

in interest bearing deposits

of common stock

Cash (Used in) Provided by Financing Activities

(decrease) in cash and cash equivalents

and Cash Equivalents, Beginning of the Year

and Cash Equivalents, End of the Year

Disclosure of Cash Paid During the Year for:

Disclosure of Non-Cash Transactions:

assets obtained in exchange for new operating lease liabilities

made to finance sale of premises and equipment

real estate acquired in settlement of foreclosed loans

made to finance sale of foreclosed real estate

of premises and equipment to other real estate

in unrealized losses on securities available for sale

accompanying notes are an integral part of these financial statements.

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on securities available-for-sale are included in noninterest income and, when applicable, are reported as a reclassification adjustment,

net of tax, in other comprehensive income.

net of tax, in other comprehensive loss.

Unrealized gains and losses on investment securities available for sale are based on the difference

between book value and fair value of each security.

These gains and losses are credited or charged to other comprehensive income, net

of tax, whereas realized gains and losses flow through the statements of income.

These gains and losses are credited or charged to other comprehensive loss, net of

tax, whereas realized gains and losses flow through the statements of income.

held for sale – Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate

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Past due status is determined based on contractual terms.

regard to our consumer and consumer real estate loan portfolio, the Company uses the guidance found in the Uniform Retail Credit

Classification and Account Management Policy which affects our estimate of the allowance for loan losses.

Under this approach, a

consumer or consumer real estate loan must initially have a credit risk grade of Pass or better.

Subsequently, if the loan becomes

contractually 90 days past due or the borrower files for bankruptcy protection, the loan is downgraded to Substandard and placed in

nonaccrual status.

If the loan is unsecured, upon being deemed Substandard, the entire loan amount is charged off.

family residential loans that are 90 days past due or greater, or in bankruptcy, the collateral value less estimated liquidation

costs is compared to the loan balance to calculate any potential deficiency.

If the collateral is sufficient then no charge-off is

If a deficiency exists, then upon the loan becoming contractually 120 days past due, the deficiency is charged-off

against the allowance for loan loss.

In the case of 1-4 family residential or home equity loans, upon the loan becoming 120 days

past due, a current value is obtained and after application of an estimated liquidation discount, a comparison is made to the loan

balance to calculate any deficiency.

Subsequently, any noted deficiency is then charged-off against the allowance for loan loss when

the loan becomes contractually 180 days past due.

If the customer has filed bankruptcy, then within 60 days of the bankruptcy

notice, any calculated deficiency is charged-off against the allowance for

regard to our consumer and consumer real estate loan portfolio, the Company uses the guidance found in the Uniform Retail Credit Classification

and Account Management Policy which affects our estimate of the allowance for loan losses.

Under this approach, a consumer or consumer

real estate loan must initially have a credit risk grade of Pass or better.

Subsequently, if the loan becomes contractually 90 days past

due or the borrower files for bankruptcy protection, the loan is downgraded to Substandard and placed in nonaccrual status.

is unsecured, upon being deemed Substandard, the entire loan amount is charged off.

For non-1-4 family residential loans that are 90

days past due or greater, or in bankruptcy, the collateral value less estimated liquidation costs is compared to the loan balance to

calculate any potential deficiency.

If the collateral is sufficient then no charge-off is necessary.

If a deficiency exists, then upon

the loan becoming contractually 120 days past due, the deficiency is charged-off against the allowance for loan loss.

In the case of

1-4 family residential or home equity loans, upon the loan becoming 120 days past due, a current value is obtained and after application

of an estimated liquidation discount, a comparison is made to the loan balance to calculate any deficiency.

Subsequently, any noted deficiency

is then charged-off against the allowance for loan loss when the loan becomes contractually 180 days past due.

If the customer has filed

bankruptcy, then within 60 days of the bankruptcy notice, any calculated deficiency is charged-off against the allowance for loan loss.

Collection efforts continue by means of repossessions or foreclosures, and upon bank ownership, liquidation ensues.

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Owned Life Insurance (BOLI) – The Bank purchased life insurance policies on certain, now-former, key officers and employees.

BOLI is recorded at the cash surrender value.

Tax-exempt income from changes in the net cash surrender value are recorded in noninterest

Changes in the cash surrender value are recorded in noninterest income.

– A right-of-use asset and related lease liability is recognized for operating leases the Bank has entered into for certain

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assets where it is more likely than not such assets will not be realized.

At December 31, 2021 and 2020, the Company had no valuation

As of December 31, 2022 and 2021, the Company had no valuation

allowance on its net deferred tax assets.

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Comprehensive

Income – GAAP require that recognized revenue, expenses, gains and losses be included in net income.

Although certain changes

in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component

of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

The change in

unrealized gains and losses on available-for-sale securities is the Company’s only component of other comprehensive income.

(Loss) Income – GAAP require that recognized revenue, expenses, gains and losses be included in net income.

Although certain

changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component

of the equity section of the balance sheet, such items, along with net income, are components of comprehensive (loss) income.

in unrealized gains and losses on available-for-sale securities is the Company’s only component of other comprehensive loss.

from Contracts with Customers - The Company generally satisfies its performance obligations fully on its contracts with customers

3 unchanged sentences

Those costs, which are included in Advertising, sponsorships

and donations in Note 24 totaled $252 thousand and $216 thousand, for the years ended December 31, 2021 and 2020, respectively.

and donations in Note 24 totaled $ 162,000 and $ 252,000 , for the years ended December 31, 2022 and 2021, respectively.

Reclassification

1 unchanged sentence

with the current year.

Net income and stockholders’ equity previously reported were not affected by these reclassifications.

Net income and shareholders’ equity previously reported were not affected by these reclassifications.

Events – The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated

9 unchanged sentences

Schedule of basic and diluted net loss per common share calculations

(Amounts in thousands, except

For the year ended

share and per share data)

Weighted average shares outstanding

Weighted average dilutive shares outstanding

Basic and diluted income per share

in thousands, except

the year ended

and per share data)

average shares outstanding

average dilutive shares outstanding

and diluted income per share

4 DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS

Bank had federal funds sold and interest-bearing cash on deposit with other commercial banks amounting to $ 46.0 million and $ 76.3 million

at December 31, 2021 and 2020, respectively.

Deposit amounts at other commercial banks may, at times, exceed federally insured limits.

Bank had federal funds sold and interest-bearing cash on deposit with the Federal Reserve Bank of Richmond (the Federal Reserve Bank)

and other commercial banks amounting to $ 47.7 million and $ 46.0 million as of December 31, 2022 and 2021, respectively.

Deposit amounts

at other commercial banks may, at times, exceed federally insured limits.

March 26, 2020, the Board of Governors of the Federal Reserve System set reserve requirements to zero.

Therefore, the Bank is no longer

required to maintain minimum reserve balances with the Federal Reserve Bank of Richmond (the Federal Reserve Bank).

Prior to March 26,

2020, the minimum required reserve balance was computed by applying prescribed percentages to various types of deposits, either at the

Bank or on deposit with the Federal Reserve Bank.

Bank has a total of $ 30.0 million and $ 20 million in unsecured fed funds lines of credit facilities from three correspondent banks

that were available at December 31, 2021 and 2020.

required to maintain minimum reserve balances with the Federal Reserve Bank.

Bank has a total of $ 30.0 million in unsecured fed funds lines of credit facilities from three correspondent banks that were available

at December 31, 2022 and 2021, respectively.

Of these total commitments, all were available at December 31, 2022 and 2021.

2020, respectively.

As a condition for $5.0 million of one of the unsecured fed funds line of credit, the Bank maintains a minimum deposit

balance of $250 thousand with this correspondent bank.

At December 31, 2021 and 2020, the Bank was in compliance with this

As a condition

for $5.0 million of one of the unsecured fed funds line of credit, the Bank maintains a minimum deposit balance of $250,000 with this

correspondent bank.

As of December 31, 2022 and 2021, the Bank was in compliance with this requirement.

5 INVESTMENT SECURITIES

1 unchanged sentence

Schedule of securities amortized cost and estimated fair value

(Dollars are in thousands)

December 31, 2021

are in thousands)

Government Agencies

Taxable municipals

Corporate bonds

Mortgage backed securities

Total Securities available for sale

December 31, 2020

backed securities

Securities available for sale

Government Agencies

Taxable municipals

Corporate bonds

Mortgage backed securities

Total Securities available for sale

backed securities

Securities available for sale

following table details unrealized losses and related fair values in the available-for-sale portfolio.

2 unchanged sentences

Schedule of fair value and gross unrealized losses on investment securities

Less than 12 Months

than 12 Months

Months or More

(Dollars are in thousands)

December 31, 2021

are in thousands)

Government Agencies

Taxable municipals

Corporate bonds

backed securities

Total Securities AFS

December 31, 2020

Government Agencies

Taxable municipals

Corporate bonds

backed securities

Total Securities AFS

December 31, 2021, the available-for-sale portfolio included 113 investments for which the fair market value was less than amortized

At December 31, 2020, the available-for-sale portfolio included 42 investments for which the fair market value was less than amortized

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic

or market concerns warrant such evaluation.

Consideration is given to (1) the length of time and the extent to which the fair value has

been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability of the Company

to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

the Company’s analysis, the Company concluded that no securities had other-than-temporary impairment at December 31, 2021 or December

securities with a carrying value of $ 12.1 million and $ 6.8 million at December 31, 2021 and 2020, respectively, were pledged to secure

public deposits and for other purposes required by law.

the year ended December 31, 2021, $ 7.7 million of securities were sold, realizing $ 322 thousand in gains.

During the year ended December

31, 2020, $ 1.0 million of securities were sold, realizing $ 4 thousand in gains.

amortized cost and fair value of investment securities at December 31, 2021, by contractual maturity, are shown in the following schedule.

of December 31, 2022, the available-for-sale portfolio included 221 investments for which the fair market value was less than amortized

As of December 31, 2021, the available-for-sale portfolio included 113 investments for which the fair market value was less than

amortized cost.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently

when economic or market concerns warrant such evaluation.

Consideration is given to (1) the length of time and the extent to which the

fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability

of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Based on the Company’s analysis, the Company concluded that no securities had other-than-temporary impairment at December 31, 2022

or December 31, 2021.

securities with a carrying value of $ 27.3 million and $ 12.1 million as of December 31, 2022 and 2021, respectively, were pledged to secure

public deposits and for other purposes required or permitted by law.

were no securities sold during the year ended December 31, 2022.

During the year ended December 31, 2021, $7.7 million of securities

were sold, realizing $322,000 in gains.

amortized cost and fair value of investment securities as of December 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

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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

December 31, 2021 and 2020, respectively.

assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $ 2.1 million and $ 2.0 million as

of December 31, 2022 and 2021, respectively.

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

receivable outstanding at December 31, 2021 and 2020, are summarized as follows:

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

Summary of loans receivable outstanding

(Dollars are in thousands)

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 December 31, 2021 and 2020, were $6.4 million and $34.8 million of PPP loans that are guaranteed by the SBA.

included in total loans above are deferred loan fees of $1.8 million and $2.3 million, at December 31, 2021 and 2020, respectively, which

include deferred PPP loan fees.

Deferred loan costs were $2.0 million and $1.8 million, at December 31, 2021 and 2020, respectively.

Income from net deferred fees and costs is recognized as income over the lives of the respective loans as a yield adjustment.

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

a result of PPP originations during 2021 and 2020, net deferred fees totaling $1.6 million and $1.6 million were received, respectively,

and $2.0 million and $994 thousand was recognized through earnings, respectively.

receivable on nonaccrual status at December 31, 2021 and 2020 are summarized as follows:

are in thousands)

estate secured:

and land development

real estate loans

installment loans

in commercial loans as of December 31, 2022 and 2021, were approximately $ 273,000 and $ 6.4 million of PPP loans that are guaranteed by

included in total loans above are deferred loan fees of $ 1.6 million and $ 1.8 million, as of December 31, 2022 and 2021, respectively,

which include net deferred PPP loan fees.

Total deferred loan costs were $ 1.9 million and $ 2.0 million, as of December 31, 2022 and 2021,

respectively.

Income or expense from net deferred fees and costs is recognized as income or expense 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.

a result of PPP originations, net deferred fees totaling $3.2 million were received.

The Company recognized approximately $211,000 and

$2.0 million, respectively, during the years ended December 31, 2022 and 2021.

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

Summary of loans receivable on nonaccrual status

(Dollars are in thousands)

Real estate secured:

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment and other loans

Total loans receivable on nonaccrual status

interest income not recognized on nonaccrual loans for 2021 and 2020 was $223 thousand and $494 thousand, respectively.

accounts received pandemic related forbearance in 2021.

During the year ended December 31, 2020, under 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.

At December 31, 2021, 543 accounts totaling $82.4 million remain, of which 538 accounts totaling $82.3

million are current or less than 90 days past due.

All of these accounts are subject to a normal repayment schedule.

No accounts at December

31, 2021 were subject to pandemic related forbearance.

At December 31, 2020, 673 loans totaling $110.7 million had completed their forbearance

period and resumed a normal payment schedule, and 15 loans totaling $836 thousand remained in forbearance.

At December 31, 2020, the

remaining 98 accounts had been repaid in full or refinanced at market terms and conditions.

the accounts that received some form of forbearance during 2020, at December 31, 2021, $15.2 million were to lessors of residential properties,

$12.8 to lessors of nonresidential properties and $6.7 million to hotels and restaurants;

while at December 31, 2020, $21.4 million were

to lessors of residential properties, $16.0 million to lessors of non-residential properties, $12.4 million to hotels and restaurants,

and $6.0 million to coal and gas mining operations.

are in thousands)

estate secured:

and land development

real estate loans

installment and other loans

loans receivable on nonaccrual status

interest income not recognized on nonaccrual loans for 2022 and 2021 was approximately $10,000 and $223,000, respectively.

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

1 unchanged sentence

Summary of impaired 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

As of December 31, 2020

(Dollars are in thousands)

of December 31, 2022

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

no related allowance recorded:

estate secured:

and land development

installment loans

an allowance recorded:

estate secured:

and land development

installment loans

of December 31, 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

age analysis of past due loans receivable is below.

At December 31, 2021 and 2020, there were no loans over 90 days past due that were

As of December 31, 2022 and 2021, there were no loans over 90 days past due that

were accruing.

Summary of age analysis of past due loans receivable

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

As of December 31, 2020

(Dollars are in thousands)

Real estate secured:

Construction and land

Residential 1-4 family

Total real estate loans

Consumer installment

All other loans

of December 31, 2022

are in thousands)

estate secured:

real estate loans

of December 31, 2021

are in thousands)

estate secured:

real estate loans

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

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Summary of risk category of loans receivable

As of December 31, 2021

(Dollars are in thousands)

Real estate secured:

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment loans

All other loans

As of December 31, 2020

(Dollars are in thousands)

Real estate secured:

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment loans

All other loans

of December 31, 2022

are in thousands)

estate secured:

and land development

real estate loans

installment loans

of December 31, 2021

are in thousands)

estate secured:

and land development

real estate loans

installment loans

7 ALLOWANCE FOR LOAN LOSSES

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

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

Additionally, due to uncertainties

presented by the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors were revised accordingly.

For 2021, external qualitative factors were adjusted to consider the impact of inflation.

not included in the portfolio segment or impairment calculations.

Additionally, due to uncertainties presented by the lingering impact

of the pandemic and the resulting economic uncertainty, internal and external qualitative factors were revised accordingly.

2021, external qualitative factors were adjusted to consider the impact of inflation.

8 TROUBLED DEBT RESTRUCTURINGS

December 31, 2021, loans classified as troubled debt restructurings totaled $2.5 million compared to $4.0 million at December 31, 2020.

of December 31, 2022, loans classified as troubled debt restructurings (TDRs) totaled $ 2.0 million compared to $ 2.5 million as of December

The following table presents information related to loans modified as troubled debt restructurings during the years ended December

1 unchanged sentence

Schedule of loans modified as troubled debt restructurings

December 31, 2021

December 31, 2020

(Dollars are in thousands)

Recorded Investment

Real estate secured:

Construction and land

Residential 1-4 family

Total real estate loans

Consumer installment loans

All other loans

the year ended December 31, 2021, one loan was modified for which the modification was considered to be a troubled dept restructuring.

December 31, 2021, two loans totaling $56.0 thousand are considered to be in default.

Generally, a TDR is considered to be in default

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

discussed in Note 6, during the year ended December 31, 2020 modifications were granted on 786 loans with a gross aggregate balance of

$119.6 million, under the provisions of the CARES Act.

The characteristics of these modifications are considered short-term and did not

result in a reclassification of the loans as troubled debt restructurings, as the accounts met the requirements stated in the CARES Act

and had not been subject to prior modification.

the year ended December 31, 2020, the Company modified the terms of 32 loans for which the modification was considered to be a troubled

debt restructuring.

The interest rate was not modified on these loans;

however, the payment terms or maturity date were changed.

are in thousands)

estate secured:

real estate loans

installment loans

were no loans modified that resulted in a troubled debt restructuring during the year ended December 31, 2022.

During the year ended

December 31, 2021, one loan was modified for which the modification was considered to be a troubled debt restructuring.

the year ended December 31, 2022 there were no TDRs that subsequently defaulted within twelve months of the loan modification.

year ended December 31, 2021, there were two TDRs with a modified balance of $56,000 that subsequently defaulted within twelve months

of the loan modification.

Generally, a TDR is considered to be in default once it becomes 90 days or more past due following a modification.

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

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expense for 2022 and 2021 was $1.7 million and $2.1 million, respectively.

Bank premises and equipment at December 31, 2021 and 2020

Bank premises and equipment as of December 31, 2022 and 2021

are summarized as follows:

Schedule of bank premises and equipment

(Dollars are in thousands)

Buildings and improvements

Furniture and equipment

Construction in progress

Less accumulated depreciation

Bank Premises and Equipment

the year ended December 31, 2021, the Bank sold four former branch locations, with net book values of approximately $1.1 million, resulting

in approximately $173 thousand of net gains on sales.

during 2021, the Bank transferred three other former branch locations, with net book values totaling approximately $2.0 million, to other

real estate owned, resulting in an increase to OREO of $950 thousand, and disposal and valuation costs of approximately $1.1 million.

Subsequently, in December 2021, these OREO properties were written down to $912 thousand.

Equipment with a combined net book value of

$188 thousand were written off in 2021.

new branch office, in Bristol, Virginia, was opened in 2021, resulting in an increase of $2.7 million in premises and equipment.

2020, the Bank opened a new branch office in Kingsport, Tennessee, and a loan production office in Boone, North Carolina.

are in thousands)

and improvements

and equipment

accumulated depreciation

Premises and Equipment

presented in Note 14 Other Real Estate Owned, the bank sold three former branch locations during 2022.

These properties with a combined

carrying value of $2.0 million, were transferred to other real estate owned during 2021, resulting in an increase to OREO of $950,000,

and disposal and valuation costs of approximately $1.1 million.

Equipment with a combined net book value of $188,000 was written off

the year ended December 31, 2021, the Bank sold four other former branch locations, with net book values of approximately $1.1 million,

resulting in approximately $173 thousand of net gains on sales.

2021, we opened one new branch office, in Bristol, Virginia, resulting in a net increase of $1.7 million in premises and equipment.

presented in Note 17 Leasing Activities, during 2021, the Bank repurchased the branch office located in Lebanon, Virginia, which had

4 unchanged sentences

tax components for the years ended December 31, 2022 and 2021.

source of pre-tax book income is summarized as follows for the years ended December 31, 2021 and 2020:

Schedule of pre-tax book income

(Dollars are in thousands)

Pre-tax book income

Total pre-tax book income

tax expense is summarized as follows for the years ended December 31, 2022 and 2021:

Schedule of components of income tax expense

(Dollars are in thousands)

Schedule of pre-tax book income

are in thousands)

income tax expense (benefit)

current income tax expense (benefit)

Total current income tax expense (benefit)

Deferred income tax expense

Total deferred income tax expense

Income tax expense

deferred income tax expense

following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory

1 unchanged sentence

Schedule of reconciliation of income tax expense

(Dollars are in thousands)

Income tax expense (benefit) at the applicable federal rate

Permanent differences resulting from:

Nondeductible expenses

Tax exempt interest income

Bank owned life insurance

Other adjustments

Income tax expense

are in thousands)

tax expense (benefit) at the applicable federal rate

differences resulting from:

Nondeductible

exempt interest income

owned life insurance

net deferred tax assets and liabilities resulting from temporary differences as of December 31, 2022 and 2021, are summarized as follows:

Schedule of net deferred tax assets and liabilities

(Dollars are in thousands)

Deferred Tax Assets

Allowance for loan losses

Deferred compensation

Nonaccrual loan interest

Unrealized loss on securities available for sale

Other real estate owned

Amortization of core deposits

Amortization of goodwill

Capitalized interest and repair expense

Net operating loss carryforward

Total Assets, gross

Valuation allowance

Total Assets, net

Deferred Tax Liabilities

Accelerated depreciation

Unrealized gain on securities available for sale

Prepaid expenses

Deferred loan costs

Total Liabilities, gross

Net Deferred Tax Asset

are in thousands)

for loan losses

loan interest

loss on securities available for sale

real estate owned

of core deposits

interest and repair expense

operating loss carryforward

assets, gross

tax liabilities

liabilities, gross

deferred tax asset

accordance with applicable accounting guidance, the Company determined that it was not required to establish a valuation allowance for

3 unchanged sentences

consolidated financial statements separately.

December 31, 2021 and 2020, the Company had no unrecognized tax benefits.

of December 31, 2022 and 2021, the Company had no unrecognized tax benefits.

The Company does not expect the total amount of unrecognized

8 unchanged sentences

aggregate amount of time deposits that meet or exceed the Federal Deposit Insurance Corporation (FDIC) Insurance limit of $250,000 was

$28.6 million and $34.8 million at December 31, 2021 and 2020, respectively.

$26.8 million and $28.6 million as of December 31, 2022 and 2021, respectively.

We had no brokered time deposits at either December 31,

2022 or 2021.

At December 31, 2021, the scheduled maturities of time deposits are as follows (dollars

are in thousands):

As of December 31, 2022, the scheduled maturities of time deposits are as follows

(dollars are in thousands):

Schedule of maturities

6 unchanged sentences

For the year ended December 31,

(Dollars in thousands)

Beginning balance

New loans and advances on lines

Payments and other reductions

Ending balance

in thousands)

and advances on lines

and other reductions

related party deposits held at the Bank were $29.0 million and $24.8 million as of December 31, 2022 and 2021, respectively.

4 unchanged sentences

the fair value of the property.

A gain of $17 thousand was recorded from this transaction.

A gain of approximately $17,000 was recorded from this transaction.

13 RETIREMENT PLANS

2 unchanged sentences

up to a maximum of 3% of their salary.

The Company contributed $246 thousand and $258 thousand to the defined contribution plan for 2021

and 2020, respectively.

The Company contributed approximately $235,000 and $246,000 to the defined contribution plan during

the years ended December 31, 2022 and 2021, respectively.

Bank maintains a salary continuation plan for key executives which was established in 2002 and is funded by single premium life insurance

Expenses related to the plan were $29 thousand and $17 thousand for the years ended December 31, 2021 and 2020, respectively.

Expenses related to the plan were approximately $27,000 and $29,000 for the years ended December 31, 2022 and 2021, respectively.

14 OTHER REAL ESTATE OWNED

1 unchanged sentence

Schedule of other real estate owned

(Dollars are in thousands)

Balance, beginning of year

Transfers from premises and equipment

Proceeds from sales

Proceeds from insurance claims

Loans made to finance sales

Adjustment of carrying value

Gains (losses) from sales

Balance, end of year

are in thousands)

beginning of year

from premises and equipment

from insurance claims

made to finance sales

of carrying value

(losses) from sales

2022, three former branch offices that were transferred from premises to other real estate owned during 2021, were sold, resulting in

valuation adjustments of $137,000 and net losses totaling $5,000, respectively.

15 BANK OWNED LIFE INSURANCE

December 31, 2021 and 2020, the Bank had an aggregate total cash surrender value of $4.7 million and $4.7 million, respectively, on life

insurance policies covering former key officers.

income for the policies during 2021 and 2020 was $32 thousand and $77 thousand, respectively.

of December 31, 2022 and 2021, the Bank had an aggregate total cash surrender value of $4.5 million and $4.7 million, respectively, on

life insurance policies covering former key officers.

Company recorded a net write-down of approximately $136,000 during the year ended December 31, 2022.

The Company recognized income of

approximately $32,000 during the year ended December 31, 2021.

16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK

12 unchanged sentences

17 LEASING ACTIVITIES

2021, the Bank repurchased its branch office located in Lebanon, Virginia, for $1.3 million.

This branch had previously been sold and

leased back in September 2019.

As a result of the repurchase, the lease with a remaining term of 12.9 years was cancelled.

December 31, 2021, the Bank leases four branch offices and sublets a lot adjacent to another branch office.

of December 31, 2022, the Bank leases four branch offices and sublets a lot adjacent to another branch office.

The lease agreements have

2 unchanged sentences

be terminated prior to expiration.

The weighted average remaining life of the lease terms at December 31, 2021, was 10.61 years.

The weighted average remaining life of the lease terms as of December 31, 2022, was 9.60 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 December 31, 2021 was 3.24%.

average discount rate for the leases as of December 31, 2022 was 3.28 % .

Company’s operating lease costs for the years ended December 31, 2022 and 2021, as a result of the transactions discussed above,

was $528 thousand and $552 thousand, respectively.

was $ 456,000 and $ 528,000 , respectively.

2021, the Bank repurchased its branch office located in Lebanon, Virginia, for $1.3 million.

This branch had previously been sold and

leased back in September 2019.

As a result of the repurchase, the lease with a remaining term of 12.9 years was cancelled.

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

December 31, 2021, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars

of December 31, 2022, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars

are in thousands):

29 unchanged sentences

on our FHLB line of credit.

- Federal funds lines consist of $30.0 million and $20.0 million in unsecured federal funds line of credit facilities with correspondent

banks as of December 31, 2021 and 2020, respectively exclusive of any outstanding balance.

- At December 31, 2020, short term FHLB advances consisted of one $5.0 million advance with a fixed rate of 1.34% which matured and was

paid off on June 30, 2021.

- At December 31, 2021 and 2020, there were no long term FHLB advances.

- Federal funds lines consist of $30.0 million in unsecured federal funds line of credit facilities with correspondent banks as of December

31, 2022 and 2021, respectively exclusive of any outstanding balance.

The Company did not borrow from the lines other than to test the

ability to access the lines.

– As of December 31, 2022, there are no short term FHLB advances outstanding.

– As of December 31, 2022 and 2021, there were no long term FHLB advances.

TPS I - On July 7, 2004, the Company completed the issuance of $11.3 million in floating rate trust preferred securities offered by its

8 unchanged sentences

penalty, at the option of the Company after five years from the issuance date, and on a quarterly basis thereafter.

are maturities of borrowed funds at December 31, 2021 (dollars in thousands):

are maturities of borrowed funds as of December 31, 2022 (dollars in thousands):

Schedule of maturities of borrowed funds

8 unchanged sentences

making such commitments as it does for instruments that are included in the balance sheet.

instruments whose contract amount represents credit risk at December 31, 2021 and 2020 were as follows:

instruments whose contract amount represents credit risk as of December 31, 2022 and 2021 were as follows:

Schedule of financial instruments with credit risk

(Dollars in thousands)

Commitments to extend credit

Standby letters of credit

in thousands)

to extend credit

letters of credit

to extend credit are agreements to lend to a customer at either a fixed or variable interest rate as long as there is no violation of

19 unchanged sentences

condition or liquidity of the Company.

Bank is a defendant in a complaint filed by a former employee in the United States District Court for the Western District of Virginia

on January 1, 2021.

The complaint alleges wrongful termination based on gender, religion and age.

The Bank denies the allegations and

intends to vigorously defend against these claims.

The complaint does not specify the dollar amount of damage sought.

The Bank has responded

with a vigorous defense as to all claims and assertions.

The amount of any possible loss cannot be estimated at this time.

Requirements and Ratios

47 unchanged sentences

As of both December 31, 2022 and 2021, the Common Equity Tier 1 Capital to Risk-weighted Assets

ratio, the Tier 1 Capital to Risk-weighted Assets ratio, the Total Capital to Risk-weighted Assets ratio, and the Tier 1 Capital to Average

Assets ratio of the Bank, all exceeded the minimum requirements.

ratio, the Tier 1 Capital to Risk-weighted Assets ratio, the Total Capital

to Risk-weighted Assets ratio, and the Tier 1 Capital to Average Assets ratio of the Bank, all exceeded the minimum requirements.

22 FAIR VALUES

15 unchanged sentences

The Company’s available for sale securities, totaling $ 96.1 million and $ 107.4 million

at December 31, 2021 and 2020, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs

from an independent pricing service.

as of December 31, 2022 and 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.

9 unchanged sentences

The aggregate amount of impaired loans carried at

fair value was $2.8 million and $4.0 million at December 31, 2021 and 2020, respectively.

fair value was $213,000 and $714,000 as of December 31, 2022 and 2021, respectively.

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

9 unchanged sentences

The aggregate carrying amounts of

foreclosed assets were $1.4 million and $3.3 million at December 31, 2021 and 2020, respectively.

foreclosed assets were approximately $261,000 and $1.4 million as of December 31, 2022 and 2021, respectively.

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

36 unchanged sentences

Range of Significant Unobservable Input Values

Value/Discounted Cash Flows/Market Value of Note

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

39 unchanged sentences

Schedule of revenue from contracts with customers

(Dollars are in thousands)

Service charges and fees

Card processing and interchange income

Insurance and investment fees

Gains on sales of available-for-sale securities (1)

Other noninterest income

Total Noninterest Income

are in thousands)

charges and fees

processing and interchange income

and investment fees

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

noninterest income

– Not within the scope of ASU 2014-9

9 unchanged sentences

Debit and credit card income is earned when customers’ debit or credit cards are processed through a card payment network.

related interchange income is recognized at the time the customer transactions settle.

interchange income is recognized at the time the customer transactions settle.

and investment fees - Insurance and investment fee income consists of commissions received on annuity and investment product sales

5 unchanged sentences

Schedule of noninterest expenses

(Dollars are in thousands)

Advertising, sponsorships and donations

ATM network expense

Legal and professional fees

Consulting fees

Loan related expenses

Printing and supplies

FDIC insurance premiums

Other real estate owned expenses, net

Other operating expenses

are in thousands)

sponsorships and donations

network expense

and professional fees

related expenses

insurance premiums

real estate owned expenses, net

operating expenses

25 SUBSEQUENT EVENTS

9 unchanged sentences

as of March 15, 2023.

this time, we cannot state how the continuing economic uncertainty related to the pandemic and current geopolitical conditions will affect

the financial position, operations or liquidity of the Company.

February 27, 2023, the board of directors authorized the continuation of the Company’s repurchase of up to 500,000 shares of its

common stock through March 31, 2024.

This is a continuation of the repurchase program originally announced April 28, 2022, which was

set to expire March 31, 2023.

To the date of this announced continuation, 82,352 shares have been repurchased at an average price of

$2.32 per share, leaving 417,648 shares available for repurchase.

Repurchases made through this program will be made through open market

purchases or in privately negotiated transactions.

February 27, 2023 the board of directors approved and adopted the New Peoples Bankshares, Inc.

Long-Term Cash Incentive Plan (the Plan).

The Plan, which became effective on February 27, 2023, provides for cash incentive awards to Plan participants based on the Company’s

quarterly earnings per share of common stock over the period specified in the Plan.

Certain members of management or highly compensated

employees of the Company or the Bank are eligible to participate in the Plan.

On February 28, 2023, the executive committee of the board

of directors awarded a combined 500,000 notional shares to five members of management.

Individual awards are settled solely in cash,

determined by multiplying quarterly earnings per share by the number of notional shares covered by a Plan award.

The Plan does not grant

participants equity in the Company and does not create any shareholders rights.

26 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.

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.

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

Subsequently, per ASU No.

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

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

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.

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.

The 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 statements.

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.

June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, “Financial Instruments

– Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity

to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions,

and reasonable and supportable forecasts.

Among other things, the ASU also amended the impairment model for available for sale securities

and addressed purchased financial assets with deterioration.

The Company adopted ASU 2016-13 as of January 1, 2023 in accordance with

the required implementation date and recorded the impact of adoption to retained earnings, net of deferred income taxes, as required

by the standard.

The adjustment recorded at adoption, was not significant to the overall allowance for credit losses or shareholders’

equity as compared to December 31, 2022 and consisted of adjustments to the allowance for credit losses on loans, as well as an adjustment

to the Company’s reserve for unfunded loan commitments.

Subsequent to adoption, the Company will record adjustments to its allowance(s)

for credit losses and reserves for unfunded commitments through the provision for credit losses in the consolidated statements of income.

Company is utilizing a third-party model to tabulate its estimate of current expected credit losses, using a loan-level probability of

default / loss given default cash flow method with an exposure at default model methodology.

In accordance with ASC 326, the Company

has segmented its loan portfolio based on similar risk characteristics which included call report classification and risk rating.

Company primarily utilizes the cohort and the probability of default/loss given default methodologies for its reasonable and supportable

forecasting of current expected credit losses.

To further adjust the allowance for credit losses for expected losses not already included

within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors:

lending policies and procedures, national and local economic conditions, the experience and ability of management and staff;

volume and severity of past due, rated and nonaccrual assets, loan review system, collateral value, concentrations of credit, and legal

or regulatory requirements and competition.

The Company’s CECL implementation process was overseen by the Audit and Risk Committee

of the board of directors, and managed by credit, finance and risk management personnel, to include an assessment of data availability

and gap analysis, data collection, consideration and analysis of multiple loss estimation methodologies, an assessment of relevant qualitative

factors and correlation analysis of multiple potential loss drivers and their impact on the Company’s historical loss experience.

During 2022, the Company calculated its current expected credit losses model in parallel to its incurred loss model in order to further

refine the methodology and model.

In addition, the Company engaged a third-party to perform a comprehensive model validation.

November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119.

SAB 119 updated portions of SEC interpretative guidance to align

with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected

credit losses;

(2) development, governance, and documentation of a systematic methodology;

(3) documenting the results of a systematic

and (4) validating a systematic methodology.

March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-04 “Reference Rate

Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary

optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions

for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain

criteria, that reference LIBOR or another reference rate expected to be discontinued.

It is intended to help stakeholders during the

global market-wide reference rate transition period.

The guidance is effective for all entities as of March 12, 2020 through December

Subsequently, in January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2021-01 “Reference Rate Reform (Topic 848):

Scope.” This ASU 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.

also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor

the existing guidance to derivative instruments affected by the discounting transition.

An entity may elect to apply ASU No.

on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively

as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any

date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available

to be issued.

An entity may elect to apply ASU No.

2021-01 to eligible hedging relationships existing as of the beginning of the interim

period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period

that includes March 12, 2020.The Company has adopted an alternative reference rate for loans based on LIBOR and is assessing alternatives

for financial instruments referencing LIBOR that do not allow for the substitution of an alternative reference rate.

The Company is assessing

ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments that have not

already been transitioned to an alternative reference rate.

June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject

to Contractual Sale Restrictions”.

ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not

considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The ASU is effective

for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted.

The Company does not expect these amendments

to have a material effect on its financial statements.

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 implementation of these

amendments did not have a material effect on its financial statements.

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.

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 implementation of these amendments did not have a material effect 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

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

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.

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

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 ,

33-10835, 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.

The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

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.

December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848”.

ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848.

The objective of

the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within

Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published.

In 2021, the UK Financial

Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.

ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers

the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply

the relief in Topic 848.

The ASU is effective for all entities upon issuance.

The Company is assessing ASU 2022-06 and its impact on

the Company’s transition away from LIBOR for its loan and other financial instruments that have not already been transitioned to

an alternative reference rate.

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

6 unchanged sentences

Schedule of parent corporation only condensed balance sheets

Due from banks

Investment in subsidiaries

Accrued interest payable

Accrued expenses and other liabilities

Trust preferred securities

Total Liabilities

STOCKHOLDERS’ EQUITY

Common stock - $2.00 par value, 50,000,000 shares authorized;

23,922,086 shares issued and outstanding at both

December 31, 2021 and 2020

Additional paid capital

Retained earnings (deficit)

Accumulated other comprehensive (loss) income

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

in subsidiaries

interest payable

expenses and other liabilities

preferred securities

SHAREHOLDERS’

stock - $2.00 par value, 50,000,000 shares authorized;

and 23,922,086 shares issued and outstanding at December 31, 2022 and 2021, respectively

other comprehensive loss

shareholders’ equity

liabilities and shareholders’ equity

STATEMENTS OF INCOME

2 unchanged sentences

Schedule of parent corporation only condensed statements of income

Miscellaneous income

Dividends from subsidiaries

Undistributed income of subsidiaries

Trust preferred securities interest expense

Professional fees

Other operating expenses

Total Expenses

Income before Income Taxes

Income Tax Benefit

Miscellaneous

from subsidiaries

Undistributed

income of subsidiaries

preferred securities interest expense

operating expenses

before income taxes

STATEMENTS OF CASH FLOWS

2 unchanged sentences

Schedule of parent corporation only condensed statements of cash flows

Cash Flows From Operating Activities

Adjustments to reconcile net income to net cash used in

flows from operating activities

to reconcile net income to net cash provided by (used

operating activities:

Equity in undistributed earnings of subsidiaries

Net (increase) decrease in other assets

Net decrease in other liabilities

Net cash (used in) provided by operating activities

Net (decrease) increase in Cash and Cash Equivalents

Cash and Cash Equivalents, Beginning of year

Cash and Cash Equivalents, End of Year

Supplemental Disclosure of Cash Paid During the Year for:

28 SELECTED QUARTERLY INFORMATION (UNAUDITED)

Schedule of selected quarterly information

2021 QUARTERS

(Dollars in thousands except per share data)

Income statement

Net interest income

Provision for loan losses

Noninterest income

Noninterest expense

Earnings per share, basic and diluted *

Period end balance sheet

Total loans receivable

Total deposits

Total stockholders’ equity

2020 QUARTERS

(Dollars in thousands except per share data)

Income statement

Net interest income

Noninterest income

Provision for loan losses

Noninterest expense

Net income (loss)

Earnings (loss) per share, basic and diluted

Period end balance sheet

Total loans receivable

Total deposits

Total stockholders’ equity

- For 2021, quarterly income per share does not total year-to-date

income per share due to rounding.

in undistributed earnings of subsidiaries

decrease in other assets

increase in other liabilities

cash provided by (used in) operating activities

flows from financing activities:

of common stock

dividends paid

used in financing activities

increase (decrease) in cash and cash equivalents

and cash equivalents, beginning of year

and cash equivalents, end of year

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data