What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-31 · 1257 added, 916 removed, 440 unchanged (83% of the section changed)

3 unchanged sentences

Statements of Income – Years Ended December 31, 2023 and 2022

Statements of Comprehensive Income – Years Ended December 31, 2021 and 2020

Statements of Stockholders’ Equity – Years Ended December 31, 2021 and 2020

Statements of Comprehensive Income (Loss) – Years Ended December 31, 2023 and 2023

Statements of Shareholders’ Equity – Years Ended December 31, 2023 and 2022

Statements of Cash Flows – Years Ended December 31, 2023 and 2022

Notes to Consolidated Financial

Notes to Consolidated

Financial Statements

of Independent Registered Public Accounting Firm

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).

To the Shareholders

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

Opinion on the

Financial Statements

We have audited the

accompanying consolidated balance sheets of New Peoples Bankshares, Inc.

and its subsidiaries (the Company) as of December 31, 2023 and

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

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

In our opinion, the financial statements present

1 unchanged sentence

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

Adoption of New

Accounting Standard

As discussed in Notes

2 and 7 to the financial statements, the Company changed its method of accounting for credit losses in 2023 due to the adoption of Accounting

Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,

including all related amendments.

Basis for Opinion

These 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.

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.

We conducted our

audits 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.

The Company 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 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:

Our 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.

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 estimates made by management,

as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for

Critical Audit

The 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.

Allowance for

Credit Losses – Loans Collectively Evaluated for Credit Losses

Description of

As further described

in Note 2 (Summary of Significant Accounting Policies) and Note 7 (Allowance for Credit Losses For Loans (“ACLL”) to the

consolidated financial statements, the Company changed its method of accounting for credit losses on January 1, 2023, due to the adoption

of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial

Instruments, as amended.

The allowance for

credit losses on

loans (ACLL) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at

amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’

contractual terms.

Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical

data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions.

The Company’s

ACLL related to collectively evaluated loans represented $7.2 million of the total recorded ACLL of $7.3 million as of December 31, 2023.

The collectively evaluated ACLL consists of quantitative and qualitative components.

The quantitative

component consists of loss estimates derived from a discounted cash flow model using external observations of historical credit losses

adjusted for estimated prepayments and forecasts of future conditions over a reasonable and supportable period.

The estimate considers

large amounts of data in tabulating default, loss given default, and prepayment speeds and requires complex calculations as well as management

judgment in the selection of appropriate inputs.

In addition to the

quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment

of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process.

considered by management in developing its qualitative estimates include:

changes in general market, economic and business conditions;

lending policies and procedures;

experience and ability of management and staff;

the nature and volume of the loan portfolio;

and severity of delinquencies and adversely classified loan balances;

loan review system;

concentrations of credit;

the value of underlying

collateral in determining the recorded balance of the allowance for credit losses;

and legal or regulatory requirements and competition.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes

Management exercised

significant judgment when estimating the ACLL on collectively evaluated loans.

We identified the estimation of the collectively evaluated

ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment

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

The primary audit procedures we performed to address

this critical audit matter included:

· Substantively

testing management’s process for measuring the collectively evaluated ACLL,

the conceptual soundness, assumptions, and key data inputs of the Company’s discounted

cashflow methodology, including the identification of loan pools, the probability of default

and loss given default rate inputs, and the prepayment/curtailment rate inputs for each pool.

the methodology and testing the accuracy of incorporating reasonable and supportable forecasts

in the collectively evaluated ACLL estimate.

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 sheet of New Peoples Bankshares, Inc.

and Subsidiaries (the Company) as of December

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 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 audits

provide a reasonable basis for our opinion.

Elliott Davis, LLC

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

South Carolina

elliottdavis.com

PEOPLES BANKSHARES, INC.

BALANCE SHEETS

31, 2022 AND 2021

thousands except share data)

the qualitative factors for directional consistency in comparison to prior periods and for

reasonableness in comparison to underlying supporting data.

the mathematical accuracy of the ACLL for collectively evaluated loans including both the

discounted cashflow and qualitative factor components of the calculations.

Hyde, & Barbour, P.C .

We have served as

the Company’s auditor since 2022.

April 1, 2024

NEW PEOPLES BANKSHARES,

CONSOLIDATED BALANCE

DECEMBER 31, 2023

(in thousands except

and due from banks

2 unchanged sentences

cash and cash equivalents

securities available-for-sale

for loan losses

securities available-for-sale, at fair value

for credit losses

premises and equipment, net

9 unchanged sentences

SHAREHOLDERS’

stock - $ 2.00 par value;

stock - $ 2.00

shares authorized;

and 23,922,086 shares issued and outstanding at

and 23,848,491

shares issued and outstanding at December 31,

2023 and 2022, respectively

4 unchanged sentences

accompanying notes are an integral part of these financial statements.

PEOPLES BANKSHARES, INC.

STATEMENTS OF INCOME

THE YEARS ENDED DECEMBER 31, 2022 AND 2021

thousands except share and per share data)

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

(in thousands except

share and per share data)

AND DIVIDEND INCOME

6 unchanged sentences

INTEREST INCOME

FOR LOAN LOSSES

INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

FOR CREDIT LOSSES

INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

charges and fees

1 unchanged sentence

and investment fees

on sales of available-for-sale securities

noninterest income

9 unchanged sentences

PEOPLES BANKSHARES, INC.

STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

THE YEARS ENDED DECEMBER 31, 2022 AND 2021

in thousands)

comprehensive loss:

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

(Dollars in thousands)

comprehensive income (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 CHANGES IN SHAREHOLDERS’ EQUITY

THE YEARS ENDED DECEMBER 31, 2022 AND 2021

thousands including share data)

gains (losses) arising during the year

comprehensive income (losses) on investment securities

tax (expense) benefit

OTHER COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME (LOSS)

The accompanying notes

are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

(in thousands including

of Common Stock

Paid-in- Capital

Comprehensive

Income (Loss)

Comprehensive Income (Loss)

Shareholders’ Equity

1 unchanged sentence

comprehensive loss, net of tax

Cash dividend declared

($0.05 per share)

of common stock

December 31, 2022

comprehensive loss, net of tax

Adoption of ASU 2016-13

comprehensive income, net of tax

Cash dividend declared

2 unchanged sentences

December 31, 2023

accompanying notes are an integral part of these financial statements.

PEOPLES BANKSHARES, INC.

STATEMENTS OF CASH FLOWS

THE YEARS ENDED DECEMBER 31, 2022 AND 2021

are in thousands)

The accompanying notes

are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

OF CASH FLOWS

FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

(Dollars are in

FLOWS FROM OPERATING ACTIVITIES

to reconcile net income to net cash provided by

for loan losses

(income) on bank owned life insurance

on sale of securities available-for-sale

operating activities:

for credit losses

loss on bank owned life insurance

on sale of mortgage loans

on sale or disposal of premises and equipment

on sale of foreclosed real estate and repossessed assets

loss on sale or disposal of premises and equipment

(gain) on sale of foreclosed real estate and repossessed assets

originated for sale

3 unchanged sentences

of bond premiums/discounts

tax (benefit) expense

interest payable

2 unchanged sentences

FLOWS FROM INVESTING ACTIVITIES

(increase) in loans

Net (increase)

decrease 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)

of equity securities (restricted)

for the purchase of premises and equipment

2 unchanged sentences

from sales of other real estate owned

Cash Provided by (Used in) Investing Activities

cash (used in) provided by investing activities

FLOWS FROM FINANCING ACTIVIES

in short-term borrowings

in long-term debt

in noninterest bearing deposits

1 unchanged sentence

of common stock

Cash (Used in) Provided by Financing Activities

(decrease) in cash and cash equivalents

cash provided by (used in) financing activities

in cash and cash equivalents

and cash equivalents, beginning of the year

3 unchanged sentences

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

of loans to other real estate owned

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.

PEOPLES BANKSHARES, INC.

The accompanying notes

are an integral part of these financial statements.

BANKSHARES, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

1 NATURE OF OPERATIONS

of Operations – New Peoples Bankshares, Inc.

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

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

New Peoples and the Bank are each 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.

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

southern West Virginia, northeastern Tennessee and western North Carolina.

These services include commercial and consumer loans along

with traditional deposit products such as checking and savings accounts.

Nature of Operations

– New Peoples Bankshares, Inc.

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

of a community bank, New Peoples Bank, Inc.

New Peoples and the Bank are each 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 Bank provides general

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

Virginia, northeastern Tennessee and western North Carolina.

These services include commercial and consumer loans along with traditional

deposit products such as checking and savings accounts.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation and Consolidation - The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services,

of Presentation and Consolidation –

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.

(Hereinafter, collectively referred to as the Company, we,

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.

of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles of the United

States (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.

Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial

Standards Adopted in 2023 –

1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic

Measurement of Credit Losses on Financial Instruments (ASC 326).

This standard replaced

the incurred loss methodology with an expected loss methodology that is referred to as the

current expected credit loss (“CECL”) methodology.

CECL requires an estimate

of credit losses for the remaining estimated life of the financial asset using historical

experience, current conditions, and reasonable and supportable forecasts and generally applies

to financial assets measured at amortized cost, including loan receivables and held-to-maturity

debt securities, and some off-balance sheet credit exposures such as unfunded commitments

to extend credit.

Financial assets measured at amortized cost will be presented at the net

amount expected to be collected by using an allowance for credit losses.

In addition, CECL

made changes to the accounting for available-for-sale debt securities.

One such change is to require credit losses to be presented as

an allowance rather than as a write-down on available-for-sale debt securities if management does not intend to sell and does not believe

that it is more likely than not, they will be required to sell.

The Company adopted

ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial

assets measured at amortized cost and off-balance sheet credit exposures.

The transition adjustment of the adoption of CECL included

a decrease in the allowance for credit losses on loans of $80,000, which is presented as a reduction to net loans outstanding, and an

increase in the allowance for credit losses on unfunded loan commitments of $348,000, which is recorded within other liabilities.

Company recorded a net decrease to retained earnings of $212,000 as of January 1, 2023 for the cumulative effect of adopting CECL, which

reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded.

Results for reporting periods beginning

after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable

accounting standards (“Incurred Loss”).

The Company adopted

ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior

to January 1, 2023.

As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities.

upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not deemed

The following table

illustrates the impact on the allowance for credit losses from the adoption of ASC 326:

of allowance for credit losses on available for sale securities

As Reported Under ASC 326

31, 2022 Pre-ASC 326 Adoption

of ASC 326 Adoption

in thousands)

at amortized cost

for credit losses on loans:

estate secured:

and land development

real estate loans

and other loans

allowance for credit losses for loans

for credit losses for unfunded commitments

The Company elected

not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans

or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company

believes the collection of interest is doubtful.

The Company has concluded that this policy results in the timely reversal of uncollectible

On January 1, 2023,

concurrent with its adoption of ASU No.

2016-13, the Company adopted ASU No.

2022-02, “Financial Instruments-Credit Losses (Topic

326), Troubled Debt Restructurings and Vintage Disclosures.” The amendments eliminate the accounting guidance for troubled debt

restructurings (“TDRs”) by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings

and restructurings made with borrowers experiencing financial difficulty.

Disclosures about periods prior to adoption will be presented

under GAAP applicable for that period.

Similar to its policy

under previous GAAP, the Company continues to identify modifications to loans and to determine whether the borrower is experiencing financial

If the Company determines that the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated

to determine whether it falls within the regulatory definition of “criticized” and requires individual evaluation.

previous GAAP, modifications to loans when the borrower was experiencing financial difficulty were designated as TDRs and were individually

evaluated for the duration of the loan.

Under CECL, if a previously modified loan with financial difficulty is subsequently upgraded

to a pass rating, it will no longer be individually evaluated.

of Estimates –

preparation of financial statements in conformity with generally accepted accounting principles

of the United States (GAAP) requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities

at the date of the financial statements and the reported amounts of revenues and expenses

during the reporting period.

Actual results could differ from those estimates.

The determination of the adequacy of the allowance for loan losses

and the determination of the deferred tax asset and related valuation allowance are based on estimates that are particularly susceptible

to significant changes in the economic environment and market conditions.

and Cash Equivalents – Cash and cash equivalents as used in the cash flow statements include cash and due from banks, interest-bearing

deposits with banks, federal funds sold and investment securities maturing within three months.

Securities – Management determines the appropriate classification of securities at the time of purchase.

If management has

the intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified as held to

maturity and carried at amortized historical cost.

The determination

of the adequacy of the allowance for credit losses is based on estimates that are particularly

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

and Cash Equivalents –

Cash and cash equivalents as used in the cash flow statements include cash and due from banks,

interest-bearing deposits with banks, federal funds sold and investment securities when purchased

within three months of maturity.

Management determines the appropriate classification of securities at the time of purchase.

If management has the intent and the Company has the ability at the time of purchase to hold

securities until maturity, they are classified as held to maturity and carried at amortized

historical cost.

Securities not intended to be held to maturity are classified as available-for-sale

and carried at fair value.

Securities available-for-sale are intended to be used as part of the Company’s asset and liability management

strategy and may be sold in response to changes in interest rates, prepayment risk or other similar factors.

amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period

to maturity for discounts and the earlier of call date or maturity for premiums.

Realized gains and losses on dispositions are based

on the net proceeds and the adjusted book value of the securities sold, using the specific identification method.

Realized gains (losses)

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

net of tax, in other comprehensive 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 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

cost or fair value, as determined by outstanding commitments from investors.

Net unrealized losses, if any, are recorded as a valuation

allowance through earnings.

Mortgage loans held for sale are generally sold with servicing released.

Gains and losses on sales of mortgages

are based on the difference between the selling price and the carrying value of the related loan sold.

– Loans are carried on the balance sheet at unpaid principal balance, net of any unearned interest and the allowance for loan

Interest income on loans is computed using the effective interest method, except where serious doubt exists as to the collectability

of the loan, in which case accrual of the income is discontinued.

is the Company’s policy to stop accruing interest on a loan, and classify that loan as non-accrual under the following circumstances:

(a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when our best judgment indicates

that payment in full of principal and interest can no longer be expected, or (c) when any such loan or obligation becomes delinquent

for 90 days unless it is both well secured and in the process of collection.

All interest accrued but not collected for loans that are

placed on nonaccrual or charged off is reversed against interest income, except in the case of a nonaccrual loan that is well secured

and in the process of collection, in which case, the interest accrued but not collected is not reversed.

The interest on these loans

is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual status.

Generally, loans are returned

to accrual status when all the principal and interest amounts contractually due are brought current, six consecutive timely payments

are made, and prospects for future contractual payments are reasonably assured.

loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect

the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered

by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal

and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration

all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s

prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan

by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s

effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Group Concentrations of Credit Risk – The Company identifies a concentration as any obligation, direct or indirect, of the

same or affiliated interests which represent 25% or more of the Company’s capital structure, or $14.3 million as of December 31,

Most of the Company’s activities are with customers located within southwest Virginia, southern West Virginia, northeastern

Tennessee region and western North Carolina.

Securities available-for-sale are intended to be used as part

of the Company’s asset and liability management strategy and may be sold in response

to changes in interest rates, prepayment risk or other similar factors.

The amortization

of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period to maturity

for discounts and the earlier of call date or maturity for premiums.

Realized gains and losses on dispositions are based on the net proceeds

and the adjusted book value of the securities sold, using the specific identification method.

Realized gains (losses) on securities available-for-sale

are included in noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive

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 loss, net of tax, whereas realized gains

and losses flow through the statements of income.

for Credit Losses – Available-for-Sale Securities –

available-for-sale securities, management evaluates all investments in an unrealized loss

position on a quarterly basis, and more frequently when economic or market conditions warrant

such evaluation.

If the Company has the intent to sell the security or it is more likely

than not that the Company will be required to sell the security, the security is written

down to fair value and the entire loss is recorded in earnings.

If either of the

above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors.

making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost,

performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to

make scheduled interest or principal payments and adverse conditions specifically related to the security.

If the assessment indicates

that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security

and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost

Any amount of unrealized loss that has not been recorded through an allowance for credit losses is recognized in other comprehensive

income (loss).

Changes in the allowance

for credit losses are recorded as provision for (or reversal of) credit losses expense.

Losses are charged against the allowance for

credit losses when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria

regarding intent or requirement to sell is met.

As of December 31, 2023, there was no allowance for credit losses related to the available-for-sale

held for sale –

loans originated and intended for sale in the secondary market are carried at the lower of

aggregate cost or fair value, as determined by outstanding commitments from investors.

unrealized losses, if any, are recorded as a valuation allowance through earnings.

loans held for sale are generally sold with servicing released.

Gains and losses on sales

of mortgages are based on the difference between the selling price and the carrying value

of the related loan sold.

that management has the intent and ability to hold for the foreseeable future or until maturity

or payoff are reported at amortized cost.

Amortized cost is the principal balance outstanding,

net of purchase premiums and discounts and deferred fees and costs.

Accrued interest receivable

related to loans totaled $2.6 million as of December 31, 2023 and was reported in accrued

interest receivable on the consolidated balance sheets.

Interest income is accrued on the

unpaid principal balance.

Loan origination fees, net of certain direct origination costs,

are deferred and recognized in interest income using methods that approximate a level yield

without anticipating prepayments.

The accrual of interest

is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when

management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not

be collectible in the normal course of business.

Past due status is based on contractual terms of the loan.

A loan is considered to be

past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest

is reversed against interest income when a loan is placed on nonaccrual status.

Interest received on such loans is accounted for using

the cost-recovery method, until qualifying for return to accrual.

Under the cost-recovery method, interest income is not recognized until

the loan balance is reduced to zero.

Loans are returned to accrual status when all the principal and interest amounts contractually due

are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

Group Concentrations of Credit Risk –

Company identifies a concentration as any obligation, direct or indirect, of the same or

affiliated interests which represent 25% or more of the Company’s capital structure,

or $16.2 million as of December 31, 2023.

Most of the Company’s activities are with

customers located within southwest Virginia, southern West Virginia, northeastern Tennessee

region and western North Carolina.

Certain concentrations may pose credit risk.

The Company does not have any significant concentrations

to any one industry or customer.

for Loan Losses – The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate

to absorb credit losses inherent in the loan portfolio.

The loan portfolio is analyzed periodically and loans are assigned a risk rating.

Allowances for impaired loans are generally determined based on collateral values or the present value of expected cash flows.

allowance is made for all other loans not considered impaired as deemed appropriate by management.

In determining the adequacy of the

allowance, management considers the following factors:

the nature of the portfolio, credit concentrations, trends in historical loss

experience, specific impaired loans, the estimated value of any underlying collateral, prevailing environmental factors and economic

conditions, and other inherent risks.

While management uses available information to recognize losses on loans, further reductions in

the carrying amounts of loans may be necessary based on changes in collateral values and changes in estimates of cash flows on impaired

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information

becomes available.

allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries.

are charged against the allowance for loan losses when management believes that collectability of all or part of the principal is unlikely.

Past due status is determined based on contractual terms.

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.

Premises and Equipment – Land, buildings and equipment are recorded at cost less accumulated depreciation.

Depreciation is

computed using the straight-line method over the following estimated useful lives:

Schedule of estimated useful lives

does not have any significant concentrations to any one industry or customer.

for Credit Losses – Loans –

allowance for credit losses is a valuation account that is deducted from the loans’

amortized cost basis to present the net amount expected to be collected on the loans.

are charged off against the allowance when management believes the uncollectibility of a

loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously

charged-off and expected to be charged-off.

Accrued interest receivable is excluded from

the estimate of credit losses.

The allowance for

credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date.

The allowance

for credit losses is estimated by management using relevant available information, from both internal and external sources, relating

to past events, current conditions, and reasonable and supportable forecasts.

The 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:

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

the 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 measures

expected credit losses for loans on a pooled basis when similar risk characteristics exist.

The Company has identified the following

portfolio segments and calculates the allowance for credit losses for each using a discounted cash flow methodology:

Real Estate Loans.

We originate loans to qualified businesses and individuals in our market

area for the purchase, construction or refinancing of commercial real estate.

consist of owner occupied, non-owner occupied and multi-family transactions.

Owner occupied

real estate properties primarily include retail buildings, medical buildings and industrial/warehouse

Owner-occupied loans are typically repaid first by the cash flows generated by the

borrower’s business operations.

The primary risk characteristics are specific to the

underlying business and its ability to generate sustainable profitability and positive cash

Non-owner occupied commercial real estate properties primarily include retail buildings,

hotels, office/medical buildings and industrial/warehouse space.

Increases in vacancy rates,

interest rates or other changes in general economic conditions can have an impact on the

borrower and their ability to repay the loan.

Non-owner occupied commercial real estate loans

are generally considered to have a higher degree of credit risk as they may be dependent

on the ongoing success and operating viability of a fewer number of tenants who are occupying

the property and who may have a greater degree of exposure to economic conditions.

loans are expected to be repaid from the cash flows of the underlying property so the collective

amount of rents must be sufficient to cover all operating expenses, property management and

maintenance, taxes and debt service.

Increases in vacancy rates, interest rates or other

changes in general economic conditions can have an impact on the borrower and their ability

to repay the loan.

Construction loans include not only construction of new structures, but

also additions or alterations to existing structures.

Construction loans are generally secured

by real estate.

The primary risk characteristics are specific to the uncertainty on whether

the construction will be completed according to the specifications and schedules.

that may influence the completion of construction may be customer specific, such as the quality

and depth of property management, or related to changes in general economic conditions.

We make commercial loans to qualified businesses in our market area.

Our commercial

lending consists primarily of commercial and industrial loans to finance accounts receivable,

inventory, property, plant and equipment.

Commercial business loans generally have a higher

degree of risk than residential mortgage loans but have commensurately higher yields.

mortgage loans are generally made on the basis of the borrower’s ability to make repayment

from employment and other income and are secured by real estate whose value tends to be easily

ascertainable.

In contrast, commercial business loans typically are made on the basis of

the borrower’s ability to make repayment from cash flow from its business and are secured

by business assets, such as commercial real estate, accounts receivable, equipment and inventory.

As a result, the availability of funds for the repayment of commercial business loans may

be substantially dependent on the success of the business itself.

Further, the collateral

for commercial business loans may depreciate over time and cannot be appraised with as much

precision as residential real estate.

To manage these risks, our underwriting guidelines

generally require us to secure commercial loans with both the assets of the borrowing business

and other additional collateral and guarantees that may be available.

In addition, we actively

monitor certain measures of the borrower, including advance rate, cash flow, collateral value

and other appropriate credit factors.

• Residential

Mortgage Loans.

Our residential mortgage loans consist of residential first and second mortgage

loans, residential construction loans, home equity lines of credit and term loans secured

by first and second mortgages on the residences of borrowers for home improvements, education

and other personal expenditures.

We make mortgage loans with a variety of terms, including

fixed and floating or variable rates and a variety of maturities.

Under our underwriting

guidelines, residential mortgage loans are generally made on the basis of the borrower’s

ability to make repayment from employment and other income and are secured by real estate

whose value tends to be easily ascertainable.

These loans are made consistent with our appraisal

policies and real estate lending policies, which detail maximum loan-to-value ratios and

• Construction

Construction lending entails significant additional risks compared to residential

mortgage lending.

Construction loans often involve larger loan balances concentrated with

single borrowers or groups of related borrowers.

Construction loans also involve additional

risks attributable to the fact that loan funds are advanced upon the security of property

under construction, which is of uncertain value prior to the completion of construction.

Thus, it is more difficult to evaluate the total loan funds required to complete a project

and related loan-to-value ratios accurately.

To minimize the risks associated with construction

lending, loan-to-value limitations for residential, multi-family and non-residential construction

loans are in place.

These are in addition to the usual credit analyses of borrowers.

feels that the loan-to-value ratios help to minimize the risk of loss and to compensate for

normal fluctuations in the real estate market.

Maturities for construction loans generally

range from 4 to 12 months for residential property and from 6 to 18 months for non-residential

and multi-family properties.

Our consumer loans consist primarily of installment loans to individuals for personal,

family and household purposes.

The specific types of consumer loans that we make include

home improvement loans, debt consolidation loans and general consumer lending.

Consumer loans

entail greater risk than residential mortgage loans, particularly in the case of consumer

loans that are unsecured, such as lines of credit, or secured by rapidly depreciating assets

such as automobiles.

In such cases, any repossessed collateral for a defaulted consumer loan

may not provide an adequate source of repayment of the outstanding loan balance due to the

greater likelihood of damage, loss or depreciation.

The remaining deficiency often does not

warrant further substantial collection efforts against the borrower.

In addition, consumer

loan collections are dependent on the borrower’s continuing financial stability, and

thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Furthermore, the application of various federal and state laws, including federal and state

bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

A borrower may also be able to assert against the Bank as an assignee any claims and defenses

that it has against the seller of the underlying collateral.

Loans that do not

share risk characteristics are evaluated on an individual basis.

The Company designates loan relationships of $250,000 or more that have

been determined to meet the regulatory definitions of “special mention” or “classified” (together known as “criticized”)

as individually evaluated.

The fair value of individually evaluated loans is measured using the fair value of collateral (“collateral

method”) or the DCF method.

collateral method is applied to individually evaluated loans for which foreclosure is probable.

The collateral method is also applied to individually evaluated loans when borrowers are

experiencing financial difficulty and repayment is expected to be provided substantially

through the operation or sale of the collateral (“collateral dependent”).

allowance for credit losses is measured based on the difference between the fair value of

the collateral and the amortized cost basis of the loan as of the measurement date.

repayment is expected to be from the operation of the collateral, the allowance for credit

losses is calculated as the amount by which the amortized cost basis of the loan exceeds

the present value of expected cash flows from the operation of the collateral.

When repayment

is expected to be from the sale of the collateral, the allowance for credit losses is calculated

as the amount by which the loan’s amortized cost basis exceeds the fair value of the

underlying collateral less estimated cost to sell.

The allowance for credit losses may be

zero if the fair value of the collateral at the measurement date exceeds the amortized cost

basis of the loan.

DCF method is applied to individually evaluated loans that do not meet the criteria for collateral

method measurement.

Cash flows are projected and discounted using the same method as for

collectively evaluated loans, and the Company considers default and prepayment assumptions.

for Credit Losses – Unfunded Commitments –

instruments include off-balance sheet credit instruments such as commitments to make loans

and commercial letters of credit issued to meet customer financing needs.

The Company’s

exposure to credit loss in the event of nonperformance by the other party to the financial

instrument for off-balance sheet loan commitments is represented by the contractual amount

of those instruments.

Such financial instruments are recorded when they are funded.

The Company records

an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable,

through a charge to provision for unfunded commitments, which is included in the provision for credit losses, in the Company’s

consolidated statements of income.

The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment

at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into

consideration the likelihood that funding will occur as well as any third-party guarantees.

The allowance for unfunded commitments is

included in other liabilities on the Company’s consolidated balance sheets .

Premises and Equipment –

Land, buildings and equipment are recorded at cost less accumulated depreciation.

is computed using the straight-line method over the following estimated useful lives:

of estimated useful lives

and landscaping

3 unchanged sentences

Repairs and maintenance costs are recorded as a component of noninterest expense as incurred.

Real Estate Owned – Other real estate owned represents properties acquired through foreclosure or deeds taken in lieu of foreclosure

and former branch sites that have been closed and for which there are no intentions to re-open or otherwise use the location.

time of acquisition, these properties are recorded at fair value less estimated costs to sell.

Expenses incurred in connection with operating

these properties and subsequent write-downs, if any, are charged to operations.

Subsequent to foreclosure, management periodically considers

the adequacy of the reserve for losses on the property.

Gains and losses on the sales of these properties are credited or charged to

income in the year of the sale.

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

Real Estate Owned –

Other real estate owned represents properties acquired through foreclosure or deeds taken

in lieu of foreclosure and former branch sites that have been closed and for which there

are no intentions to re-open or otherwise use the location and the time anticipated to dispose

of the property is expected to not be short-term.

At the time of acquisition, these properties

are recorded at fair value less estimated costs to sell.

Expenses incurred in connection

with operating these properties and subsequent write-downs, if any, are charged to operations.

Subsequent to foreclosure, management periodically considers the adequacy of the reserve

for losses on the property.

Gains and losses on the sales of these properties are credited

or charged to income in the year of the sale.

Owned Life Insurance (“BOLI”) –

Bank purchased life insurance policies on certain, now-former, key officers and employees.

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

office facilities.

Most leases include one or more options to renew.

The exercise of lease renewal options is typically at the sole discretion

of management.

If it is determined that it is reasonably certain that the Bank will exercise renewal options, the additional term is

included in the calculation of the lease liability.

As most of our leases do not provide an implicit rate, we use the fully collateralized

Federal Home Loan Bank borrowing rate, commensurate with the lease terms at the lease commencement date, in determining the present value

of the lease payments.

Taxes – Deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax

bases of assets and liabilities using the enacted marginal tax rate.

The Company provides a valuation allowance on its net deferred tax

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

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

allowance on its net deferred tax assets.

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

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

The tax benefits recognized in the financial

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

upon settlement.

See Note 10, Income Taxes, for additional information.

The Company records any penalties and interest attributed to

uncertain tax positions as a component of income tax expenses.

Per Share – Basic income per share computations are based on the weighted average number of shares outstanding during each

Dilutive earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common

shares had been issued.

Instruments – Off-balance-sheet instruments - In the ordinary course of business, the Company has entered into commitments

to extend credit.

A right-of-use asset and related lease liability is recognized for operating leases the Bank

has entered into for certain office facilities.

Most leases include one or more options to

The exercise of lease renewal options is typically at the sole discretion of management.

If it is determined that it is reasonably certain that the Bank will exercise renewal options,

the additional term is included in the calculation of the lease liability.

As most of our

leases do not provide an implicit rate, we use the fully collateralized Federal Home Loan

Bank borrowing rate, commensurate with the lease terms at the lease commencement date, in

determining the present value of the lease payments.

Deferred tax assets or liabilities are computed based upon the difference between financial

statement and income tax bases of assets and liabilities using the enacted marginal tax rate.

The Company provides a valuation allowance on its net deferred tax assets where it is more

likely than not such assets will not be realized.

As of December 31, 2023 and 2022, the Company

had no valuation allowance on its net deferred tax assets.

The Company recognizes

the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by

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

The tax benefits recognized in the financial statements from such

positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.

Note 10, Income Taxes, for additional information.

The Company records any penalties and interest attributed to uncertain tax positions

as a component of income tax expenses.

Basic income per share computations are based on the weighted average number of shares outstanding

during each period.

Dilutive earnings per share reflect the additional common shares that

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

Instruments – Off-balance-sheet instruments -

In the ordinary course of business, the Company has entered into commitments to extend credit.

Such financial instruments are recorded in the financial statements when they are funded.

Instruments – Fair Value – Fair values of financial instruments are estimated using relevant market information and other

assumptions, as more fully discussed in Note 22.

Fair value estimates involve uncertainties and matters of significant judgment regarding

interest rates, credit risks, prepayments and other factors, especially in the absence of broad markets for particular items.

in assumptions or market conditions could significantly affect these estimates.

Instruments – Fair Value –

Fair values of financial instruments are estimated using relevant market information and

other assumptions, as more fully discussed in Note 23.

Fair value estimates involve uncertainties

and matters of significant judgment regarding interest rates, credit risks, prepayments and

other factors, especially in the absence of broad markets for particular items.

assumptions or market conditions could significantly affect these estimates.

Comprehensive

(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

Income (Loss) –

GAAP requires 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 (loss).

The change in unrealized gains and losses on available-for-sale securities

is the Company’s only component of other comprehensive loss.

from Contracts with Customers -

Company generally satisfies its performance obligations fully on its contracts with customers

as services are rendered;

and the transaction prices are typically fixed, charged either on a periodic basis or based on activity.

Cost – Advertising costs are expensed in the period incurred.

Those costs, which are included in Advertising, sponsorships

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

and the transaction prices are typically fixed, charged either

on a periodic basis or based on activity.

Advertising costs are expensed in the period incurred.

Those costs, which are included in

Advertising, sponsorships and donations in Note 25 totaled $206,000 and $162,000, for the

years ended December 31, 2023 and 2022, respectively.

Reclassification

– Certain reclassifications have been made to the prior years’ financial statements to place them on a comparable basis

with the current year.

Net income and 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

financial statements were issued.

See Note 25 Subsequent Events for additional information.

Certain reclassifications have been made to the prior years’ financial statements to

place them on a comparable basis with the current year.

Net income and shareholders’

equity previously reported were not affected by these reclassifications.

The Company has evaluated subsequent events for potential recognition and/or disclosure through

the date these consolidated financial statements were issued.

See Note 26 Subsequent Events

for additional information.

3 INCOME PER SHARE

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

Dilutive earnings per

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

the years ended December 31, 2022 and 2021, there were no dilutive potential common shares.

Basic and diluted net income per common share

calculations follows:

Schedule of basic and diluted net loss per common share calculations

Basic income per

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

Dilutive earnings per share reflect

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

For the years ended

December 31, 2023 and 2022, there were no dilutive potential common shares.

Basic and diluted

net income per common share calculations follows:

of basic and diluted net loss per common share calculations

in thousands, except

5 unchanged sentences

4 DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS

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.

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.

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.

The 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 $50.4 million and $47.7 million as of December 31, 2023 and 2022, respectively.

Deposit amounts at other commercial

banks may, at times, exceed federally insured limits.

The Bank has a total

of $30.0 million in unsecured fed funds lines of credit facilities from three correspondent banks that were available as of December

31, 2023 and 2022, respectively.

Of these total commitments, all were available as of December 31, 2023 and 2022.

As a condition for

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

As of December 31, 2023 and 2022, the Bank was in compliance with this requirement.

5 INVESTMENT SECURITIES

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

Schedule of securities amortized cost and estimated fair value

The amortized cost and estimated fair

value of securities (all available-for-sale) as of December 31, 2023 and 2022 are as follows:

of securities amortized cost and estimated fair value

are in thousands)

5 unchanged sentences

Securities available for sale

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

This information is aggregated

by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2022 and December

Schedule of fair value and gross unrealized losses on investment securities

The following table

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

This information is aggregated by the length of

time that individual securities have been in a continuous unrealized loss position as of December 31, 2023 and 2022.

of fair value and gross unrealized losses on investment securities

than 12 Months

Months or More

are in thousands)

(Dollars are in thousands)

Government Agencies

2 unchanged sentences

backed securities

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

without call or prepayment penalties.

Also, actual maturities may differ from scheduled maturities on amortizing securities, such as

mortgage-backed securities and collateralized mortgage obligations, because the underlying collateral on these types of securities may

be repaid prior to the scheduled maturity date.

Schedule of amortized cost and fair value of investment securities contractual maturity

As of December 31,

2023, the available-for-sale portfolio included 209 investments for which the fair market value was less than amortized cost.

As of December

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

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 plan 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.

None of the individual securities are past due

to principal or interest

payments and a number of these securities have explicit or implicit payment guarantees.

The remaining securities have credit ratings

at or above that necessary to be considered “bank qualified.”

Investment securities

with a carrying value of $36.8 million and $27.3 million as of December 31, 2023 and 2022, respectively, were pledged to secure public

deposits and for other purposes required or permitted by law.

There were no sales

of available-for-sale investment securities during the years ended December 31, 2023 and 2022.

The amortized

cost and fair value of investment securities as of December 31, 2023, by contractual maturity, are shown in the following schedule.

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

call or prepayment penalties.

Also, actual maturities may differ from scheduled maturities on amortizing securities, such as mortgage-backed

securities and collateralized mortgage obligations, because the underlying collateral on these types of securities may be repaid prior

to the scheduled maturity date.

of amortized cost and fair value of investment securities contractual maturity

are in thousands)

4 unchanged sentences

after ten years

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

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

These equity securities, which are included in other

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

of December 31, 2022 and 2021, respectively.

The Bank, as a member

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

The Bank also owns stock

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

These equity securities, which are included in other assets on the consolidated

balance sheet, are restricted from trading and are recorded at a cost of $2.7 million and $2.1 million as of December 31, 2023 and 2022,

respectively.

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

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

Summary of loans receivable outstanding

Loans receivable

outstanding as of December 31, 2023 and 2022, are summarized as follows:

of loans receivable outstanding

are in thousands)

3 unchanged sentences

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

are in thousands)

Also included in

total loans above are deferred loan fees of $1.8 million and $1.6 million, as of December 31, 2023 and 2022, respectively.

Total deferred

loan costs were $2.0 million and $1.9 million, as of December 31, 2023 and 2022, 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 cost is recognized at that time.

Loans receivable

on nonaccrual status as of December 31, 2023 and 2022 are summarized as follows:

of loans receivable on nonaccrual status

in thousands)

estate secured:

1 unchanged sentence

real estate loans

installment and other loans

installment loans 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

December 31, 2021:

Summary of impaired loans

of December 31, 2022

are in thousands)

Unpaid Principal Balance

no related allowance recorded:

estate secured:

and land development

installment loans

an allowance recorded:

Total interest income

not recognized on nonaccrual loans for 2023 and 2022 was approximately $61,000 and $10,000, respectively.

Prior to the adoption

of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable

to collect all amounts due in accordance with the original contractual terms of the loan agreements.

Impaired loans included loans on

nonaccrual status and accruing troubled debt restructurings.

When determining if the Company would be unable to collect all principal

and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s

capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient

to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value.

Company individually assessed for impairment all nonaccrual loans greater than $250,000 and all troubled debt restructurings, whether

or not currently classified as such.

The tables below include all loans deemed impaired, whether or not individually assessed for impairment.

If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the

present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was

expected solely from the collateral.

Interest payments on impaired loans were typically applied to principal unless collectability of

the principal amount was reasonably assured, in which case interest was recognized on a cash basis.

Upon adoption of

ASU 2016-13 the Company began evaluating loans that do not share risk characteristics on an individual basis utilizing the collateral

or discounted cash flow methods as described in Note 2 Summary of Significant Accounting Policies.

The following table presents the amortized

cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance

for credit losses allocated to those loans as December 31, 2023:

of summary of impaired loans

Principal Balance

estate secured:

and land development

real estate secured

installment loans

of December 31, 2021

are in thousands)

Principal Balance

The following table presents loans individually

evaluated for impairment by class of loans as of December 31, 2022:

As of December

in thousands)

Unpaid Principal

no related allowance recorded:

6 unchanged sentences

installment loans

age analysis of past due loans receivable is below.

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

of December 31, 2022

are in thousands)

The following tables

show an age analysis of past due loans receivable as of December 31, 2023 and 2022, segregated by class:

age analysis of past due loans receivable

As of December 31, 2023

(Dollars are in thousands)

estate secured:

real estate loans

of December 31, 2021

are in thousands)

As of December 31, 2022

(Dollars 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

debt such as:

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

trends, among other factors.

As of December 31, 2023 and 2022, there

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

The Company categorizes

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

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

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

The Company uses the following definitions for risk ratings:

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

of the borrowers to service their debt and other factors.

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

The Company uses the

following definitions for risk ratings:

in this category are considered to have a low likelihood of loss based on analysis of relevant information 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.

4 unchanged sentences

the Company’s credit position at some future date.

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

the obligor or of the collateral pledged, if any.

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

jeopardize the liquidation of the debt;

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

if the deficiencies are not corrected.

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

obligor or of the collateral pledged, if any.

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

the liquidation of the debt;

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

are not corrected.

- Loans classified Doubtful have all the weaknesses

3 unchanged sentences

at either December 31, 2023 or 2022.

on the most recent analysis performed, the risk category of loans receivable was as follows:

Summary of risk category of loans receivable

of December 31, 2022

are in thousands)

estate secured:

The following table

presents the credit risk grade of loans by origination year as of December 31, 2023:

of risk category of loans receivable

As of December

(Dollars are in thousands)

commercial real estate

period gross charge-offs

and Land Development

real estate loans

installment loans

construction and land development

period gross charge-offs

residential 1-4 family

period gross charge-offs

and All Other

consumer and all other

period gross charge-offs

Total current period gross charge-offs

The following table presents the credit

risk grade of loans as of December 31, 2022, prior to the adoption of ASU 2016-13, under the incurred loss model:

of December 31, 2022

are in thousands)

estate secured:

and land development

real estate loans

installment loans

7 ALLOWANCE FOR LOAN LOSSES

following tables present activity in the allowance for loan losses for the years ended December 31, 2022 and 2021.

Allocation of a portion

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

Additionally, the

allocation of the allowance by recorded portfolio segment and impairment method is presented as of December 31, 2022 and 2021.

Schedule of allocation of portion of allowance

estate secured

(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

7 ALLOWANCE FOR CREDIT LOSSES FOR LOANS

In determining the

amount of our allowance for credit 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 credit losses

and we may experience significant increases to our provision.

The allowance for

credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition.

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications

of receivables to borrowers experiencing financial difficulty.

Among other techniques, the Company uses a discounted cash flow methodology

to determine the allowance for credit losses.

The following table

presents a disaggregated analysis of activity in the allowance for credit losses for loans as of December 31, 2023:

of allocation of portion of allowance

in thousands)

and Land Development

and All Other

December 31, 2022

Year ended December 31, 2023

Beginning balance

Adjustment to allowance for adoption of ASU 2016-13

Provision for credit losses

Ending balance

for loan losses at December 31, 2022

Individually evluated for impairment

Collectively evaluated for impairment

Loans at December 31,

Individually evluated for impairment

Collectively evaluated for impairment

The following tables

present a disaggregated analysis of activity in the allowance for credit losses as of December 31, 2022, prior to the adoption of ASU

estate secured

(Dollars are in thousands)

in thousands)

and Land Development

and All Other

December 31, 2021

Year ended December 31, 2022

Beginning balance

Ending balance

for loan losses at December 31, 2021

Individually evluated for impairment

Allowance for

loan losses at December 31, 2022

Individually evaluated for impairment

Collectively evaluated for impairment

Loans at December 31, 2022

Individually evluated for impairment

Individually evaluated for impairment

Collectively evaluated for impairment

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

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

may experience significant increases to our provision.

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

not included in 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

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

31, 2022 and 2021.

Schedule of loans modified as troubled debt restructurings

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

these restructurings in its estimate.

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

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 these loans.

Allocation of a portion

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

8 MODIFICATIONS MADE TO BORROWERS EXPERIENCING FINANCIAL

An assessment of

whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications

made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement

methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans.

When principal forgiveness

is provided, the amortized cost basis of the asset is written off against the allowance for credit losses.

The amount of the principal

forgiveness is deemed to be uncollectible;

therefore, that portion of the loan is written off, resulting in a reduction of the amortized

cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the

Company will modify a certain loan by providing multiple types of concessions.

Typically, one type of concession, such as a term extension,

is granted initially.

If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness,

may be granted.

There were no loans

modified to borrowers experiencing financial difficulty during the year ended December 31, 2023.

Additionally, there were no loans that

had a payment default during the year that were modified in the previous 12 months.

Prior to adoption

of ASC 2022-02, there were $2.0 million in loans classified as troubled debt restructurings as of December 31, 2022.

All loans considered

to be troubled debt restructurings are individually evaluated for impairment as part of the allowance for credit losses calculation.

No loans modified during the year ended December 31, 2022 were considered to be troubled debt restructurings.

For the year ended

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

Generally, a restructured

troubled debt is considered to be in default once it becomes 90 days or more past due following a modification.

9 BANK PREMISES AND EQUIPMENT

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

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

are summarized as follows:

Schedule of bank premises and equipment

Depreciation expense

for the year ended December 31, 2023 and 2022 was $1.6 million and $1.7 million, respectively.

Bank premises and equipment as of December

31, 2023 and 2022 are summarized as follows:

of bank premises and equipment

are in thousands)

7 unchanged sentences

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

previously been sold and leased back.

10 INCOME TAXES

3 unchanged sentences

tax expense is summarized as follows for the years ended December 31, 2023 and 2022:

Schedule of pre-tax book income

of pre-tax book income

are in thousands)

income tax expense (benefit)

current income tax expense (benefit)

Deferred 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

tax rate of 21% for years ended December 31, 2022 and 2021, respectively:

Schedule of reconciliation of income tax expense

income tax expense

The following

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

of 21% for years ended December 31, 2023 and 2022, respectively:

of reconciliation of income tax expense

are in thousands)

tax expense (benefit) at the applicable federal rate

tax expense at the applicable federal rate

differences resulting from:

2 unchanged sentences

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

The net deferred

tax assets and liabilities resulting from temporary differences as of December 31, 2023 and 2022, are summarized as follows:

of net deferred tax assets and liabilities

are in thousands)

for loan losses

loan interest

for credit losses

loss on securities available for sale

real estate owned

of core deposits

interest and repair expense

operating loss carryforward

health insurance

assets, gross

17 unchanged sentences

11 TIME DEPOSITS

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

The aggregate amount

of time deposits that meet or exceed the Federal Deposit Insurance Corporation (“FDIC”) Insurance limit of $250,000 was $52.8

million and $26.8 million as of December 31, 2023 and 2022, respectively.

We had no brokered time deposits at either December 31, 2023

2022 or 2021.

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

(dollars are in thousands):

Schedule of maturities

As of December 31, 2023, the scheduled maturities of time deposits are as follows (dollars

are in thousands):

of maturities

12 RELATED PARTY TRANSACTIONS

directors (and companies controlled by them), principal shareholders, and associates were customers of and had loan transactions with

the Bank in the normal course of business.

The following table summarizes these transactions, which were made on substantially the same

terms as those prevailing for other customers and did not involve any abnormal risk.

Schedule of related party

For the year ended December 31,

Officers, directors

(and companies controlled by them), principal shareholders, and associates were customers of and had loan transactions with the Bank

in the normal course of business.

The following table summarizes these transactions, which were made on substantially the same terms

as those prevailing for other customers and did not involve any abnormal risk.

of related party

the year ended December 31,

in thousands)

and advances on lines

of changes in composition of related parties

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.

Insurance Services, Inc.

Total related party

deposits held at the Bank were $15.6 million and $29.0 million as of December 31, 2023 and 2022, respectively.

NPB Insurance Services,

holds a 39% membership interest in Lonesome Pine Title Agency, LLC, which provides title insurance.

member of the agency is a related party to the Company.

August 2021, the Bank sold a parcel of land, adjacent to the Grundy, Virginia office to a director for $150 thousand, which approximated

the fair value of the property.

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

13 RETIREMENT PLANS

Company has established a qualified defined contribution plan that covers all full-time employees.

The Company matches employee contributions

up to a maximum of 3% of their salary.

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

13 RETIREMENT AND OTHER BENEFIT PLANS

The Company has established

a qualified defined contribution plan that covers all full-time employees.

The Company matches employee contributions up to a maximum

of 6% and 3% of their salary for 2023 and 2022, respectively.

The Company contributed approximately $519,000 and $235,000 to the defined

contribution plan during the years ended December 31, 2023 and 2022, respectively.

On February 27, 2023,

the Board of Directors approved and adopted the New Peoples Bankshares, Inc.

Long-Term Cash Incentive Plan (the “Plan”).

The Plan 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 are eligible to participate in the Plan.

Individual awards

are settled solely in cash, determined by multiplying quarterly earnings per share by the number of notional shares covered by a Plan

Awards for up to 500,000 notional shares of common stock of the Company, adjusted to 750,000 shares in December 2023, may be granted

under the Plan.

The Plan does not grant participants equity in the Company and does not create any shareholders’ rights.

award, a participant receives an allocation equal to earnings per share, for each share covered by the award, on a quarterly basis.

become vested in 25% increments, on each of the first through fourth anniversaries of the date of grant, subject to a participant’s

continuous employment with the Company through the applicable anniversary.

Awards are settled on the earliest of a participant’s

separation from service, a change in control, or the ten-year anniversary of the Plan’s effective date.

Vested portions of an award

are generally paid in three installments.

As of December 31, 2023, 500,000 notional shares have been awarded and a $55,000 liability

was recorded.

The Bank maintains

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

Expenses related to the plan were approximately $26,000 and $27,000 for the years ended December 31, 2023 and 2022, respectively.

14 OTHER REAL ESTATE OWNED

following table summarizes the activity in other real estate owned for the years ended December 31, 2022 and 2021:

Schedule of other real estate owned

The following table

summarizes the activity in other real estate owned for the years ended December 31, 2023 and 2022:

of other real estate owned

are in thousands)

1 unchanged sentence

from premises and equipment

from insurance claims

made to finance sales

1 unchanged sentence

(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.

During 2023, four

properties were sold at a loss of $96,000.

During 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.

As of December 31,

2023, 4 loans totaling approximately $401,000 were in the process of foreclosure, of which 3 loans totaling $117,000 were secured by

residential real estate.

15 BANK OWNED LIFE INSURANCE

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.

As of December 31,

2023 and 2022, the Bank had an aggregate total cash surrender value of $4.6 million and $4.5 million, respectively, on life insurance

policies covering former key officers.

The Company recognized

income of approximately $40,000 during the year ended December 31, 2023.

The Company recorded a net write-down of approximately $136,000

during the year ended December 31, 2022.

16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK

principal source of funds for the Company is dividends paid by the Bank.

The Federal Reserve Act restricts the amount of dividends the

Bank may pay.

Approval by the Board of Governors of the Federal Reserve System is required if the dividends declared by a state member

bank, in any year, exceed the sum of (1) net income of the current year and (2) income net of dividends for the preceding two years.

A principal source

of funds for the Company is dividends paid by the Bank.

The Federal Reserve Act restricts the amount of dividends the Bank may pay.

by the Board of Governors of the Federal Reserve System is required if the dividends declared by a state member bank, in any year, exceed

the sum of (1) net income of the current year and (2) income net of dividends for the preceding two years.

law restricts the amount of dividends a Virginia corporation may pay.

6 unchanged sentences

17 LEASING ACTIVITIES

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

of December 31, 2023, the Bank leases five branch offices and sublets a lot adjacent to another branch 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 as of December 31, 2022, was 9.60 years.

maturity dates ranging from December 2028 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 as of December 31, 2023 is 8.22 years.

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

2 unchanged sentences

average discount rate for the leases as of December 31, 2023 was 3.43%.

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

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.

The Company’s

operating lease costs for the years ended December 31, 2023 and 2022, as a result of the transactions discussed above, were $465,000

and $456,000, respectively.

The Company’s

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

of December 31, 2023, 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

of future minimum rental commitments under the non-cancellable operating leases

lease payments

1 unchanged sentence

18 BORROWED FUNDS

following table presents the breakdown of borrowed funds as of December 31, 2022 and 2021 (dollars in thousands):

Schedule of breakdown of borrowed funds

The following table

presents the breakdown of borrowed funds as of December 31, 2023 and 2022:

of breakdown of borrowed funds

Revolving Advances

Term Loans Short-Term

Term Funding Program

Term Loans Long-Term

1 unchanged sentence

Capital Trust 2

in thousands)

December 31, 2023

balance at any month-end

weighted balance

interest rate:

during the year

Highest balance at any month-end

Average weighted balance

Average interest rate:

Paid during the year

December 31, 2022

balance at any month-end

weighted balance

interest rate:

during the year

- The Bank has the ability to borrow up to an additional $113.7 million from the FHLB under a line of credit which is secured by a blanket

lien on residential real estate loans.

Highest balance at any month-end

Average weighted balance

Average interest rate:

Paid during the year

(a) - The Bank has

the ability to borrow up to an additional $96.9 million from FHLB under a line of credit which is secured by a blanket lien on residential

real estate loans.

With additional collateral, the Bank’s total credit availability would be $178.1 million.

The Bank had no overnight borrowings subject to daily rate changes from the FHLB at December 31, 2022 or 2021.

have used our line of credit with FHLB to issue letters of credit totaling $7.0 million to the Treasury Board of Virginia for collateral

on public funds deposited in the Bank.

The Bank had no overnight

borrowings subject to daily rate changes from the FHLB at December 31, 2023 or 2022.

We have used our

line of credit with FHLB to issue letters of credit totaling $12.0 million to the Treasury Board of Virginia for collateral on public

funds deposited in the Bank.

No draws on the letters of credit have been issued.

The letters of credit are considered draws

on our FHLB line of credit.

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

The letters of credit are considered draws on our FHLB

line of credit.

(b) - Federal

funds lines consist of $30.0 million in unsecured federal funds line of credit facilities with correspondent banks as of December 31,

2023 and 2022, 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

wholly owned subsidiary, NPB Capital Trust I (TPS I).

The rate is determined quarterly and floats based on the 3-month LIBOR plus 260

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

to access the lines.

December 31, 2023 and 2022, there are no short term FHLB advances outstanding.

December 31, 2023, there is a short-term, fixed rate borrowing outstanding under the FRB Bank Term Funding Program in the amount of $10.0

The loan matures December 28, 2024 and can be prepaid without penalty.

December 31, 2023, there is a fixed rate, FHLB advance in the amount of $10.0 million outstanding, which matures in 2028.

no long term FHLB advances outstanding as of December 31, 2022.

TPS I - On July 7,

2004, the Company completed the issuance of $11.3 million in floating rate trust preferred securities, maturing July 7, 2034, offered

by its wholly owned subsidiary, NPB Capital Trust I (TPS I).

The rate is determined quarterly and floats based on the 3-month SOFR plus

260 basis points.

2 - On September 27, 2006, the Company completed the issuance of $5.2 million in floating rate trust preferred securities offered by

its wholly owned subsidiary, NPB Capital Trust 2 (TPS 2).

The rate is determined quarterly and floats based on the 3-month LIBOR plus

During 2023, a principal reduction of $310 thousand was paid.

TPS 2 - On September

27, 2006, the Company completed the issuance of $5.2 million in floating rate trust preferred securities, maturing October 7, 2036, offered

by its wholly owned subsidiary, NPB Capital Trust 2 (TPS 2).

The rate is determined quarterly and floats based on the 3-month SOFR plus

177 basis points.

the terms of the subordinated debt transactions, the securities have 30-year maturities and are redeemable, in whole or in part, without

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 as of December 31, 2022 (dollars in thousands):

Schedule of maturities of borrowed funds

Under the terms of

the subordinated debt transactions, the securities have 30-year maturities and are redeemable, in whole or in part, without penalty,

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

Following are maturities of borrowed funds

as of December 31, 2023 (dollars in thousands):

of maturities of borrowed funds

and thereafter

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instruments whose contract amount represents credit risk as of December 31, 2023 and 2022 were as follows:

Schedule of financial instruments with credit risk

of financial instruments with credit risk

in thousands)

1 unchanged sentence

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

any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require

payment of a fee.

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not

necessarily represent future cash requirements.

Commitments 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 any condition

established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily

represent future cash requirements.

The Bank evaluates each customer’s creditworthiness on a case-by-case basis.

amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation.

Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.

letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The credit risk

involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to

extend credit.

The amount of

collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation.

held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

Standby letters of

credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.

Standby letters of

credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The credit risk involved

in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Bank’s policy

for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend

20 CREDIT ALLOWANCE FOR UNFUNDED COMMITMENTS

The Company maintains

a separate allowance for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included

in other liabilities on the consolidated balance sheet.

The allowance for credit losses for off-balance-sheet credit exposures is adjusted

through a provision for credit losses in the consolidated statements of income.

The estimate includes consideration of the likelihood

that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, utilizing

the same models and approaches for the Company's other loan portfolio segments described above, as these unfunded commitments share similar

risk characteristics as its loan portfolio segments.

While the Company has identified the unfunded portion of certain lines of credit

as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time, those commitments

are not excluded from the credit losses estimate.

On January 1, 2023,

the Company recorded an adjustment to initiate an allowance for credit losses for unfunded commitments of $348,000 for the adoption of

ASC Topic 326.

For the year ended December 31, 2023, the Company recorded a reversal to the provision for credit losses for unfunded

commitments of $63,000.

As of December 31, 2023, the liability for credit losses on off-balance-sheet credit exposures included in other

liabilities was $285,000.

21 LEGAL CONTINGENCIES

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Requirements and Ratios

Company meets eligibility criteria of a small bank holding company in accordance with the Board of Governors of the Federal Reserve System’s

meets eligibility criteria of a small bank holding company in accordance with the Board of Governors of the Federal Reserve System’s

Small Bank Holding Company Policy Statement issued in February 2015, and is no longer obligated to report consolidated regulatory capital.

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

Failure to meet minimum capital requirements

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

material effect on the Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective

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

sheet items as calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative

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

subject to various capital requirements administered by federal banking agencies.

Failure to meet minimum capital requirements can initiate

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

on the Bank’s financial statements.

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

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

items as calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative judgments

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

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

2 unchanged sentences

As of December 31, 2023, the Bank meets all capital adequacy requirements to which it is subject.

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

Schedule of capital requirements

actual capital amounts and ratios are presented in the following table as of December 31, 2023 and 2022, respectively.

of capital requirements

Capital Requirement

6 unchanged sentences

Risk Weighted Assets

December 31, 2022:

Capital to Risk Weighted Assets

3 unchanged sentences

Risk Weighted Assets

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

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

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

Wall Street Reform and Consumer Protection Act of 2010.

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

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

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

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

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

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

of Tier 1 capital to average assets.

Accordingly, as of

December 31, 2023 and 2022, the Bank was well capitalized under the regulatory framework for prompt corrective action.

There are no conditions

or events since such dates that management believes have changed the Bank’s category.

The Bank is also

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

and Consumer Protection Act of 2010.

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

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

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

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

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

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

The Bank’s capital conservation buffer was 8.58% at December 31, 2023.

The capital conservation

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

Banking institutions with a Common Equity Tier 1 capital to risk-weighted

assets ratio above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation

based on the amount of the shortfall.

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.

The capital conservation buffer is designed to absorb

losses during periods of economic stress.

Banking institutions with a Common Equity Tier 1 capital to risk-weighted assets ratio above

the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount

of the shortfall.

As of both December 31, 2023 and 2022, 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.

23 FAIR VALUES

Company established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets

and liabilities at fair value.

The Company established

a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at

The three broad levels defined by this hierarchy are:

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

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

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

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

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

These items do not have two-way markets

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

significant management judgment or estimation.

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

instruments pursuant to the valuation hierarchy are as follows:

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

measurement is based upon quoted prices.

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

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.

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.

The aggregate amount of impaired loans carried at

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,

to other real estate owned.

Quoted prices

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

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

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.

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 $89.8 million and $96.1 million as of December

31, 2023 and 2022, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an

independent pricing service.

Collateral Dependent

Loans with an ACL - In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which

differentiate it from other loans within our loan pools.

In such cases, the loans are evaluated for expected credit losses on an individual

basis and excluded from the collective evaluation.

Specific allocations of the allowance for credit losses are determined by analyzing

the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting

the borrower's industry, among other things.

A loan is considered to be collateral dependent when, based upon management's assessment,

the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale

of the collateral.

In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted

for estimated selling costs if satisfaction of the loan depends on the sale of the collateral.

We reevaluate the fair value of collateral

supporting collateral dependent loans on a quarterly basis.

The fair value of real estate collateral supporting collateral dependent

loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal

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.

Fair value is based upon

observable market prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level

When observable market prices are not available, management determines the fair value of the foreclosed asset using independent

3 unchanged sentences

The aggregate carrying amounts of

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

net of the related allowance):

Schedule of summary of assets and liabilities measured at fair value

are in thousands)

market price in active markets

other observable inputs

unobservable inputs

foreclosed assets were approximately $157,000 and $261,000 as of December 31, 2023 and 2022, respectively.

Assets and liabilities

measured at fair value are as follows as of December 31, 2023:

of summary of assets and liabilities measured at fair value Schedule

of summary of assets and liabilities measured at fair value

(Dollars are in thousands)

Quoted market

price in active markets

Significant other

observable inputs

Significant unobservable

a recurring basis)

for sale investments

Available for sale investments

Government Agencies

1 unchanged sentence

a non-recurring basis)

real estate owned

estate secured:

and land development

installment loans

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):

are in thousands)

market price in active markets

other observable inputs

unobservable inputs

Other real estate owned

dependent loans with ACL:

Assets and liabilities

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

(Dollars are in thousands)

Quoted market

price in active markets

Significant other

observable inputs

Significant unobservable

a recurring basis)

for sale investments

Available for sale investments

Government Agencies

1 unchanged sentence

a non-recurring basis)

real estate owned

Other real estate owned

estate secured:

and land development

installment loans

Level 3 assets measured at fair value on a recurring or non-recurring basis as of December 31, 2023 and 2022, the significant unobservable

inputs used in the fair value measurements were as follows:

Schedule of significant unobservable inputs In level 3 assets

in thousands)

Value at December 31,

Unobservable Inputs

Range of Significant Unobservable Input Values

of significant unobservable inputs In level 3 assets

(Dollars in thousands)

Fair Value at

Valuation Technique

Significant Unobservable

General Range

of Significant Unobservable Input Values

dependent loans with ACL:

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

5 unchanged sentences

value on a recurring basis are as follows:

Schedule of estimated fair value of financial instruments

of estimated fair value of financial instruments

Value Measurements

1 unchanged sentence

market price in active markets

other observable inputs

unobservable inputs

Significant other

observable inputs

Significant unobservable

instruments – assets

2 unchanged sentences

instruments – liabilities

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.

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.

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

interest approximates fair value and is excluded from the table above.

Fair value estimates

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

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.

carrying value of cash and due from banks, federal funds sold, interest-bearing deposits with other banks, deposits with no stated maturities

and accrued interest approximates fair value and is excluded from the table above.

methods utilized to measure the fair value of financial instruments represent an approximation of exit price;

5 unchanged sentences

Noninterest Income by revenue stream for the years ended December 31, 2023 and 2022.

Schedule of revenue from contracts with customers

of revenue from contracts with customers

are in thousands)

2 unchanged sentences

and investment fees

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

noninterest income

– Not within the scope of ASU 2014-9

revenues are earned from contracts with customers.

These revenues are recognized when the promised services are rendered to the customer

and reflects the entitled consideration received in exchange for those services.

and reflect the entitled consideration received in exchange for those services.

charges and fees – revenue is recognized on deposit services based on published fees for the services provided.

may be collected on a transaction basis, at the time the service is rendered or periodically based on the period over which the service

Transaction based fees include services such as stop payment requests, paper statement rendering and ITM usage fees.

Transaction-based fees include services such as stop payment requests, paper statement rendering and ATM usage fees.

fees include such charges as monthly account maintenance fees.

8 unchanged sentences

25 NONINTEREST EXPENSES

operating expenses, included as part of noninterest expenses, consisted of the following for the years ended December 31, 2022 and 2021:

Schedule of noninterest expenses

Other operating expenses,

included as part of noninterest expenses, consisted of the following for the years ended December 31, 2023 and 2022:

of noninterest expenses

are in thousands)

sponsorships and donations

operating expenses

network expense

2 unchanged sentences

insurance premiums

sponsorships and donations

real estate owned expenses, net

operating expenses

26 SUBSEQUENT EVENTS

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

Subsequent events

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

Recognized subsequent

5 unchanged sentences

through the date the financial statements were available to be issued and has identified the following as a non-recognized subsequent

February 27, 2023, the board of directors declared a dividend of $0.06 per share payable on March 31, 2023 to shareholders of record

as of March 15, 2023.

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.

On February 28, 2024,

the Board of Directors declared a dividend of $0.07 per share payable March 29, 2024 to shareholders of record as of March 15, 2024.

On February 28, 2024,

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, 2025.

This is a continuation of the repurchase program originally announced April 28, 2022, which was set to expire March 31,

To the date of this announced continuation, 189,970 shares have been repurchased at an average price of $2.33 per share, leaving

310,030 shares available for repurchase.

Repurchases made through this program will be made through open market purchases or in privately

negotiated transactions.

27 RECENT ACCOUNTING DEVELOPMENTS

following is a summary of recent authoritative announcements:

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.

The following is

a summary of recent authoritative announcements:

In June 2022, the

Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, “Fair

Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”.

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 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):

The Company does not expect the adoption of

ASU 2022-03 to have a material impact on its consolidated financial statements.

In 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.

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.

To 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

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

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

27 PARENT CORPORATION

ONLY FINANCIAL STATEMENTS

The Company completed its transition away from LIBOR for its loan and other

financial instruments that have not already been transitioned to an alternative reference rate.

This transition had no material impact

on earnings or capital.

In July 2023, the

Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting

Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock

Compensation (Topic 718)”.

This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff

Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting

Series Release 280—General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock.

ASU 2023-03 is effective upon

addition to the FASB Codification.

The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated

financial statements.

In October 2023,

the FASB issued amendments to incorporate certain U.S.

Securities and Exchange Commission (“SEC”) disclosure requirements

into the U.S.

GAAP and align the requirements with the SEC’s regulations.

The amendments are effective prospectively on the date

on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective.

Early adoption is

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

In December 2023,

the FASB amended the Income Taxes topic in the Accounting Standards Codification to improve the transparency of income tax disclosures.

The amendments are effective for annual periods beginning after December 15, 204.

Early adoption is permitted for annual financial statements

that have not yet been issued or made available for issuance.

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

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.

CORPORATION ONLY FINANCIAL STATEMENTS

BALANCE SHEETS

1 unchanged sentence

in Thousands)

Schedule of parent corporation only condensed balance sheets

of parent corporation only condensed balance sheets

in subsidiaries

4 unchanged sentences

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

23,745,900 and 23,848,491 shares issued and outstanding at December

31, 2023 and 2022, respectively

other comprehensive loss

4 unchanged sentences

in thousands)

Schedule of parent corporation only condensed statements of income

of parent corporation only condensed statements of income

Miscellaneous

8 unchanged sentences

in thousands)

Schedule of parent corporation only condensed statements of cash flows

of parent corporation only condensed statements of cash flows

flows from operating activities

to reconcile net income to net cash provided by (used

operating activities:

to reconcile net income to net cash provided by operating activities:

in undistributed earnings of subsidiaries

1 unchanged sentence

increase in other liabilities

cash provided by (used in) operating activities

cash provided by operating activities

flows from financing activities:

of long-term debt

of common stock

1 unchanged sentence

used in financing activities

increase (decrease) in cash and cash equivalents

(decrease) increase 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

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