NEW PEOPLES BANKSHARES INC 10-K

Item 8. Financial Statements and Supplementary Data FINANCIAL STATEMENTS CONTENTS Page Report of Independent Registered Public Accounting Firm 36 Consolidated Balance Sheets December 31, 2023 and 2022 38 Consolidated Statements of Income – Years Ended December 31, 2023 and 2022 39 Consolidated Statements of Comprehensive Income (Loss) – Years Ended December 31, 2023 and 2023 40 Consolidated Statements of Shareholders’ Equity – Years Ended December 31, 2023 and 2022 41 Consolidated Statements of Cash Flows – Years Ended December 31, 2023 and 2022 42 Notes to Consolidated Financial Statements 43 35 Report of Independent Registered Public Accounting Firm 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 fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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. 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 our opinion. Critical Audit Matter 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. 36 Allowance for Credit Losses – Loans Collectively Evaluated for Credit Losses Description of the Matter 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. Factors 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; the volume 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 available. 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, including: o Evaluating 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. o Evaluating the methodology and testing the accuracy of incorporating reasonable and supportable forecasts in the collectively evaluated ACLL estimate. o Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors. o Evaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data. o Testing the mathematical accuracy of the ACLL for collectively evaluated loans including both the discounted cashflow and qualitative factor components of the calculations. /s/ Yount, Hyde, & Barbour, P.C . We have served as the Company’s auditor since 2022. 149 Roanoke, Virginia April 1, 2024 37 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2023 AND 2022 (in thousands except share data) ASSETS 2023 2022 Cash and due from banks $ 14,596 $ 13,979 Interest-bearing deposits with banks 50,363 46,747 Federal funds sold 18 960 Total cash and cash equivalents 64,977 61,686 Investment securities available-for-sale, at fair value 89,805 96,076 Loans receivable 638,111 584,613 Allowance for credit losses ( 7,256 ) ( 6,727 ) Net loans 630,855 577,886 Bank premises and equipment, net 18,265 19,290 Other real estate owned 157 261 Accrued interest receivable 3,029 2,555 Deferred taxes, net 4,461 4,623 Bank owned life insurance 4,589 4,549 Right-of-use assets – operating leases 3,852 3,725 Other assets 6,323 4,707 Total assets $ 826,313 $ 775,358 LIABILITIES Deposits Noninterest bearing $ 233,878 $ 249,924 Interest-bearing 482,589 442,783 Total deposits 716,467 692,707 Borrowed funds 36,186 16,496 Lease liabilities – operating leases 3,852 3,725 Accrued interest payable 1,447 526 Accrued expenses and other liabilities 3,550 4,685 Total liabilities 761,502 718,139 Commitments and Contingent Liabilities (Notes 19 and 21) SHAREHOLDERS’ EQUITY Common stock - $ 2.00 par value; 50,000,000 shares authorized; 23,745,900 and 23,848,491 shares issued and outstanding at December 31, 2023 and 2022, respectively 47,492 47,697 Additional paid-in capital 14,514 14,546 Retained earnings 14,458 8,917 Accumulated other comprehensive loss ( 11,653 ) ( 13,941 ) Total shareholders’ equity 64,811 57,219 Total liabilities and shareholders’ equity $ 826,313 $ 775,358 The accompanying notes are an integral part of these financial statements. 38 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 (in thousands except share and per share data) INTEREST AND DIVIDEND INCOME 2023 2022 Loans including fees $ 32,552 $ 27,739 Federal funds sold 22 8 Interest-earning deposits with banks 2,239 1,514 Investments 2,167 1,983 Dividends on equity securities (restricted) 155 146 Total interest and dividend income 37,135 31,390 INTEREST EXPENSE Deposits 7,582 1,875 Borrowed funds 1,534 1,230 Total interest expense 9,116 3,105 NET INTEREST INCOME 28,019 28,285 PROVISION FOR CREDIT LOSSES 649 625 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 27,370 27,660 NONINTEREST INCOME Service charges and fees 3,886 3,969 Card processing and interchange income 3,730 3,769 Insurance and investment fees 1,084 954 Other noninterest income 1,249 548 Total noninterest income 9,949 9,240 NONINTEREST EXPENSES Salaries and employee benefits 14,256 13,365 Occupancy and equipment expenses 3,943 4,135 Data processing and telecommunications 2,481 2,369 Other operating expenses 7,308 6,650 Total noninterest expenses 27,988 26,519 INCOME BEFORE INCOME TAXES 9,331 10,381 INCOME TAX EXPENSE 2,147 2,299 NET INCOME $ 7,184 $ 8,082 Income Per Share Basic and Diluted $ 0.30 $ 0.34 Average Weighted Shares of Common Stock Basic and Diluted 23,804,427 23,898,185 The accompanying notes are an integral part of these financial statements. 39 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 (Dollars in thousands) 2023 2022 NET INCOME $ 7,184 $ 8,082 Other comprehensive income (loss): Investment securities activity: Unrealized gains (losses) arising during the year 2,896 ( 16,617 ) Other comprehensive income (losses) on investment securities 2,896 ( 16,617 ) Related tax (expense) benefit ( 608 ) 3,490 TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 2,288 ( 13,127 ) TOTAL COMPREHENSIVE INCOME (LOSS) $ 9,472 $ ( 5,045 ) The accompanying notes are an integral part of these financial statements. 40 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 (in thousands including share data) Shares of Common Stock Common Stock Additional Paid-in- Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance, December 31, 2021 23,922 $ 47,844 $ 14,570 $ 2,031 $ ( 814 ) $ 63,631 Net income — — — 8,082 — 8,082 Other comprehensive loss, net of tax — — — — ( 13,127 ) ( 13,127 ) Cash dividend declared ($0.05 per share) — — — ( 1,196 ) — ( 1,196 ) Repurchase of common stock ( 74 ) ( 147 ) ( 24 ) — — ( 171 ) Balance, December 31, 2022 23,848 $ 47,697 $ 14,546 $ 8,917 $ ( 13,941 ) $ 57,219 Adoption of ASU 2016-13 — $ — $ — $ (212 ) $ — $ (212 ) Net income — — — 7,184 — 7,184 Other comprehensive income, net of tax — — — — 2,288 2,288 Cash dividend declared ($0.06 per share) — — — ( 1,431 ) — ( 1,431 ) Repurchase of common stock (102 ) ( 205 ) ( 32 ) — — ( 237 ) Balance, December 31, 2023 23,746 $ 47,492 $ 14,514 $ 14,458 $ ( 11,653 ) $ 64,811 The accompanying notes are an integral part of these financial statements. 41 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 (Dollars are in thousands) 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 7,184 $ 8,082 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,614 1,741 Provision for credit losses 649 625 (Income) loss on bank owned life insurance ( 40 ) 136 Gain on sale of mortgage loans ( 4 ) ( 29 ) (Gain) loss on sale or disposal of premises and equipment ( 46 ) 201 Loss (gain) on sale of foreclosed real estate and repossessed assets 96 ( 70 ) Loans originated for sale ( 81 ) ( 1,577 ) Proceeds from sales of loans originated for sale 85 1,606 Adjustment of carrying value of foreclosed real estate and repossessed assets — 197 Net amortization/accretion of bond premiums/discounts 298 474 Deferred tax (benefit) expense ( 390 ) 540 Net change in: Interest receivable ( 474 ) ( 443 ) Other assets ( 667 ) 26 Accrued interest payable 920 254 Accrued expenses and other liabilities ( 1,743 ) 2,068 Net cash provided by operating activities 7,401 13,831 CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in loans ( 53,725 ) 9,209 Purchase of securities available-for-sale ( 500 ) ( 19,790 ) Proceeds from repayments and maturities of securities available-for-sale 9,369 13,980 Net purchase of equity securities (restricted) ( 625 ) ( 27 ) Payments for the purchase of premises and equipment ( 1,475 ) ( 548 ) Proceeds from sale of premises and equipment 932 — Proceeds from insurance claims on other real estate owned or premises — 51 Proceeds from sales of other real estate owned 132 207 Net cash (used in) provided by investing activities ( 45,892 ) 3,082 CASH FLOWS FROM FINANCING ACTIVIES Increase in short-term borrowings 10,000 — Net change in long-term debt 9,690 — Net change in noninterest bearing deposits ( 16,046 ) ( 1,333 ) Net change in interest bearing deposits 39,806 ( 13,473 ) Dividends paid ( 1,431 ) ( 1,196 ) Repurchase of common stock ( 237 ) ( 171 ) Net cash provided by (used in) financing activities 41,782 ( 16,173 ) Net increase in cash and cash equivalents 3,291 740 Cash and cash equivalents, beginning of the year 61,686 60,946 Cash and cash equivalents, end of the year $ 64,977 $ 61,686 Supplemental Disclosure of Cash Paid During the Year for: Interest $ 8,195 $ 2,851 Taxes 3,705 650 Supplemental Disclosure of Non-Cash Transactions: Right-of-use assets obtained in exchange for new operating lease liabilities 451 — Transfer of loans to other real estate owned 124 — Loans made to finance sale of foreclosed real estate — 711 Change in unrealized losses on securities available for sale 2,896 ( 16,617 ) The accompanying notes are an integral part of these financial statements. 42 NEW PEOPLES BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 NATURE OF OPERATIONS 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. (the Bank). 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. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis 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. 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. Accounting Standards Adopted in 2023 – On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): 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. The 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. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not deemed material. 43 The following table illustrates the impact on the allowance for credit losses from the adoption of ASC 326: Schedule of allowance for credit losses on available for sale securities January 1, 2023 As Reported Under ASC 326 December 31, 2022 Pre-ASC 326 Adoption Impact of ASC 326 Adoption (Dollars in thousands) Assets: Loans, at amortized cost $ 584,613 $ 584,613 $ — Allowance for credit losses on loans: Real estate secured: Commercial 2,065 2,364 ( 299 ) Construction and land development 509 345 164 Residential 1-4 family 2,639 2,364 275 Multifamily 274 262 12 Farmland 228 153 75 Total real estate loans 5,715 5,488 227 Commercial 622 381 241 Agriculture 27 32 ( 5 ) Consumer and other loans 283 386 ( 103 ) Unallocated — 440 ( 440 ) Total allowance for credit losses for loans 6,647 6,727 ( 80 ) Deferred tax asset 4,679 4,623 56 Liabilities: Allowance for credit losses for unfunded commitments 348 — 348 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 interest. 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 difficulty. 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. Under 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. Use 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. Actual results could differ from those estimates. 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. Cash 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. Investment 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. 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. 44 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 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. Allowance for Credit Losses – Available-for-Sale Securities – For 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. In 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 basis. 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 portfolio. Loans 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 – Loans 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. 45 Significant 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 $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. Allowance for Credit Losses – Loans – The 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. 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: changes to: lending 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: • Commercial 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. These loans 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 space. 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 flow. 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. Multifamily 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. Factors 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. • Commercial Loans. 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. 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. 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. 46 • 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 maturities. • Construction Loans. 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. Management 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. • Consumer Loans. 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. • The 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”). The 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. When 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. • The 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. 47 Allowance for Credit Losses – Unfunded Commitments – Financial 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 . Bank 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 Type Estimated useful life Buildings 39 – 40 years Paving and landscaping 15 years Computer equipment and software 3 to 5 years Vehicles 5 years Furniture and other equipment 5 to 10 years Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Repairs and maintenance costs are recorded as a component of noninterest expense as incurred. Other 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. Bank Owned Life Insurance (“BOLI”) – The Bank purchased life insurance policies on certain, now-former, key officers and employees. Changes in the cash surrender value are recorded in noninterest income. Leases – 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. Income 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, 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. 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. 48 Income Per Share – 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. Financial 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. Financial 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. Changes in assumptions or market conditions could significantly affect these estimates. Comprehensive 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. Revenue from Contracts with Customers - The 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. Advertising Cost – 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. Subsequent Events – 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. NOTE 3 INCOME PER SHARE 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: Schedule of basic and diluted net loss per common share calculations (Amounts in thousands, except For the year ended share and per share data) December 31, 2023 2022 Net income $ 7,184 $ 8,082 Weighted average shares outstanding 23,804,427 23,898,185 Weighted average dilutive shares outstanding 23,804,427 23,898,185 Basic and diluted income per share $ 0.30 $ 0.34 NOTE 4 DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS 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. 49 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 bank. As of December 31, 2023 and 2022, the Bank was in compliance with this requirement. NOTE 5 INVESTMENT SECURITIES The amortized cost and estimated fair value of securities (all available-for-sale) as of December 31, 2023 and 2022 are as follows: Schedule of securities amortized cost and estimated fair value Gross Gross Approximate Amortized Unrealized Unrealized Fair (Dollars are in thousands) Cost Gains Losses Value December 31, 2023 U.S. Treasuries $ 11,643 $ - $ 658 $ 10,985 U.S. Government Agencies 9,412 23 624 8,811 Taxable municipals 22,973 - 5,114 17,859 Corporate bonds 3,002 1 315 2,688 Mortgage backed securities 57,526 - 8,064 49,462 Total Securities available for sale $ 104,556 $ 24 $ 14,775 $ 89,805 December 31, 2022 U.S. Treasuries $ 12,642 $ - $ 957 $ 11,685 U.S. Government Agencies 10,129 4 734 9,399 Taxable municipals 23,022 - 6,207 16,815 Corporate bonds 3,512 - 376 3,136 Mortgage backed securities 64,419 - 9,378 55,041 Total Securities available for sale $ 113,724 $ 4 $ 17,652 $ 96,076 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. Schedule of fair value and gross unrealized losses on investment securities Less than 12 Months 12 Months or More Total (Dollars are in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2023 U.S. Treasuries $ - $ - $ 10,985 $ 658 $ 10,985 $ 658 U.S. Government Agencies 42 - 8,123 624 8,165 624 Taxable municipals 485 16 17,374 5,098 17,859 5,114 Corporate bonds - - 2,187 315 2,187 315 Mortgage backed securities - - 49,413 8,064 49,413 8,064 Total $ 527 $ 16 $ 88,082 $ 14,759 $ 88,609 $ 14,775 December 31, 2022 U.S. Treasuries $ 4,761 $ 145 $ 6,922 $ 812 $ 11,683 $ 957 U.S. Government Agencies 5,925 348 3,295 386 9,220 734 Taxable municipals 3,689 1,113 13,127 5,094 16,816 6,207 Corporate bonds 2,375 136 761 240 3,136 376 Mortgage backed securities 11,338 861 43,612 8,517 54,950 9,378 Total $ 28,088 $ 2,603 $ 67,717 $ 15,049 $ 95,805 $ 17,652 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. Management believes that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and are not a result of credit deterioration. Management does not 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 as 50 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. 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 Weighted (Dollars are in thousands) Amortized Fair Average Securities Available for Sale Cost Value Yield Due in one year or less $ 5,263 $ 5,149 1.87 % Due after one year through five years 12,966 12,205 2.10 % Due after five years through ten years 16,805 14,849 2.34 % Due after ten years 69,522 57,602 1.90 % Total $ 104,556 $ 89,805 2.00 % 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. NOTE 6 LOANS Loans receivable outstanding as of December 31, 2023 and 2022, are summarized as follows: Summary of loans receivable outstanding December 31, (Dollars are in thousands) 2023 2022 Real estate secured: Commercial $ 240,187 $ 197,069 Construction and land development 28,830 42,470 Residential 1-4 family 238,233 227,232 Multifamily 34,571 29,710 Farmland 16,401 17,744 Total real estate loans 558,222 514,225 Commercial 53,230 46,697 Agriculture 3,508 3,756 Consumer installment loans 22,639 19,309 All other loans 512 626 Total loans $ 638,111 $ 584,613 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. 51 Loans receivable on nonaccrual status as of December 31, 2023 and 2022 are summarized as follows: Summary of loans receivable on nonaccrual status CECL Incurred Loss December 31, 2023 December 31, 2022 (Dollars in thousands) With No Allowance With an Allowance Total Real estate secured: Commercial $ 544 $ 268 $ 812 $ - Construction and land development - - - 471 Residential 1-4 family 2,495 - 2,495 2,597 Multifamily 199 - 199 268 Farmland - - - 41 Total real estate loans 3,238 268 3,506 3,377 Commercial - - - - Consumer installment loans and other loans 28 - 28 36 Total loans receivable on nonaccrual status $ 3,266 $ 268 $ 3,534 $ 3,413 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. The 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: 52 Schedule of summary of impaired loans (Dollars in thousands) Unpaid Principal Balance Related Allowance Real estate secured: Commercial $ 812 $ 64 Construction and land development - - Residential 1-4 family 312 - Multifamily - - Farmland - - Total real estate secured 1,124 64 Commercial - - Agriculture - - Consumer installment loans - - Total $ 1,124 $ 64 The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022: As of December 31, 2022 (Dollars are in thousands) Average Recorded Investment Interest Income Recognized Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Real estate secured: Commercial $ 124 $ 6 $ 90 $ 131 $ - Construction and land development 114 17 471 491 - Residential 1-4 family 1,585 48 1,617 1,972 - Multifamily - - - - - Farmland 307 24 248 417 - Commercial 14 1 23 31 - Agriculture - - - - - Consumer installment loans 1 - - - All other loans - - - - - With an allowance recorded: Real estate secured: Commercial 407 2 268 338 63 Construction and land development 291 - - - - Residential 1-4 family 201 6 32 48 23 Multifamily 20 - - - - Farmland 63 - - - - Commercial 27 1 - - - Agriculture - - - - - Consumer installment loans - - - - - All other loans - - - - - Total $ 3,154 $ 105 $ 2,749 $ 3,428 $ 86 53 The following tables show an age analysis of past due loans receivable as of December 31, 2023 and 2022, segregated by class: Summary age analysis of past due loans receivable As of December 31, 2023 (Dollars are in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Real estate secured: Commercial $ 878 $ - $ 268 $ 1,146 $ 239,041 $ 240,187 Construction and land development 85 4 - 89 28,741 28,830 Residential 1-4 family 2,628 1,119 886 4,633 233,600 238,233 Multifamily - - 199 199 34,372 34,571 Farmland - - - - 16,401 16,401 Total real estate loans 3,591 1,123 1,353 6,067 552,155 558,222 Commercial - 20 - 20 53,210 53,230 Agriculture 8   - - 8 3,500 3,508 Consumer installment loans 140 11 1 152 22,487 22,639 All other loans -   - - - 512 512 Total loans $ 3,739 $ 1,154 $ 1,354 $ 6,247 $ 631,864 $ 638,111 As of December 31, 2022 (Dollars are in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Real estate secured: Commercial $ 268 $ - $ - $ 268 $ 196,801 $ 197,069 Construction and land development 89 - - 89 42,381 42,470 Residential 1-4 family 3,521 543 341 4,405 222,827 227,232 Multifamily 229 - - 229 29,481 29,710 Farmland 285 - - 285 17,459 17,744 Total real estate loans 4,392 543 341 5,276 508,949 514,225 Commercial 56 - - 56 46,641 46,697 Agriculture - - - - 3,756 3,756 Consumer installment loans 73 17 17 107 19,202 19,309 All other loans 59 - - 59 567 626 Total loans $ 4,580 $ 560 $ 358 $ 5,498 $ 579,115 $ 584,613 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: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. 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: Pass - 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. Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date. 54 Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. There were no loans classified as doubtful at either December 31, 2023 or 2022. The following table presents the credit risk grade of loans by origination year as of December 31, 2023: 55 Summary of risk category of loans receivable As of December 31, 2023 (Dollars are in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total Commercial real estate Pass $ 46,616 $ 49,061 $ 48,943 $ 28,651 $ 20,004 $ 43,524 $ 997 $ 237,796 Special mention - - 1,171 314 - 92 - 1,577 Substandard - - - - 429 385 - 814 Total commercial real estate $ 46,616 $ 49,061 $ 50,114 $ 28,965 $ 20,433 $ 44,001 $ 997 $ 240,187 Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Construction and Land Development Pass $ 12,043 $ 5,990 $ 4,738 $ 2,521 $ 1,799 $ 1,637 $ - $ 28,728 Special mention - - - - - 102 - 102 Substandard - - - - - - - - Total construction and land development $ 12,043 $ 5,990 $ 4,738 $ 2,521 $ 1,799 $ 1,739 $ - $ 28,830 Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Residential 1-4 family Pass $ 29,006 $ 33,986 $ 41,214 $ 13,566 $ 13,662 $ 80,087 $ 23,553 $ 235,074 Special mention - - - - - 259 - 259 Substandard 87 - 49 - 38 2,662 64 2,900 Total residential 1-4 family $ 29,093 $ 33,986 $ 41,263 $ 13,566 $ 13,700 $ 83,008 $ 23,617 $ 238,233 Current period gross charge-offs $ - $ - $ ( 30 ) $ - $ - $ ( 21 ) $ - $ ( 51 ) Multifamily Pass $ 5,779 $ 11,483 $ 7,965 $ 2,626 $ 1,081 $ 5,438 $ - $ 34,372 Special mention - - - - - - - - Substandard - - - - - 199 - 199 Total multifamily $ 5,779 $ 11,483 $ 7,965 $ 2,626 $ 1,081 $ 5,637 $ - $ 34,571 Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Farmland Pass $ 1,807 $ 2,222 $ 3,414 $ 776 $ 1,205 $ 6,793 $ - $ 16,217 Special mention - - - - - 184 - 184 Substandard - - - - - - - - Total farmland $ 1,807 $ 2,222 $ 3,414 $ 776 $ 1,205 $ 6,977 $ - $ 16,401 Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Commercial Pass $ 19,306 $ 10,228 $ 5,638 $ 1,591 $ 2,167 $ 1,342 $ 12,777 $ 53,049 Special mention 78 100 - - - 3 - 181 Substandard - - - - - - - - Total commercial $ 19,384 $ 10,328 $ 5,638 $ 1,591 $ 2,167 $ 1,345 $ 12,777 $ 53,230 Current period gross charge-offs $ - $ ( 5 ) $ ( 14 ) $ - $ ( 26 ) $ - $ - $ ( 45 ) Agriculture Pass $ 565 $ 518 $ 347 $ 127 $ 67 $ 649 $ 1,217 $ 3,490 Special mention - - - - - - - - Substandard - - - - - 18 - 18 Total agriculture $ 565 $ 518 $ 347 $ 127 $ 67 $ 667 $ 1,217 $ 3,508 Current period gross charge-offs $ - $ - $ - $ - $ - $ ( 59 ) $ - $ ( 59 ) Consumer and All Other Pass $ 12,352 $ 4,822 $ 2,408 $ 864 $ 594 $ 761 $ 1,339 $ 23,140 Special mention - 1 - - - - - 1 Substandard 4 - 1 3 1 1 - 10 Total consumer and all other $ 12,356 $ 4,823 $ 2,409 $ 867 $ 595 $ 762 $ 1,339 $ 23,151 Current period gross charge-offs $ ( 198 ) $ ( 49 ) $ ( 13 ) $ - $ - $ ( 2 ) $ ( 59 ) $ ( 321 ) Total $ 127,643 $ 118,411 $ 115,888 $ 51,039 $ 41,047 $ 144,136 $ 39,947 $ 638,111 Total current period gross charge-offs $ ( 198 ) $ ( 54 ) $ ( 57 ) $ - $ ( 26 ) $ ( 82 ) $ ( 59 ) $ ( 476 ) 56 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: As of December 31, 2022 (Dollars are in thousands) Pass Special Mention Substandard Doubtful Total Real estate secured: Commercial $ 195,376 $ 1,425 $ 268 $ — $ 197,069 Construction and land development 41,882 117 471 — 42,470 Residential 1-4 family 224,228 406 2,598 — 227,232 Multifamily 29,503 207 — — 29,710 Farmland 16,848 855 41 — 17,744 Total real estate loans 507,837 3,010 3,378 — 514,225 Commercial 46,471 226 — — 46,697 Agriculture 3,756 — — — 3,756 Consumer installment loans 19,272 2 35 — 19,309 All other loans 626 — — — 626 Total $ 577,962 $ 3,238 $ 3,413 $ — $ 584,613 NOTE 7 ALLOWANCE FOR CREDIT LOSSES FOR LOANS (“ACLL”) 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: Schedule of allocation of portion of allowance (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total Year ended December 31, 2023 Beginning balance $ 2,364 $ 345 $ 2,364 $ 262 $ 153 $ 381 $ 32 $ 386 $ 440 $ 6,727 Adjustment to allowance for adoption of ASU 2016-13 ( 299 ) 164 275 12 75 241 ( 5 ) ( 103 ) ( 440 ) ( 80 ) Charge-offs - - ( 51 ) - - ( 45 ) ( 59 ) ( 321 ) - ( 476 ) Recoveries - 35 37 111 - 19 5 166 - 373 Provision for credit losses 453 ( 244 ) 41 124 ( 65 ) 77 60 266 - 712 Ending balance $ 2,518 $ 300 $ 2,666 $ 509 $ 163 $ 673 $ 33 $ 394 $ - $ 7,256 57 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 2016-13: Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total Year ended December 31, 2022 Beginning balance $ 2,134 $ 189 $ 2,237 $ 254 $ 149 $ 1,099 $ 28 $ 108 $ 537 $ 6,735 Charge-offs ( 5 ) ( 149 ) ( 64 ) ( 111 ) ( 1 ) ( 45 ) ( 1 ) ( 559 ) - ( 935 ) Recoveries 33 6 100 2 14 31 1 115 - 302 Provision 202 299 91 117 ( 9 ) ( 704 ) 4 722 ( 97 ) 625 Ending balance $ 2,364 $ 345 $ 2,364 $ 262 $ 153 $ 381 $ 32 $ 386 $ 440 $ 6,727 Allowance for loan losses at December 31, 2022 Individually evaluated for impairment $ 63 $ - $ 23 $ - $ - $ - $ - $ - $ - $ 86 Collectively evaluated for impairment 2,301 345 2,341 262 153 381 32 386 440 6,641 $ 2,364 $ 345 $ 2,364 $ 262 $ 153 $ 381 $ 32 $ 386 $ 440 $ 6,727 Loans at December 31, 2022 Individually evaluated for impairment $ 358 $ 471 $ 1,649 $ - $ 248 $ 23 $ - $ - $ - $ 2,749 Collectively evaluated for impairment 196,711 41,999 225,583 29,710 17,496 46,965 3,756 19,644 - 581,864 $ 197,069 $ 42,470 $ 227,232 $ 29,710 $ 17,744 $ 46,988 $ 3,756 $ 19,644 $ - $ 584,613 Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. NOTE 8 MODIFICATIONS MADE TO BORROWERS EXPERIENCING FINANCIAL DIFFICULTY 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. 58 NOTE 9 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: Schedule of bank premises and equipment (Dollars are in thousands) 2023 2022 Land $ 7,206 $ 7,371 Buildings and improvements 15,329 15,972 Furniture and equipment 12,672 13,965 Construction in progress 16 - 35,223 37,308 Less accumulated depreciation ( 16,958 ) ( 18,018 ) Bank Premises and Equipment $ 18,265 $ 19,290 As presented in Note 14 Other Real Estate Owned, the Bank sold three former branch locations during 2022. These properties with a combined carrying value of $2.0 million, were transferred to other real estate owned during 2021, resulting in an increase to OREO of $950,0000, and disposal and valuation costs of approximately $1.1 million. NOTE 10 INCOME TAXES The Company files a consolidated federal income tax return. The following summarizes the provision for income taxes and the related deferred tax components for the years ended December 31, 2023 and 2022. Income tax expense is summarized as follows for the years ended December 31, 2023 and 2022: Schedule of pre-tax book income (Dollars are in thousands) 2023 2022 Current income tax expense $ 2,139 $ 1,759 Deferred tax expense 8 540 Income tax expense $ 2,147 $ 2,299 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: Schedule of reconciliation of income tax expense (Dollars are in thousands) 2023 2022 Income tax expense at the applicable federal rate $ 2,152 $ 2,180 Permanent differences resulting from: Nondeductible expenses 12 9 Tax exempt interest income ( 2 ) ( 3 ) Bank owned life insurance ( 9 ) 29 Other adjustments ( 6 ) 84 Income tax expense $ 2,147 $ 2,299 The net deferred tax assets and liabilities resulting from temporary differences as of December 31, 2023 and 2022, are summarized as follows: Schedule of net deferred tax assets and liabilities (Dollars are in thousands) 2023 2022 Deferred tax assets Allowance for credit losses $ 1,696 $ 1,498 Deferred compensation 75 80 Unrealized loss on securities available for sale 3,098 3,706 Other real estate owned 15 48 Self-insured health insurance 267 250 Lease Liability 866 829 Other 355 351 Total assets, gross 6,372 6,762 59 Deferred tax liabilities Depreciation 565 874 Prepaid expenses 30 18 Deferred loan costs 450 418 Right-of-use asset 866 829 Total liabilities, gross 1,911 2,139 Net deferred tax asset $ 4,461 $ 4,623 In accordance with applicable accounting guidance, the Company determined that it was not required to establish a valuation allowance for deferred tax assets as it is more likely than not that the deferred tax asset will be realized through future taxable income, future reversals of existing taxable temporary differences and tax strategies. The Company’s net deferred tax asset is recorded in the consolidated financial statements separately. As of December 31, 2023 and 2022, the Company had no unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to increase significantly over the next twelve months. The company recognizes interest and penalties as a component of income tax expense. The Company and Bank are subject to U. S. federal income tax, a capital-based franchise tax in the Commonwealth of Virginia; and income and excise taxes in West Virginia, Tennessee and North Carolina, respectively, based on earnings realized from business activities within each state. Years prior to 2020 are no longer subject to examination by taxing authorities. NOTE 11 TIME DEPOSITS 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 or 2022. As of December 31, 2023, the scheduled maturities of time deposits are as follows (dollars are in thousands): Schedule of maturities 2024 $ 183,132 2025 38,564 2026 22,381 2027 4,694 2028 3,545 After five years - Total $ 252,316 NOTE 12 RELATED PARTY TRANSACTIONS 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. Schedule of related party For the year ended December 31, (Dollars in thousands) 2023 2022 Beginning balance $ 1,559 $ 3,419 New loans and advances on lines 1,750 2,636 Effects of changes in composition of related parties 1,557 — Payments and other reductions ( 2,256 ) ( 4,496 ) Ending balance $ 2,610 $ 1,559 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, Inc. holds a 39% membership interest in Lonesome Pine Title Agency, LLC, which provides title insurance. 60 NOTE 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 award. 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. For each award, a participant receives an allocation equal to earnings per share, for each share covered by the award, on a quarterly basis. Awards 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. NOTE 14 OTHER REAL ESTATE OWNED The following table summarizes the activity in other real estate owned for the years ended December 31, 2023 and 2022: Schedule of other real estate owned 2023 2022 (Dollars are in thousands) Balance, beginning of year $ 261 $ 1,361 Additions 124 — Transfers from premises and equipment — — Proceeds from sales ( 132 ) ( 207 ) Loans made to finance sales — ( 711 ) Adjustment of carrying value — ( 197 ) Gains (losses) from sales ( 96 ) 15 Balance, end of year $ 157 $ 261 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. NOTE 15 BANK OWNED LIFE INSURANCE 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. 61 NOTE 16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK 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. 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. Virginia law restricts the amount of dividends a Virginia corporation may pay. Generally, a Virginia corporation may not authorize and make distributions if, after giving effect to the distribution, it would be unable to meet its debts as they become due in the usual course of business or if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if it were dissolved at that time, to satisfy the preferential rights of shareholders whose rights are superior to the rights of those receiving the distribution. In addition, the payment of distributions to shareholders is subject to any prior rights of outstanding preferred stock. NOTE 17 LEASING ACTIVITIES As 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 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. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to the lease term for each transaction. This methodology is expected to be used for any other subsequent lease agreements. The weighted average discount rate for the leases as of December 31, 2023 was 3.43%. 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. As 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 2024 $ 557 2025 557 2026 557 2027 578 2028 584 Thereafter 1,737 Total lease payments 4,570 Less imputed interest 718 Total $ 3,852 62 NOTE 18 BORROWED FUNDS The following table presents the breakdown of borrowed funds as of December 31, 2023 and 2022: Schedule of breakdown of borrowed funds FHLB Revolving Advances Federal Funds Lines FHLB Term Loans Short-Term FRB Term Funding Program FHLB Term Loans Long-Term NPB Capital Trust I NPB Capital Trust 2 Total (a) (b) (a) (c) (d) (a) (e) (Dollars in thousands) Balance December 31, 2023 $ - $ - $ - $ 10,000 $ 10,000 $ 11,031 $ 5,155 $ 36,186 Highest balance at any month-end - - - 10,000 10,000 11,341 5,155 Average weighted balance 384 - - 110 6,630 11,271 5,155 23,550 Average interest rate: Paid during the year 4.96 % 6.00 % 0.00 % 4.83 % 3.51 % 8.04 % 7.20 % 6.51 % At year-end 0.00 % 0.00 % 0.00 % 4.83 % 3.51 % 8.26 % 7.43 % 5.88 % Balance December 31, 2022 $ - $ - $ - $ - $ - $ 11,341 $ 5,155 $ 16,496 Highest balance at any month-end - - 60,000 - - 11,341 5,155 Average weighted balance 863 - 19,507 - - 11,341 5,155 36,866 Average interest rate: Paid during the year 1.68 % 0.00 % 2.48 % 0.00 % 0.00 % 4.63 % 3.79 % 3.31 % At year-end 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 6.68 % 5.85 % 6.42 % (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, 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. (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. (c) – As of December 31, 2023 and 2022, there are no short term FHLB advances outstanding. (d) – As of 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 million. The loan matures December 28, 2024 and can be prepaid without penalty. (e) – As of December 31, 2023, there is a fixed rate, FHLB advance in the amount of $10.0 million outstanding, which matures in 2028. There were 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. 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. 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. 63 Following are maturities of borrowed funds as of December 31, 2023 (dollars in thousands): Schedule of maturities of borrowed funds 2024 $ 10,000 2025 - 2026 - 2027 - 2028 10,000 2029 and thereafter 16,186 $ 36,186 NOTE 19 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Bank has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making such commitments as it does for instruments that are included in the balance sheet. Financial instruments whose contract amount represents credit risk as of December 31, 2023 and 2022 were as follows: Schedule of financial instruments with credit risk 2023 2022 (Dollars in thousands) Commitments to extend credit $ 93,212 $ 84,149 Standby letters of credit 3,968 3,731 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 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. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The 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. 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 credit. NOTE 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. 64 NOTE 21 LEGAL CONTINGENCIES In the course of operations, we may become a party to legal proceedings in the normal course of business. At December 31, 2023, we do not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or any of its subsidiaries to which the property of the Company or any of its subsidiaries is subject, in the opinion of management, may materially impact the financial condition or liquidity of the Company. NOTE 22 CAPITAL Capital Requirements and Ratios The Company 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. The 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. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets, Tier 1 capital to average assets, and Common Equity Tier 1 capital to risk-weighted assets. As of December 31, 2023, the Bank meets all capital adequacy requirements to which it is subject. The Bank’s actual capital amounts and ratios are presented in the following table as of December 31, 2023 and 2022, respectively. Schedule of capital requirements Actual Minimum Capital Requirement Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions (Dollars are in thousands) Amount Ratio Amount Ratio Amount Ratio December 31, 2023: Total Capital to Risk Weighted Assets $ 99,246 16.58 % $ 47,873 8.00 % $ 59,842 10.00 % Tier 1 Capital to Risk Weighted Assets 91,765 15.33 % 35,905 6.00 % 47,873 8.00 % Tier 1 Capital to Average Assets 91,765 11.11 % 33,040 4.00 % 41,300 5.00 % Common Equity Tier 1 Capital to Risk Weighted Assets 91,765 15.33 % 26,929 4.50 % 38,897 6.50 % December 31, 2022: Total Capital to Risk Weighted Assets $ 93,028 16.50 % $ 45,106 8.00 % $ 56,382 10.00 % Tier 1 Capital to Risk Weighted Assets 86,301 15.31 % 33,829 6.00 % 45,106 8.00 % Tier 1 Capital to Average Assets 86,301 10.40 % 33,206 4.00 % 41,508 5.00 % Common Equity Tier 1 Capital to Risk Weighted Assets 86,301 15.31 % 25,372 4.50 % 36,648 6.50 % 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: (i) a Common Equity Tier 1 capital to risk-weighted assets ratio of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum Common Equity Tier 1 capital to risk-weighted assets ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The 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, 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. 65 NOTE 23 FAIR VALUES The Company established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are: Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are valued using other financial instruments, the parameters of which can be directly observed. Level 3: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy are as follows: Investment Securities Available for Sale - Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s available for sale securities, totaling $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 Practice. Other Real Estate Owned – Other real estate owned is adjusted to fair value upon transfer of the loans, or former bank premises, to other real estate owned. These assets are carried at the lower of their carrying value or fair value. Fair value is based upon observable market prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When observable market prices are not available, management determines the fair value of the foreclosed asset using independent third-party appraisals, evaluated to determine whether or not the property is further impaired below the appraised value, and adjusts for estimated costs of disposition. The Company records foreclosed assets as nonrecurring Level 3. The aggregate carrying amounts of 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: 66 Schedule 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 (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) (On a recurring basis) Available for sale investments U.S. Treasuries $ - $ 10,985 $ U.S. Government Agencies - 8,811 - Taxable municipals - 17,859 - Corporate bonds - 2,688 - Mortgage backed securities - 49,462 - (On a non-recurring basis) Other real estate owned - - 157 Collateral dependent loans with ACL: Commercial real estate - - 204 Total $ - $ 89,805 $ 361 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 allowance): (Dollars are in thousands) Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) (On a recurring basis) Available for sale investments U.S. Treasuries $ - $ 11,685 $ U.S. Government Agencies - 9,399 - Taxable municipals - 16,815 - Corporate bonds - 3,136 - Mortgage backed securities - 55,041 - (On a non-recurring basis) Other real estate owned - - 261 Impaired loans: Real estate secured: Commercial - - 205 Residential 1-4 family - - 8 Total $ - $ 96,076 $ 474 67 For 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 (Dollars in thousands) Fair Value at December 31, 2023 Fair Value at December 31, 2022 Valuation Technique Significant Unobservable Inputs General Range of Significant Unobservable Input Values Collateral dependent loans with ACL: Commercial real estate $ 204 $ 205 Appraised Value Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 – 18 % Residential 1-4 family - 8 Other Real Estate Owned $ 157 $ 261 Appraised Value/Comparable Sales/Other Estimates from Independent Sources Discounts to reflect current market conditions and estimated costs to sell 0 – 18 % Fair Value of Financial Instruments The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows: Schedule of estimated fair value of financial instruments Fair Value Measurements (Dollars are in thousands) Carrying Amount Fair Value Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) December 31, 2023 Financial instruments – assets Net loans $ 630,855 $ 604,736 $ - $ - $ 604,736 Financial instruments – liabilities Time deposits 252,316 249,941 - 249,941 - Borrowed funds 36,186 34,046 - 34,046 - December 31, 2022 Financial instruments – assets Net loans $ 577,886 $ 552,675 $ - $ - $ 552,675 Financial instruments – liabilities Time deposits 188,233 187,179 - 187,179 - Borrowed funds 16,496 14,825 - 14,825 - Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates. Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments. 68 The 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. The methods utilized to measure the fair value of financial instruments represent an approximation of exit price; however, an actual exit price may differ. NOTE 24 REVENUE FROM CONTRACTS WITH CUSTOMERS All of our revenue from contracts with customers as defined in ASC 606 is recognized within noninterest income. The following table presents Noninterest Income by revenue stream for the years ended December 31, 2023 and 2022. Schedule of revenue from contracts with customers (Dollars are in thousands) 2023 2022 Service charges and fees $ 3,886 $ 3,969 Card processing and interchange income 3,730 3,769 Insurance and investment fees 1,084 954 Other noninterest income 1,249 548 Total noninterest income $ 9,949 $ 9,240 Certain revenues are earned from contracts with customers. These revenues are recognized when the promised services are rendered to the customer and reflect the entitled consideration received in exchange for those services. Service charges and fees – revenue is recognized on deposit services based on published fees for the services provided. These fees may be collected on a transaction basis, at the time the service is rendered or periodically based on the period over which the service is provided. Transaction-based fees include services such as stop payment requests, paper statement rendering and ATM usage fees. Periodic fees include such charges as monthly account maintenance fees. Overdraft fees are realized at the time the overdraft occurs. Card processing and interchange fees – Card-related interchange revenue is primarily comprised of debit and credit card income. Debit and credit card income is earned when customers’ debit or credit cards are processed through a card payment network. Card-related interchange income is recognized at the time the customer transactions settle. Insurance and investment fees - Insurance and investment fee income consists of commissions received on annuity and investment product sales through a third-party service provider. Performance is generally satisfied at the time an annuity policy is issued, or at the execution of an investment transaction. NOTE 25 NONINTEREST EXPENSES Other operating expenses, included as part of noninterest expenses, consisted of the following for the years ended December 31, 2023 and 2022: Schedule of noninterest expenses (Dollars are in thousands) 2023 2022 Other operating expenses $ 3,067 $ 2,970 ATM network expense 1,489 1,471 Legal and professional fees 1,079 806 Loan related expenses 511 416 FDIC insurance premiums 360 217 Consulting fees 273 272 Advertising, sponsorships and donations 206 162 Printing and supplies 197 160 Other real estate owned expenses, net 126 176 Total $ 7,308 $ 6,650 NOTE 26 SUBSEQUENT EVENTS Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were available to be issued and has identified the following as a non-recognized subsequent event. 69 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, 2024. 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. NOTE 27 RECENT ACCOUNTING DEVELOPMENTS 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”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect 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. 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 848. The ASU is effective for all entities upon issuance. 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 prohibited. 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. 70 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. NOTE 28 PARENT CORPORATION ONLY FINANCIAL STATEMENTS CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 2023 AND 2022 (Dollars in Thousands) Schedule of parent corporation only condensed balance sheets 2023 2022 ASSETS Due from banks $ 427 $ 521 Investment in subsidiaries 80,112 72,360 Other assets 787 1,150 Total assets $ 81,326 $ 74,031 LIABILITIES Accrued interest payable $ 322 $ 277 Accrued expenses and other liabilities 7 39 Trust preferred securities 16,186 16,496 Total liabilities 16,515 16,812 SHAREHOLDERS’ EQUITY Common stock - $2.00 par value, 50,000,000 shares authorized; 23,745,900 and 23,848,491 shares issued and outstanding at December 31, 2023 and 2022, respectively 47,492 47,697 Additional paid capital 14,514 14,546 Retained earnings 14,458 8,917 Accumulated other comprehensive loss ( 11,653 ) ( 13,941 ) Total shareholders’ equity 64,811 57,219 Total liabilities and shareholders’ equity $ 81,326 $ 74,031 CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 (Dollars in thousands) Schedule of parent corporation only condensed statements of income 2023 2022 Income Miscellaneous income $ 38 $ 22 Dividends from subsidiaries 2,600 1,749 Undistributed income of subsidiaries 5,677 7,027 Total income 8,315 8,798 Expenses Trust preferred securities interest expense 1,274 729 Professional fees 106 116 Other operating expenses 42 57 Total expenses 1,422 902 Income before income taxes 6,893 7,896 Income tax benefit ( 291 ) ( 186 ) Net income $ 7,184 $ 8,082 71 CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 (Dollars in thousands) Schedule of parent corporation only condensed statements of cash flows 2023 2022 Cash flows from operating activities Net income $ 7,184 $ 8,082 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries ( 5,677 ) ( 7,027 ) Net decrease in other assets 364 495 Net increase in other liabilities 13 151 Net cash provided by operating activities 1,884 1,701 Cash flows from financing activities: Repayment of long-term debt (310 ) — Repurchase of common stock ( 237 ) ( 171 ) Cash dividends paid ( 1,431 ) ( 1,196 ) Net cash used in financing activities ( 1,978 ) ( 1,367 ) Net (decrease) increase in cash and cash equivalents ( 94 ) 334 Cash and cash equivalents, beginning of year 521 187 Cash and cash equivalents, end of year $ 427 $ 521 72 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None