NEW PEOPLES BANKSHARES INC 10-Q

Item 1 Financial Statements NEW PEOPLES BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2024 AND DECEMBER 31, 2023 (IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA) (UNAUDITED) September 30, September 30, December 31, 2024 2023 ASSETS Cash and due from banks 12,990 $ 14,596 Interest-bearing deposits with banks 90,563 50,363 Federal funds sold 174 18 Total cash and cash equivalents 103,727 64,977 Investment securities available-for-sale 96,564 89,805 Loans receivable 646,356 638,111 Allowance for credit losses ( 7,670 ) ( 7,256 ) Net loans 638,686 630,855 Bank premises and equipment, net 17,589 18,265 Other real estate owned 1,060 157 Accrued interest receivable 3,241 3,029 Deferred taxes, net 4,037 4,461 Bank owned life insurance 4,646 4,589 Right-of-use assets – operating leases 3,520 3,852 Other assets 7,225 6,323 Total assets 880,295 $ 826,313 LIABILITIES Deposits: Noninterest bearing 231,752 $ 233,878 Interest-bearing 531,812 482,589 Total deposits 763,564 716,467 Borrowed funds 36,186 36,186 Lease liabilities – operating leases 3,520 3,852 Accrued interest payable 1,951 1,447 Accrued expenses and other liabilities 4,013 3,550 Total liabilities 809,234 761,502 SHAREHOLDERS’ EQUITY Common stock - $ 2.00 par value; 50,000,000 shares authorized; 23,652,068 and 23,745,900 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively 47,304 47,492 Additional paid-in-capital 14,463 14,514 Retained earnings 18,375 14,458 Accumulated other comprehensive loss ( 9,081 ) ( 11,653 ) Total shareholders’ equity 71,061 64,811 Total liabilities and shareholders’ equity 880,295 $ 826,313 The accompanying notes are an integral part of these consolidated financial statements. 3 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) For the Three Months Ended For the Nine Months Ended September 30, September 30, INTEREST AND DIVIDEND INCOME 2024 2023 2024 2023 Loans including fees $ 9,728 8,453 $ 28,316 $ 23,711 Federal funds sold 2 4 5 20 Interest-earning deposits with banks 1,164 559 2,999 1,642 Investments 610 535 1,723 1,642 Dividends on equity securities (restricted) 43 34 129 110 Total interest and dividend income 11,547 9,585 33,172 27,125 INTEREST EXPENSE Deposits 3,832 2,110 10,490 4,902 Borrowed funds 534 434 1,601 1,115 Total interest expense 4,366 2,544 12,091 6,017 NET INTEREST INCOME 7,181 7,041 21,081 21,108 PROVISION FOR CREDIT LOSSES 49 155 478 304 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 7,132 6,886 20,603 20,804 NONINTEREST INCOME Service charges and fees 995 1,020 2,877 2,896 Card processing and interchange 937 942 2,803 2,784 Financial services fees 304 268 998 830 Net gain on sales of available for sale securities 4 — 4 — Net gain on sale and disposal of premises and equipment 3 — 23 135 Other noninterest income 183 206 574 592 Total noninterest income 2,426 2,436 7,279 7,237 NONINTEREST EXPENSES Salaries and employee benefits 3,527 3,567 10,768 10,768 Occupancy and equipment expense 942 945 2,855 2,881 Data processing and telecommunications 628 618 1,889 1,877 Other operating expenses 1,732 1,753 5,132 5,259 Total noninterest expenses 6,829 6,883 20,644 20,785 INCOME BEFORE INCOME TAXES 2,729 2,439 7,238 7,256 INCOME TAX EXPENSE 621 549 1,660 1,621 NET INCOME $ 2,108 1,890 $ 5,578 $ 5,635 Earnings per share Basic and diluted $ 0.09 0.08 $ 0.24 $ 0.24 Average Weighted Shares of Common Stock Basic and diluted 23,658,248 23,793,170 23,695,385 23,817,236 The accompanying notes are an integral part of these consolidated financial statements. 4 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (IN THOUSANDS) (UNAUDITED) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 NET INCOME $ 2,108 $ 1,890 $ 5,578 $ 5,635 Other comprehensive income (loss): Investment securities activity Unrealized gains (losses) arising during the period 3,532 ( 2,585 ) 3,261 ( 1,398 ) Reclassification adjustment for net gains included in net income ( 4 ) — ( 4 ) — Other comprehensive gains (losses) on investment securities 3,528 ( 2,585 ) 3,257 ( 1,398 ) Related tax (expense) benefit ( 742 ) 542 ( 685 ) 292 TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 2,786 ( 2,043 ) 2,572 ( 1,106 ) TOTAL COMPREHENSIVE INCOME (LOSS) $ 4,894 $ ( 153 ) $ 8,150 $ 4,529 The accompanying notes are an integral part of these consolidated financial statements. 5 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (IN THOUSANDS INCLUDING SHARE DATA) (UNAUDITED) Shares of Common Stock Common Stock Additional Paid-in- Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance, June 30, 2023 23,803 $ 47,606 $ 14,536 $ 11,019 $ ( 13,004 ) $ 60,157 Net income — — — 1,890 — 1,890 Other comprehensive loss, net of tax — — — — ( 2,043 ) ( 2,043 ) Repurchase of common stock ( 20 ) ( 40 ) ( 6 ) — — ( 46 ) Balance, September 30, 2023 23,783 $ 47,566 $ 14,530 $ 12,909 $ ( 15,047 ) $ 59,958 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 — — — 5,635 — 5,635 Other comprehensive loss, net of tax — — — — ( 1,106 ) ( 1,106 ) Cash dividend declared ($0.06 per share) — — — ( 1,431 ) — ( 1,431 ) Repurchase of common stock ( 65 ) ( 131 ) ( 16 ) — — ( 147 ) Balance, September 30, 2023 23,783 $ 47,566 $ 14,530 $ 12,909 $ ( 15,047 ) $ 59,958 Balance, June 30, 2024 23,676 $ 47,352 $ 14,479 $ 16,267 $ ( 11,867 ) $ 66,231 Net income — — — 2,108 — 2,108 Other comprehensive income, net of tax — — — — 2,786 2,786 Repurchase of common stock ( 24 ) ( 48 ) ( 16 ) — — ( 64 ) Balance, September 30, 2024 23,652 $ 47,304 $ 14,463 $ 18,375 $ ( 9,081 ) $ 71,061 Balance, December 31, 2023 23,746 $ 47,492 $ 14,514 $ 14,458 $ ( 11,653 ) $ 64,811 Net income — — — 5,578 — 5,578 Other comprehensive income, net of tax — — — — 2,572 2,572 Cash dividend declared ($0.07 per share) — — — ( 1,661 ) — ( 1,661 ) Repurchase of common stock ( 94 ) ( 188 ) ( 51 ) — — ( 239 ) Balance, September 30, 2024 23,652 $ 47,304 $ 14,463 $ 18,375 $ ( 9,081 ) $ 71,061 The accompanying notes are an integral part of these consolidated financial statements. 6 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (IN THOUSANDS) (UNAUDITED) 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,578 $ 5,635 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,198 1,203 Provision for credit losses 478 304 Income on bank owned life insurance ( 57 ) ( 44 ) Gain on sale of mortgage loans ( 9 ) ( 4 ) Net gain on sale of securities available-for-sale ( 4 ) — Gain on sale or disposal of premises and equipment ( 23 ) ( 117 ) Gain on sale of other real estate owned ( 44 ) — Loans originated for sale ( 329 ) ( 81 ) Proceeds from sales of loans originated for sale 338 85 Net amortization/accretion of bond premiums/discounts 165 225 Deferred tax benefit ( 261 ) ( 2 ) Net change in: Accrued interest receivable ( 212 ) ( 194 ) Other assets ( 532 ) ( 395 ) Accrued interest payable 504 571 Accrued expenses and other liabilities 106 ( 852 ) Net cash provided by operating activities 6,896 6,334 CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans ( 9,307 ) ( 41,706 ) Purchase of securities available-for-sale ( 14,011 ) ( 500 ) Proceeds from repayments and maturities of securities available-for-sale 8,214 7,501 Proceeds from sales of securities available-for-sale 2,134 — Net purchase of equity securities (restricted) ( 38 ) ( 625 ) Payments for the purchase of premises and equipment ( 1,687 ) ( 1,159 ) Proceeds from sales of premises and equipment 1,188 809 Proceeds from sales of other real estate owned 164 — Net cash used in investing activities ( 13,343 ) ( 35,680 ) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of long-term debt — 10,000 Net change in noninterest bearing deposits ( 2,126 ) ( 9,641 ) Net change in interest-bearing deposits 49,223 21,756 Dividends paid ( 1,661 ) ( 1,431 ) Repurchase of common stock ( 239 ) ( 147 ) Net cash provided by financing activities 45,197 20,537 Net increase (decrease) in cash and cash equivalents 38,750 ( 8,809 ) Cash and cash equivalents, beginning of the period 64,977 61,686 Cash and cash equivalents, end of the period $ 103,727 $ 52,877 Supplemental disclosure of cash paid during the period for: Interest $ 11,587 $ 5,446 Taxes 1,550 2,925 Supplemental disclosure of non-cash transactions: Transfer of loans to other real estate owned 1,023 — Change in unrealized losses on securities available-for-sale 3,257 ( 1,398 ) The accompanying notes are an integral part of these consolidated financial statements. 7 NEW PEOPLES BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 NATURE OF OPERATIONS Nature of Operations – New Peoples Bankshares, Inc. (New Peoples or the Company) is a financial holding company whose principal activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the Bank). New Peoples and the Bank are organized and incorporated under the laws of the Commonwealth of Virginia. As a state-chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (the Federal Reserve). The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern West Virginia, western North Carolina and northeastern Tennessee. These services include commercial and consumer loans along with traditional deposit products such as checking and savings accounts. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements conform to U. S. generally accepted accounting principles (GAAP) and to general industry practices. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2024 and December 31, 2023, and the results of operations for the three- and nine-month periods ended September 30, 2024 and 2023. The notes included herein should be read in conjunction with the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period. The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (hereinafter, collectively referred to as the Company, we, us or our). All significant intercompany balances and transactions have been eliminated. In accordance with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for credit losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income or shareholders’ equity. The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in the Company’s Annual report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2023 except for the following: Accounting Standards Adopted in 2024 – In March 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. ASU 2023-02 was effective for the Company on January 1, 2024. The adoption of ASU 2023-02 had no material impact on the consolidated financial statements. In March 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” These amendments require entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. ASU 2023-01 was effective for the Company on January 1, 2024. The adoption of ASU 2023-01 had no material impact on the consolidated financial statements. 8 In June 2022, the Financial Accounting Standards Board (FASB) issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 was effective for the Company on January 1, 2024. The adoption of ASU 2022-03 had no material impact on the consolidated financial statements. In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency. ASU 2020-06 was effective for the Company on January 1, 2024. The adoption of ASU 2020-06 had no material impact on the consolidated financial statements. NOTE 3 EARNINGS PER SHARE Basic earnings per share computations are based on the weighted average number of shares outstanding during each period. Diluted earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the three-month and nine-month periods ended September 30, 2024 and 2023, there were no potential common shares. Basic and diluted net income per common share calculations follows: Schedule of basic and diluted net loss per common share calculations (Dollars in thousands, except per share data) For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Net income $ 2,108 $ 1,890 $ 5,578 $ 5,635 Weighted average shares outstanding 23,658,248 23,793,170 23,695,385 23,817,236 Weighted average dilutive shares outstanding 23,658,248 23,793,170 23,695,385 23,817,236 Basic and diluted earnings per share $ 0.09 $ 0.08 $ 0.24 $ 0.24 NOTE 4 CAPITAL Capital Requirements and Ratios Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. To qualify as a "Small Bank Holding Company" under federal regulations, a bank must have consolidated assets of $3.0 billion or less. The primary benefit of being deemed a "Small Bank Holding Company" is the exemption from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (BASEL III rules) became fully phased in on January 1, 2019. Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer required is 2.50%. At September 30, 2024, the Bank had a capital conservation buffer of 8.90%. Amounts recorded to accumulated other comprehensive income (loss) are not included in computing regulatory capital. Management believes as of September 30, 2024, the Bank met all capital adequacy requirements to which it was subject. 9 Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2024, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank’s actual capital amounts and ratios are presented in the following table as of September 30, 2024 and December 31, 2023, respectively. Schedule of bank’s actual capital amounts and ratios presented Actual Minimum Capital Requirement Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio September 30, 2024: Total capital to risk weighted assets $ 103,270 16.90 % $ 48,877 8.00 % $ 61,097 10.00 % Tier 1 capital to risk weighted assets 95,628 15.65 % 36,658 6.00 % 48,877 8.00 % Tier 1 capital to average assets 95,628 10.84 % 35,278 4.00 % 44,098 5.00 % Common equity Tier 1 capital to risk weighted assets 95,628 15.65 % 27,494 4.50 % 39,713 6.50 % 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 % NOTE 5 INVESTMENT SECURITIES The amortized cost and estimated fair value of available-for-sale (“AFS”) securities as of September 30, 2024 and December 31, 2023 are as follows: Schedule of securities amortized cost and estimated fair value Gross Gross Approximate Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value September 30, 2024 U.S. Treasuries $ 11,625 $ 31 $ 378 $ 11,278 U.S. Government Agencies 8,827 35 433 8,429 Taxable municipals 22,939 — 4,368 18,571 Corporate bonds 2,499 9 253 2,255 Mortgage backed securities 62,168 181 6,318 56,031 Total securities available-for-sale $ 108,058 $ 256 $ 11,750 $ 96,564 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 The following table details unrealized losses and related fair values in the AFS portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2024 and December 31, 2023. 10 Schedule of fair value and gross unrealized losses on investment securities Less than 12 Months 12 Months or More Total (Dollars in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses September 30, 2024 U.S. Treasuries $ — $ — $ 10,247 $ 378 $ 10,247 $ 378 U.S. Government Agencies 40 1 6,274 432 6,314 433 Taxable municipals — — 18,571 4,368 18,571 4,368 Corporate bonds — — 1,747 253 1,747 253 Mortgage backed securities 500 3 45,471 6,315 45,971 6,318 Total securities available-for-sale $ 540 $ 4 $ 82,310 $ 11,746 $ 82,850 $ 11,750 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 securities available-for-sale $ 527 $ 16 $ 88,082 $ 14,759 $ 88,609 $ 14,775 As of September 30, 2024, there were 165 securities in a loss position, of which 163 have been in a loss position for twelve months or more. Management believes that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and are not a result of credit deterioration. Aside from strategic sales executed during the three months ended September 30, 2024, 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 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 $ 38.5 million and $ 36.8 million as of September 30, 2024 and December 31, 2023, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law. During the three and nine months ended September 30, 2024 available-for-sale investment securities with a carrying value of $ 2.2 million were sold, realizing a net gain of $ 4,000 . There were no sales of available-for-sale investment securities during the three and nine months ended September 30, 2023. The amortized cost and fair value of investment securities as of September 30, 2024, by contractual maturity, are shown in the following schedule. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Schedule of amortized cost and fair value of investment securities contractual maturity Weighted (Dollars in thousands) Amortized Fair Average Securities Available-for-Sale Cost Value Yield Due in one year or less $ 5,722 $ 5,681 2.15 % Due after one year through five years 10,549 10,131 2.15 % Due after five years through ten years 23,160 21,889 3.06 % Due after ten years 68,627 58,863 2.08 % Total $ 108,058 $ 96,564 2.28 % The Bank, as a member bank of the Federal Reserve Bank of Richmond (“Federal Reserve Bank”) and the Federal Home Loan Bank of Atlanta (FHLB), is required to hold stock in each. The Bank also owns stock in CBB Financial Corp., which is a correspondent of the Bank. These equity securities, which are included in other assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $ 2.7 million and $ 2.7 million as of September 30, 2024 and December 31, 2023, respectively. The stock has no quoted market value and no ready market exists. When evaluating these securities for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Equity securities are viewed as long-term investments and management believes the Company has the ability and the intent to hold these securities until their value is recovered. 11 NOTE 6 LOANS Loans receivable outstanding as of September 30, 2024, and December 31, 2023, are summarized as follows: Schedule of loans receivable outstanding (Dollars in thousands) September 30, 2024 December 31, 2023 Real estate secured: Commercial $ 245,506 $ 240,187 Construction and land development 31,200 28,830 Residential 1-4 family 232,233 238,233 Multifamily 32,363 34,571 Farmland 16,558 16,401 Total real estate loans 557,860 558,222 Commercial 56,678 53,230 Agriculture 3,290 3,508 Consumer installment loans 28,096 22,639 All other loans 432 512 Total loans $ 646,356 $ 638,111 Also included in total loans above are deferred loan fees of $ 1.9 million and $ 1.8 million as of September 30, 2024 and December 31, 2023, respectively. Deferred loan costs were $ 1.9 million and $ 2 .0 million, as of September 30, 2024 and December 31, 2023, 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 fees or costs is recognized at that time. Loans receivable on nonaccrual status as of September 30, 2024, and December 31, 2023, are summarized as follows: Schedule of loans receivable nonaccrual status September 30, 2024 December 31, 2023 With No Allowance With an Allowance Total With No Allowance With an Allowance Total (Dollars in thousands) Real estate secured: Commercial $ 1,134 $ - $ 1,134 $ 544 $ 268 $ 812 Construction and land development 13 - 13 - - - Residential 1-4 family 2,654 - 2,654 2,495 - 2,495 Multifamily - 172 172 199 - 199 Total real estate loans 3,801 172 3,973 3,238 268 3,506 Commercial 19 - 19 - - - Consumer installment loans and other loans 92 - 92 28 - 28 Total loans receivable on nonaccrual status $ 3,912 $ 172 $ 4,084 $ 3,266 $ 268 $ 3,534 Total interest income (recognized), not recognized on nonaccrual loans for the three months ended September 30, 2024, and September 30, 2023, was ($ 18,000 ) and $ 5,000 , respectively. Total interest income not recognized on nonaccrual loans for the nine months ended September 30, 2024, and September 30, 2023, was $ 51,000 and $ 33,000 , respectively. 12 The Company evaluates loans that do not share risk characteristics on an individual basis utilizing the collateral or discounted cash flow methods. The following table presents the unpaid principal balance of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to those loans as of September 30, 2024 and December 31, 2023: Schedule of summary of impaired loans September 30, 2024 December 31, 2023 Unpaid Principal Balance Related Allowance Unpaid Principal Balance Related Allowance (Dollars in thousands) Real estate secured: Commercial $ 1,115 $ - $ 812 $ 64 Residential 1-4 family 731 - 312 - Multi-family 172 93 - - Total real estate loans 2,018 93 1,124 64 Commercial 13 - - - Total $ 2,031 $ 93 $ 1,124 $ 64 The following table is an age analysis of past due loans receivable as of September 30, 2024, segregated by class: Schedule of analysis of past due loans receivable September 30, 2024 (Dollars 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 $ 605 $ — $ 873 $ 1,478 $ 244,028 $ 245,506 Construction and land development 11 — — 11 31,189 31,200 Residential 1-4 family 3,501 673 1,042 5,216 227,017 232,233 Multifamily — — 172 172 32,191 32,363 Farmland 166 — — 166 16,392 16,558 Total real estate loans 4,283 673 2,087 7,043 550,817 557,860 Commercial 35 41 — 76 56,602 56,678 Agriculture — — — — 3,290 3,290 Consumer installment Loans 130 31 29 190 27,906 28,096 All other loans — — — — 432 432 Total loans $ 4,448 $ 745 $ 2,116 $ 7,309 $ 639,047 $ 646,356 The following table is an age analysis of past due loans receivable as of December 31, 2023, segregated by class: December 31, 2023 (Dollars 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 The Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings: Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors. Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date. Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful - Loans classified doubtful have all the weaknesses inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. 13 The following table presents the credit risk grade of loans by origination year as of September 30, 2024: Schedule of credit risk grade of loans As of September 30, 2024 (Dollars are in thousands) 2024 2023 2022 2021 2020 Prior Revolving Total Commercial real estate Pass $ 15,582 $ 48,106 $ 44,428 $ 47,760 $ 27,781 $ 59,101 $ 1,603 $ 244,361 Special mention — — — — — 9 — 9 Substandard — — — — 313 823 — 1,136 Total commercial real estate $ 15,582 $ 48,106 $ 44,428 $ 47,760 $ 28,094 $ 59,933 $ 1,603 $ 245,506 Current period gross charge-offs $ — $ — $ — $ ( 178 ) $ — $ — $ ( 1 ) $ ( 179 ) Construction and Land Development Pass $ 10,739 $ 6,425 $ 6,464 $ 3,138 $ 1,743 $ 2,679 $ — $ 31,188 Special mention — — — — — — — — Substandard — — — — — 12 — 12 Total construction and land development $ 10,739 $ 6,425 $ 6,464 $ 3,138 $ 1,743 $ 2,691 $ — $ 31,200 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential 1-4 family Pass $ 14,654 $ 27,775 $ 30,328 $ 38,988 $ 11,402 $ 81,474 $ 23,989 $ 228,610 Special mention — — — — — 249 — 249 Substandard 35 133 — 799 285 1,822 300 3,374 Total residential 1-4 family $ 14,689 $ 27,908 $ 30,328 $ 39,787 $ 11,687 $ 83,545 $ 24,289 $ 232,233 Current period gross charge-offs $ — $ ( 38 ) $ — $ — $ — $ ( 33 ) $ — $ ( 71 ) Multifamily Pass $ 958 $ 4,862 $ 10,415 $ 6,894 $ 2,536 $ 6,525 $ — $ 32,190 Special mention — Substandard — 54 — — — 119 — 173 Total multifamily $ 958 $ 4,916 $ 10,415 $ 6,894 $ 2,536 $ 6,644 $ — $ 32,363 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Farmland Pass $ 1,014 1,751 2,173 3,113 753 7,602 — $ 16,406 Special mention — — — — — 152 — 152 Substandard — Total farmland $ 1,014 $ 1,751 $ 2,173 $ 3,113 $ 753 $ 7,754 $ — $ 16,558 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 11,200 15,151 5,594 2,778 975 2,783 18,175 $ 56,656 Special mention — — — — — 3 — 3 Substandard — — 19 — — — — 19 Total commercial $ 11,200 $ 15,151 $ 5,613 $ 2,778 $ 975 $ 2,786 $ 18,175 $ 56,678 Current period gross charge-offs $ — $ ( 34 ) $ ( 50 ) $ — $ — $ — $ ( 68 ) $ ( 152 ) Agriculture Pass $ 384 408 377 315 84 246 1,459 $ 3,273 Special mention — — — — — — — — Substandard — — — — — 17 — 17 Total agriculture $ 384 $ 408 $ 377 $ 315 $ 84 $ 263 $ 1,459 $ 3,290 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer and All Other Pass $ 12,490 $ 8,772 $ 3,167 $ 1,525 $ 610 $ 1,506 $ 370 $ 28,440 Special mention — — — — — — — — Substandard 13 28 20 22 5 — — 88 Total consumer and all other $ 12,503 $ 8,800 $ 3,187 $ 1,547 $ 615 $ 1,506 $ 370 $ 28,528 Current period gross charge-offs $ ( 127 ) $ ( 49 ) $ ( 6 ) $ ( 7 ) $ — $ — $ ( 24 ) $ ( 213 ) Total $ 67,069 $ 113,465 $ 102,985 $ 105,332 $ 46,487 $ 165,122 $ 45,896 $ 646,356 Total current period gross charge-offs $ ( 127 ) $ ( 121 ) $ ( 56 ) $ ( 185 ) $ — $ ( 33 ) $ ( 93 ) $ ( 615 ) 14 The following table presents the credit risk grade of loans by origination year as of December 31, 2023: 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 ) 15 NOTE 7 ALLOWANCE FOR CREDIT LOSSES FOR LOANS (“ACLL”) The following table presents a disaggregated analysis of activity in the allowance for credit losses for loans as of September 30, 2024 and December 31, 2023: Schedule of allowance for credit losses for loans Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total Nine months ended September 30, 2024 Beginning balance $ 2,518 $ 300 $ 2,666 $ 509 $ 163 $ 673 $ 33 $ 394 $ - $ 7,256 Charge-offs ( 179 ) - ( 71 ) - - ( 152 ) - ( 213 ) - ( 615 ) Recoveries 54 37 73 - 297 1 - 114 - 576 Provision for credit losses 218 ( 48 ) 163 ( 15 ) ( 310 ) 186 ( 2 ) 261 - 453 Ending balance $ 2,611 $ 289 $ 2,831 $ 494 $ 150 $ 708 $ 31 $ 556 $ - $ 7,670 Three months ended September 30, 2024 Beginning balance $ 2,845 $ 268 $ 2,786 $ 506 $ 160 $ 614 $ 34 $ 514 $ - $ 7,727 Charge-offs ( 178 ) - ( 47 ) - - ( 5 ) - ( 83 ) - ( 313 ) Recoveries 28 11 55 - 98 - - 37 - 229 Provision for credit losses ( 84 ) 10 37 ( 12 ) ( 108 ) 99 ( 3 ) 88 - 27 Ending balance $ 2,611 $ 289 $ 2,831 $ 494 $ 150 $ 708 $ 31 $ 556 $ - $ 7,670 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, 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 ) 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 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 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. The Company uses a discounted cash flow methodology to determine the allowance for credit losses. 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 in the three- and nine-months ended September 30, 2024 and September 30, 2023, respectively. Additionally, there were no loans that had a payment default during the three and nine months ended September 30, 2024 and September 30, 2023, respectively that were modified in the previous 12 months. 16 NOTE 9 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 income statement. 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. 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. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement. As of September 30, 2024 and December 31, 2023, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities was $ 309,000 and $ 285,000 , respectively. During the three and nine months ended September 30, 2024, provisions for unfunded commitments totaling $ 22,000 and $ 25,000 respectively, were included in the Provision for Credit Losses on the consolidated statements of income. NOTE 10 OTHER REAL ESTATE OWNED The following table summarizes the activity in other real estate owned for the three months ended September 30, 2024, and the year ended December 31, 2023: Schedule of activity in other real estate owned (Dollars in thousands) September 30, 2024 December 31, 2023 Balance, beginning of period $ 157 $ 261 Additions 1,023 124 Proceeds from sales ( 164 ) ( 132 ) Net gains (losses) from sales 44 ( 96 ) Balance, end of period $ 1,060 $ 157 As of September 30, 2024, four loans secured by residential real estate totaling $111,000 and one loan secured by commercial real estate totaling $268,000 were in the process of foreclosure. NOTE 11 FAIR VALUES The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of Financial Accounting Standards Board (the FASB) ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market and in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market and in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. 17 In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are valued using other financial instruments, the parameters of which can be directly observed. Level 3: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy are as follows: Investment Securities Available-for-sale - Investment securities available-for-sale are recorded at fair value on a recurring basis. The Company’s available-for-sale securities, totaling $96.6 million and $89.8 million as of September 30, 2024 and December 31, 2023, 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. 18 Assets and liabilities measured at fair value are as follows as of September 30, 2024 and December 31, 2023: Schedule of assets and liabilities measured at fair value September 30, 2024 (Dollars 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 $ — $ 11,278 $ — U.S. Government Agencies — 8,429 — Taxable municipals — 18,571 — Corporate bonds — 2,255 — Mortgage-backed securities — 56,031 — (On a non-recurring basis) Other real estate owned — — 1,060 Collateral dependent loans with ACL: Multi-family 79 Total $ — $ 96,564 $ 1,139 December 31, 2023 (Dollars 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 19 For Level 3 assets measured at fair value on a recurring or non-recurring basis as of September 30, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows: Schedule of significant unobservable inputs In level 3 assets (Dollars in thousands) Fair Value at September 30, 2024 Fair Value at December 31, 2023 Valuation Technique Significant Unobservable Inputs General Range of Significant Unobservable Input Values Collateral dependent loans with ACL: Commercial real estate $ - $ 204 Appraised Value Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 – 18 % Multi-family 79 - Appraised Value Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 – 18 % Other Real Estate Owned $ 1,060 $ 157 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 Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. The following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments presented below. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different. 20 The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis as of September 30, 2024, and December 31, 2023, are as follows: Schedule of reported at fair value on a recurring basis Fair Value Measurements (Dollars in thousands) Carrying Amount Fair Value Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) September 30, 2024 Financial instruments – assets Net loans $ 638,686 $ 619,800 $ — $ — $ 619,800 Financial instruments – liabilities Time deposits 277,471 276,771 — 276,771 — Borrowed funds 36,186 33,734 — 33,734 — 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 — Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates. Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments. The carrying values of cash and due from banks, interest-bearing deposits with banks, federal funds sold, bank owned life insurance, deposits with no stated maturities, and accrued interest approximates fair value and are excluded from the table above. NOTE 12 LEASING ACTIVITIES As of September 30, 2024, the Bank leases five branch offices, and sublets a lot adjacent to another branch office. The lease agreements have maturity dates ranging from November 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 September 30, 2024 was 7.50 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 September 30, 2024 was 3.37%. For the three and nine months ended September 30, 2024 and 2023, operating lease expenses were $ 139,000 and $ 428,000 , and $ 117,000 and $ 341,000 , respectively. 21 The Company’s other operating leases were evaluated and determined to be immaterial to the financial statements. As of September 30, 2024, 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 $ 139 2025 557 2026 557 2027 578 2028 584 Thereafter 1,728 Total lease payments 4,143 Less: imputed interest ( 623 ) Total $ 3,520 NOTE 13 BORROWED FUNDS Borrowed funds totaled $ 36.2 million and $ 36.2 million as of September 30, 2024 and December 31, 2023, respectively. Borrowed funds consist of trust preferred securities of $ 16.2 million, Federal Home Loan Bank advance of $ 10 .0 million and Federal Reserve Bank Bank Term Funding Program loan of $ 10 .0 million, as of September 30, 2024 and December 31, 2023, respectively. For additional information on borrowed funds, refer to Note 18 in Item 8 of Form 10-K for the year ended December 31, 2023. NOTE 14 REVENUE FROM CONTRACTS WITH CUSTOMERS All our revenue from contracts with customers as defined in ASC 606 is recognized within noninterest income. Refer to Note 24 in our Annual Report on Form 10-K for the year ended December 31, 2023 for a description of how each revenue stream is accounted for under ASC 606. The following table presents noninterest income by revenue stream for the three and nine months ended September 30, 2024 and 2023: Schedule of revenue from contracts with customers For the three months ended For the nine months ended September 30, September 30, (Dollars in thousands) 2024 2023 2024 2023 Service charges and fees $ 995 $ 1,020 $ 2,877 $ 2,896 Card processing and interchange income 937 942 2,803 2,784 Financial services fees 304 268 998 830 Other noninterest income 190 206 601 727 Total noninterest income $ 2,426 $ 2,436 $ 7,279 $ 7,237 NOTE 15 NONINTEREST EXPENSES Other operating expenses, included as part of noninterest expenses, consisted of the following for the periods presented: Schedule of non interest expenses For the three months ended September 30, For the nine months ended September 30, (Dollars in thousands) 2024 2023 2024 2023 Other operating expenses $ 773 $ 714 $ 2,319 $ 2,188 ATM network expense 388 386 1,141 1,116 Legal, accounting, and professional fees 223 247 671 811 Loan related expenses 120 186 315 403 FDIC insurance premiums 98 89 287 265 Advertising 41 43 169 150 Printing and supplies 53 37 142 127 Consulting fees 39 44 119 176 Other real estate owned expenses, net ( 3 ) 7 ( 31 ) 23 Total other operating expenses $ 1,732 $ 1,753 $ 5,132 $ 5,259 22 NOTE 16 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. On October 1, 2024 the Bank repaid in full the $ 10 million Federal Reserve Bank Bank Term Funding Program Loan. On October 7, 2024 the Company made a $ 1.2 million partial principal repayment of NPB Capital Trust I. These payments were made from available liquidity and were not subject to any prepayment penalty or charge. NOTE 17 RECENT ACCOUNTING DEVELOPMENTS The following is a summary of recent authoritative announcements: 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 Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”. This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by September 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements. In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements. In March 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concepts Statements”. This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively to all new transactions recognized on or after the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. If an entity adopts the amendments retrospectively, it should adjust the opening balance of retained earnings as of the beginning of the earliest comparative period presented. The Company does not expect the adoption of ASU 2024-02 to have a material impact on its consolidated financial statements. In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. 23