What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-31 compared with 2024-04-01 · 1177 added, 1232 removed, 465 unchanged (84% of the section changed)

Statements and Supplementary Data

of Independent Registered Public Accounting Firm

Balance Sheets December 31, 2023 and 2022

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

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

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

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

Notes to Consolidated

Financial Statements

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.

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets December 31, 2024 and 2023

Consolidated Statements of Income – Years Ended December 31, 2024 and 2023

Consolidated Statements of Comprehensive Income (Loss) Years Ended December 31, 2024 and 2023

Consolidated Statements of Shareholders’ Equity – Years Ended December 31, 2024 and 2023

Consolidated Statements of Cash Flows – Years Ended December 31, 2024 and 2023

Notes to Consolidated Financial Statements

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, 2024 and 2023, the related consolidated statements

of income, comprehensive income, changes in shareholders’ equity and cash flows, for the years then ended, and the related notes

to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and

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

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.

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.

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

Critical Audit

The critical audit

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

to be communicated to the audit committee and that:

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

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

The communication of critical audit matters does not alter

in any way our opinion on the financial

statements, taken

as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter

or on the accounts or disclosures to which it relates.

Allowance for

Credit Losses – Loans Collectively Evaluated for Credit Losses

Description of

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

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements,

taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit

matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

– Loans Collectively Evaluated for Credit Losses

Description of 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.

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

financial statements, 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

1 unchanged sentence

The collectively evaluated ACLL consists of quantitative and qualitative components.

The quantitative

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

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

The estimate considers

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

judgment in the selection of appropriate inputs.

In addition to the

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

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

considered by management in developing its qualitative estimates include:

The quantitative component consists of loss

estimates derived from a discounted cash flow model using external observations of historical loan 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;

and ability of management and staff;

the nature and volume of the loan portfolio;

and severity of delinquencies and adversely classified loan balances;

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;

the value of underlying collateral in determining the recorded

balance of the allowance for credit losses;

and legal or regulatory requirements and competition.

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

Management exercised

significant judgment when estimating the ACLL on collectively evaluated loans.

We identified the estimation of the collectively evaluated

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

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

The primary audit procedures we performed to address

this critical audit matter included:

· Substantively

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

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

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

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

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

in the collectively evaluated ACLL estimate.

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

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

reasonableness in comparison to underlying supporting data.

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

discounted cashflow and qualitative factor components of the calculations.

Hyde, & Barbour, P.C .

We have served as

the Company’s auditor since 2022.

April 1, 2024

NEW PEOPLES BANKSHARES,

CONSOLIDATED BALANCE

DECEMBER 31, 2023

(in thousands except

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:

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.

Evaluating the methodology and testing the accuracy of incorporating reasonable and supportable forecasts in the collectively evaluated ACLL estimate.

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

Evaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data.

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

Roanoke, Virginia

March 31, 2025

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2024 AND 2023

(in thousands except share data)

and due from banks

9 unchanged sentences

assets – operating leases

benefit receivable

Interest-bearing

4 unchanged sentences

SHAREHOLDERS’

stock - $ 2.00

stock - $ 2.00 par value;

50,000,000 shares authorized;

and 23,848,491

shares issued and outstanding at December 31,

23,636,724 and 23,745,900 shares issued and outstanding at December

31, 2024 and 2023, respectively

3 unchanged sentences

liabilities and shareholders’ equity

accompanying notes are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

(in thousands except

share and per share data)

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

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

(in thousands except share and per share data)

AND DIVIDEND INCOME

20 unchanged sentences

Weighted Shares of Common Stock

accompanying notes are an integral part of these financial statements.

PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

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

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

(Dollars in thousands)

1 unchanged sentence

securities activity:

gains (losses) arising during the year

comprehensive income (losses) on investment securities

tax (expense) benefit

(losses) gains arising during the year

Reclassification

adjustment for net gains included in net income

comprehensive (losses) income on investment securities

tax benefit (expense)

OTHER COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME (LOSS)

The accompanying notes

are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

(in thousands including

COMPREHENSIVE INCOME

The accompanying notes are an integral part of these

financial statements.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

(in thousands including share data, but excluding

per share data)

of Common Stock

Paid-in- Capital

Comprehensive Income (Loss)

Comprehensive

Income (Loss)

Shareholders’ Equity

Balance, December

comprehensive loss, net of tax

Adoption of ASU 2016-13

comprehensive income, net of tax

Cash dividend declared

2 unchanged sentences

December 31, 2023

Adoption of ASU 2016-13

comprehensive income, net of tax

comprehensive loss, net of tax

Cash dividend declared

2 unchanged sentences

December 31, 2024

The accompanying notes

are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

OF CASH FLOWS

FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

(Dollars are in

The accompanying notes are an integral part of these

financial statements.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

(Dollars are in thousands)

FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

operating activities:

and amortization

for credit losses

loss on bank owned life insurance

on sale of available-for-sale securities

on bank owned life insurance

on sale of mortgage loans

loss on sale or disposal of premises and equipment

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

on sale or disposal of premises and equipment

loss on sale and writedowns of foreclosed real estate

on settlement of bank owned life insurance

on bank owned lifer insurance death benefit

originated for sale

from sales of loans originated for sale

of carrying value of foreclosed real estate and repossessed assets

Net amortization/accretion

of bond premiums/discounts

tax (benefit) expense

interest payable

2 unchanged sentences

FLOWS FROM INVESTING ACTIVITIES

Net (increase)

decrease in loans

of securities available-for-sale

from repayments and maturities of securities available-for-sale

from sales of securities available-for-sale

of equity securities (restricted)

for the purchase of premises and equipment

from sale of premises and equipment

from insurance claims on other real estate owned or premises

for the purchase of premises, equipment and software

from sales of premises and equipment

from sales of other real estate owned

cash (used in) provided by investing activities

FLOWS FROM FINANCING ACTIVIES

in short-term borrowings

from settlement of bank owned life insurance

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES

increase in short-term borrowings

in long-term debt

2 unchanged sentences

of common stock

cash provided by (used in) financing activities

cash provided by financing activities

in cash and cash equivalents

5 unchanged sentences

of loans to other real estate owned

made to finance sale of foreclosed real estate

surrender value of bank owned life insurance transferred benefit receivable

in unrealized losses on securities available for sale

The accompanying notes

are an integral part of these financial statements.

BANKSHARES, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

1 NATURE OF OPERATIONS

Nature of Operations

The accompanying notes are an integral part of these

financial statements.

NEW PEOPLES BANKSHARES, INC.

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

of a community bank, New Peoples Bank, Inc.

New Peoples and the Bank are each organized and incorporated under the laws of

the Commonwealth of Virginia.

As a state-chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial

Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System.

The Bank provides general

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

Virginia, northeastern Tennessee and western North Carolina.

These services include commercial and consumer loans along with traditional

deposit products such as checking and savings accounts.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation and Consolidation –

The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services,

Inc., and NPB Web Services, Inc.

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

NOTES TO CONSOLIDATED FINANCIAL

NOTE 1 NATURE OF OPERATIONS

Nature of Operations – New Peoples Bankshares,

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

New Peoples and the Bank are each organized and incorporated under the laws of the Commonwealth of Virginia.

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

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

Standards Adopted in 2023 –

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

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

This standard replaced

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

current expected credit loss (“CECL”) methodology.

CECL requires an estimate

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

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

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

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

to extend credit.

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

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

In addition, CECL

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

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

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

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

The Company adopted

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

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

The transition adjustment of the adoption of CECL included

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

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

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

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

Results for reporting periods beginning

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

accounting standards (“Incurred Loss”).

The Company adopted

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

to January 1, 2023.

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

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

The following table

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

of allowance for credit losses on available for sale securities

As Reported Under ASC 326

31, 2022 Pre-ASC 326 Adoption

of ASC 326 Adoption

in thousands)

at amortized cost

for credit losses on loans:

estate secured:

and land development

real estate loans

and other loans

allowance for credit losses for loans

for credit losses for unfunded commitments

The Company elected

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

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

believes the collection of interest is doubtful.

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

On January 1, 2023,

concurrent with its adoption of ASU No.

2016-13, the Company adopted ASU No.

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

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

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

and restructurings made with borrowers experiencing financial difficulty.

Disclosures about periods prior to adoption will be presented

under GAAP applicable for that period.

Similar to its policy

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

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

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

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

evaluated for the duration of the loan.

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

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

of Estimates –

preparation of financial statements in conformity with generally accepted accounting principles

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

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

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

during the reporting period.

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.

Segment Reporting

– The Company's revenue is primarily derived from the business of banking.

The Company's financial

performance is monitored on a consolidated basis by the Chief Executive Officer, who is designated the chief operating decision maker

(“CODM”), based upon information provided about the Company’s products and services offered.

The segments are also distinguished

by the level of information provided to the CODM, who uses such information to review the performance of various components of the business,

which are then aggregated if operating performance of product and customers are similar.

The CODM evaluates the financial performance

of the Company’s business components such as revenue streams, significant expenses, and budget to actual results in assessing the

Company’s segments and in determination of allocated resources.

The presentation of financial performance to the CODM is consistent

with amounts and financial statement lines items shown in the Company's consolidated balance sheets and consolidated statements of income.

Additionally, the Company's significant expenses are adequately segmented by category and amount in the consolidated statements of income

to include all significant items when considering both qualitative and quantitative factors.

Significant expenses of the Company include

salaries and employee benefits, occupancy expense, equipment expense, data processing fees and legal and professional expenses.

the Company's financial results are similar and considered by management to be aggregated into one reportable operating segment.

the Company has assigned certain management responsibilities by region and business-line, the Company's CODM evaluates financial performance

on a Company-wide basis.

The majority of the Company's revenue is from the business of banking and the Company's assigned regions have

similar economic characteristics, products, services and customers.

Accordingly, all of the Company's operations are considered by management

to be aggregated in one reportable operating segment .

Accounting Standards Adopted in 2024 – 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

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 generally accepted accounting principles of the United

States (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 information transparency.

ASU 2020-06 was effective for the

Company on January 1, 2024.

The adoption of this standard had no material impact on the consolidated financial statements.

In June 2022, the FASB issued

ASU 2022-03, “Fair Value Measurement (Topic 820):

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

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

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

ASU 2022-03 was effective for the Company on January

The adoption of this standard had no material impact on the consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, “Leases

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 this standard had no material impact on the consolidated financial statements.

On December 31, 2024, the Company adopted ASU 2023-07,

“Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures.” These amendments required that a public

entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision

maker and included within each reported measure of segment profit or loss, required other segment items by reportable segment to be disclosed

and a description of their composition, and required disclosure of the title and position of the chief operating decision maker and an

explanation of how they use the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate

The amendments were applied retrospectively to all prior periods presented and did not have a material effect on the Company’s

consolidated financial statements.

Refer to Segment Reporting section above.

Use of Estimates – 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.

and Cash Equivalents –

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

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

within three months of maturity.

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

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

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

historical cost.

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

and carried at fair value.

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

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

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

The amortization

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

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

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

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

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

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

Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair

value of each security.

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

and losses flow through the statements of income.

for Credit Losses – Available-for-Sale Securities –

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

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

such evaluation.

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

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

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

If either of the

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

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

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

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

If the assessment indicates

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

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

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

income (loss).

Changes in the allowance

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

Losses are charged against the allowance for

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

regarding intent or requirement to sell is met.

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

held for sale –

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

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

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

loans held for sale are generally sold with servicing released.

Gains and losses on sales

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

of the related loan sold.

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

or payoff are reported at amortized cost.

Amortized cost is the principal balance outstanding,

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

Accrued interest receivable

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

interest receivable on the consolidated balance sheets.

Interest income is accrued on the

unpaid principal balance.

Loan origination fees, net of certain direct origination costs,

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

without anticipating prepayments.

The accrual of interest

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

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

be collectible in the normal course of business.

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.

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.

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

As of December 31, 2024, 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 $ 2.9 million as of December 31, 2024 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

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

A loan is considered to be

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

All accrued interest

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

Interest received on such loans is accounted for using

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

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

the loan balance is reduced to zero.

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

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

Group Concentrations of Credit Risk –

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

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

or $16.2 million as of December 31, 2023.

Most of the Company’s activities are with

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

region and western North Carolina.

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.

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.

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 $ 17.7 million as of December 31, 2024.

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.

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

for Credit Losses – Loans –

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

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

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

loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously

charged-off and expected to be charged-off.

Accrued interest receivable is excluded from

the estimate of credit losses.

The allowance for

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

The allowance

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

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

The Company primarily

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

current expected credit losses.

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

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

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

the volume and severity

of past due, rated and nonaccrual assets, loan review system, collateral value, concentrations of credit, and legal or regulatory requirements

and competition.

The Company measures

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

The Company has identified the following

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

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.

adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation,

the Company may consider the following qualitative adjustment factors:

lending policies and procedures, national and local

economic conditions, the experience and ability of management and staff;

the volume and severity of past due, rated and nonaccrual assets,

loan review system, collateral value, concentrations of credit, and legal or regulatory requirements and competition.

The Company measures expected credit losses for loans

on a pooled basis when similar risk characteristics exist.

The Company has identified the following portfolio segments and calculates

the allowance for credit losses for each using a discounted cash flow methodology:

Real Estate Loans.

107 unchanged sentences

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.

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

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

or the DCF method.

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

18 unchanged sentences

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

for Credit Losses – Unfunded Commitments –

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

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

The Company’s

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

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

of those instruments.

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 .

Premises and Equipment –

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

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

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:

of estimated useful lives

2 unchanged sentences

and other equipment

improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter.

improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever

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

Real Estate Owned –

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

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

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

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

At the time of acquisition, these properties

are recorded at fair value less estimated costs to sell.

Expenses incurred in connection

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

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

for losses on the property.

Gains and losses on the sales of these properties are credited

or charged to income in the year of the sale.

Owned Life Insurance (“BOLI”) –

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

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

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

has entered into for certain office facilities.

Most leases include one or more options to

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.

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

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

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

likely than not such assets will not be realized.

As of December 31, 2023 and 2022, the Company

had no valuation allowance on its net deferred tax assets.

The Company recognizes

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

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

The tax benefits recognized in the financial statements from such

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

Note 10, Income Taxes, for additional information.

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

as a component of income tax expenses.

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

during each period.

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

As most of our leases do not provide an implicit rate, we use the fully collateralized Federal Home Loan Bank of Atlanta (FHLB)

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, 2024 and 2023, 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

The Company records any penalties and interest attributed to uncertain tax positions as a component of income tax expenses.

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

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 – 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.

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

securities is the Company’s only component of other comprehensive income (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 $ 240,000

and $ 206,000 , for the years ended December 31, 2024 and 2023, 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.

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.

Instruments – Off-balance-sheet instruments -

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

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

Instruments – Fair Value –

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

other assumptions, as more fully discussed in Note 23.

Fair value estimates involve uncertainties

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

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

assumptions or market conditions could significantly affect these estimates.

Comprehensive

Income (Loss) –

GAAP requires that recognized revenue, expenses, gains and losses be included in net income.

Although certain changes in assets and liabilities, such as unrealized gains and losses on

available-for-sale securities, are reported as a separate component of the equity section

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

income (loss).

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

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

from Contracts with Customers -

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

as services are rendered;

and the transaction prices are typically fixed, charged either

on a periodic basis or based on activity.

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.

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

the date these consolidated financial statements were issued.

See Note 26 Subsequent Events

for additional information.

3 INCOME PER SHARE

Basic income per

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

Dilutive earnings per share reflect

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

For the years ended

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

Basic and diluted

net income per common share calculations follows:

of basic and diluted net loss per common share calculations

For the years ended December 31, 2024 and 2023, there

were no dilutive potential common shares.

Basic and diluted net income per common share calculations

Schedule of basic and diluted net loss per common share calculations

in thousands, except

4 unchanged sentences

and diluted income per share

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.

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.

NOTE 4 DEPOSITS IN AND FEDERAL FUNDS SOLD

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 $ 54.5 million

and $ 50.4 million as of December 31, 2024 and 2023, respectively.

Deposit amounts at other commercial banks may, at times, exceed federally

insured limits.

The Bank has a total of $ 30 .0 million in unsecured

fed funds lines of credit facilities from three correspondent banks that were available as of December 31, 2024 and 2023, respectively.

Of these total commitments, all were available as of December 31, 2024 and 2023.

As a condition for

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

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

5 INVESTMENT SECURITIES

The amortized cost and estimated fair

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

of securities amortized cost and estimated fair value

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, 2024

and 2023, 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, 2024 and 2023 are as follows:

Schedule of securities amortized cost and estimated fair value

are in thousands)

5 unchanged sentences

Securities available for sale

The following table

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

This information is aggregated by the length of

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

of fair value and gross unrealized losses on investment securities

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, 2024 and 2023.

Schedule of fair value and gross unrealized losses on investment securities

than 12 Months

Months or More

(Dollars are in thousands)

are in thousands)

Government Agencies

2 unchanged sentences

backed securities

As of December 31,

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

As of December

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

believes that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and are

not a result of credit deterioration.

Management does not plan to sell, and it is not likely that the Bank will be required to sell any

of the securities referenced in the table above before recovery of their amortized cost.

None of the individual securities are past due

to principal or interest

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

The remaining securities have credit ratings

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

Investment securities

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

deposits and for other purposes required or permitted by law.

There were no sales

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

The amortized

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

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

call or prepayment penalties.

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

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

to the scheduled maturity date.

of amortized cost and fair value of investment securities contractual maturity

As of December 31, 2024, the available-for-sale portfolio

included 195 investments for which the fair market value was less than amortized cost.

As of December 31, 2023, the available-for-sale

portfolio included 209 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 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 $ 35.2

million and $ 36.8 million as of December 31, 2024 and 2023, respectively, were pledged to secure public deposits and for other purposes

required or permitted by law.

During the year ended December 31, 2024 securities

with an amortized cost of $ 2.1 million were sold, realizing a net gain of $ 4,000 .

No securities were sold during the year ended December

The following table presents the gross proceeds, gross gains and gross losses, and the tax provision resulting from sales of

Schedule of gross proceeds, gross gains and gross losses, and the tax provision

are in thousands)

Available for Sale

in one year or less

after one year through five years

after five years through ten years

Tax provision

The amortized cost and fair value of investment

securities as of December 31, 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.

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

mortgage obligations, because the underlying collateral on these types of securities may be repaid prior to the scheduled maturity date.

of amortized cost and fair value of investment securities contractual maturity

(Dollars are in thousands)

Securities Available

Due after one year through

Due after five years through

after ten years

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.

Loans receivable

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

of loans receivable outstanding

The Bank, as a member of the Federal Reserve Bank and

the FHLB, is required to hold stock in each.

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

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 December 31, 2024 and 2023, respectively.

The stock has no quoted market value and no

ready market exists.

Loans receivable outstanding as of December

31, 2024 and 2023 are summarized as follows:

Schedule of loans receivable outstanding

are in thousands)

2 unchanged sentences

real estate loans

installment loans

Also included in

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

Total deferred

loan costs were $2.0 million and $1.9 million, as of December 31, 2023 and 2022, respectively.

Income from net deferred fees and costs

is recognized over the lives of the respective loans as a yield adjustment.

If loans repay prior to scheduled maturities any unamortized

fee or cost is recognized at that time.

Loans receivable

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

of loans receivable on nonaccrual status

installment loans and all other loans

Also included in total loans above are deferred loan

fees of $ 2 .0 million and $ 1.8 million, as of December 31, 2024 and 2023, respectively.

Total deferred loan costs were $ 1.9 million and

$ 2 .0 million, as of December 31, 2024 and 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 fee or cost is recognized at

Loans receivable on nonaccrual status as of

December 31, 2024 and 2023 are summarized as follows:

Schedule of loans receivable nonaccrual status

December 31, 2024

December 31, 2023

With No Allowance

With an Allowance

With No Allowance

With an Allowance

(Dollars in thousands)

Real estate secured:

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment loans and other loans

Total loans receivable on nonaccrual status

Total interest income not recognized on nonaccrual

loans for 2024 and 2023 was approximately $ 49,000 and $ 61,000 , respectively.

The Company evaluates 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, 2024 and 2023:

Schedule of summary of impaired loans

Principal Balance

in thousands)

3 unchanged sentences

installment loans and other loans

loans receivable on nonaccrual status

Total interest income

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

Prior to the adoption

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

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

Impaired loans included loans on

nonaccrual status and accruing troubled debt restructurings.

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

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

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

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

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

or not currently classified as such.

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

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

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

expected solely from the collateral.

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

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

Upon adoption of

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

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

The following table presents the amortized

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

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

of summary of impaired loans

Principal Balance

estate secured:

and land development

real estate secured

installment loans

The following table presents loans individually

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

As of December

in thousands)

Unpaid Principal

no related allowance recorded:

estate secured:

and land development

installment loans

an allowance recorded:

estate secured:

and land development

installment loans

The following tables

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

age analysis of past due loans receivable

As of December 31, 2023

(Dollars are in thousands)

The following tables show an age analysis of past due

loans receivable as of December 31, 2024 and 2023, segregated by class:

Schedule of analysis of past due loans receivable

of December 31, 2024

are in thousands)

estate secured:

real estate loans

As of December 31, 2022

(Dollars are in thousands)

loans and all other loans

of December 31, 2023

are in thousands)

estate secured:

real estate loans

As of December 31, 2023 and 2022, there

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

The Company categorizes

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

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

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

The Company uses the

following definitions for risk ratings:

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.

loans and all other loans

As of December 31, 2024 and 2023, 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.

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.

- 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.

1 unchanged sentence

the Company’s credit position at some future date.

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

obligor or of the collateral pledged, if any.

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

the liquidation of the debt;

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

are not corrected.

- 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:

of risk category of loans receivable

Substandard - A

substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged,

Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt;

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, 2024 or 2023.

The following table presents the credit risk grade

of loans by origination year as of December 31, 2024 and 2023:

Schedule of credit risk grade of loans

As of December 31, 2024

1 unchanged sentence

Commercial real estate

period gross charge-offs

and Land Development

Special mention

Total commercial real estate

Current period gross charge-offs

Construction and Land Development

period gross charge-offs

Special mention

Total construction and land development

Current period gross charge-offs

Residential 1-4 family

period gross charge-offs

and All Other

Special mention

Total residential 1-4 family

Current period gross charge-offs

Special mention

Total multifamily

Current period gross charge-offs

Special mention

Total farmland

Current period gross charge-offs

Special mention

Total commercial

Current period gross charge-offs

Special mention

Total agriculture

Current period gross charge-offs

Consumer and All Other

period gross charge-offs

Special mention

Total consumer and all other

Current period gross charge-offs

Total current period gross charge-offs

The following table presents the credit

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

of December 31, 2022

are in thousands)

As of December 31, 2023

(Dollars are in thousands)

Commercial real estate

Special mention

Total commercial real estate

Current period gross charge-offs

Construction and Land Development

Special mention

Total construction and land development

Current period gross charge-offs

Residential 1-4 family

Special mention

Total residential 1-4 family

Current period gross charge-offs

Special mention

Total multifamily

Current period gross charge-offs

Special mention

Total farmland

Current period gross charge-offs

Special mention

Total commercial

Current period gross charge-offs

Special mention

Total agriculture

Current period gross charge-offs

Consumer and All Other

Special mention

Total consumer and all other

Current period gross charge-offs

Total current period gross charge-offs

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.

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 tables present a disaggregated

analysis of activity in the allowance for credit losses for loans as of December 31, 2024 and 2023:

Schedule of allowance for credit losses for loans

Real estate secured

(Dollars are in thousands)

Construction and Land Development

Residential 1-4 family

Total real estate loans

Consumer installment loans

All other loans

7 ALLOWANCE FOR CREDIT LOSSES FOR LOANS

In determining the

amount of our allowance for credit losses, we rely on an analysis of our loan portfolio, our experience and our evaluation of general

economic conditions.

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

and we may experience significant increases to our provision.

The allowance for

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

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

of receivables to borrowers experiencing financial difficulty.

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

to determine the allowance for credit losses.

The following table

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

of allocation of portion of allowance

in thousands)

and Land Development

and All Other

Consumer and All Other

Year ended December 30, 2024

Beginning balance

Adjustment to allowance for adoption of ASU 2016-13

Provision for credit losses

Ending balance

The following tables

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

estate secured

in thousands)

and Land Development

and All Other

Real estate secured

(Dollars are in thousands)

Construction and Land Development

Residential 1-4 family

Consumer and All Other

Year ended December 31, 2023

Beginning balance

Adjustment to allowance for adoption of ASU 2016-13

Provision for credit losses

Ending balance

Allowance for

loan losses at December 31, 2022

Individually evaluated for impairment

Collectively evaluated for impairment

Loans at December 31, 2022

Individually evaluated for impairment

Collectively evaluated for impairment

Allocation of a portion

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

8 MODIFICATIONS MADE TO BORROWERS EXPERIENCING FINANCIAL

An assessment of

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

Because the effect of most modifications

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

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

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

When principal forgiveness

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

The amount of the principal

forgiveness is deemed to be uncollectible;

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

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

In some cases, the

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

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

is granted initially.

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

may be granted.

There were no loans

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

Additionally, there were no loans that

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

Prior to adoption

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

All loans considered

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

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

For the year ended

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

Generally, a restructured

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

9 BANK PREMISES AND EQUIPMENT

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:

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;

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.

borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

On September 27, 2024, Hurricane Helene passed through

western North Carolina, southwest Virginia and northeast Tennessee, causing flood and wind damage in its path.

To assist borrowers impacted

by this natural disaster, we offered short-term payment deferrals of 3 months.

At December 31, 2024, 36 loans totaling $ 9.2 million are

participating in this deferral program.

One of these loans, a residential mortgage loan totaling $ 178,000 , received an additional 3 month

deferral, due to the extent of damage to the property.

Additionally, there were no loans that had a payment default during the year that

were modified in the previous 12 months.

NOTE 9 BANK PREMISES AND EQUIPMENT

Depreciation expense for the year ended December

31, 2024 and 2023 was $ 1.2 million and $ 1.2 million, respectively.

Bank premises and equipment as of December 31, 2024 and 2023 are summarized

of bank premises and equipment

2 unchanged sentences

and equipment

plan equipment, gross

accumulated depreciation

Premises and Equipment

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

These properties with a combined

carrying value of $2.0 million, were transferred to other real estate owned during 2021, resulting in an increase to OREO of $950,0000,

and disposal and valuation costs of approximately $1.1 million.

10 INCOME TAXES

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.

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

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, 2024 and 2023.

Income tax expense

is summarized as follows for the years ended December 31, 2024 and 2023:

of pre-tax book income

1 unchanged sentence

income tax expense

The following

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

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

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, 2024 and 2023, respectively:

of reconciliation of income tax expense

5 unchanged sentences

owned life insurance

The net deferred

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

of bank owned life insurance

on surrender of bank owned life insurance

owned life insurance benefit

The net deferred tax assets and liabilities resulting

from temporary differences as of December 31, 2024 and 2023, are summarized as follows:

of net deferred tax assets and liabilities

8 unchanged sentences

deferred tax asset

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.

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

Company and Bank are subject to U.

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, 2024 and 2023, 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.

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

Years prior to 2020 are no longer subject to examination by taxing authorities.

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

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

are in thousands):

and income and excise taxes

in West Virginia, Tennessee and North Carolina, respectively, based on earnings realized from business activities within each state.

prior to 2021 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 $ 51.3 million and $ 52.8 million

as of December 31, 2024 and 2023, respectively.

Brokered time deposits totaled $ 3 .0 million and $ 0 at December 31, 2024 and 2023, respectively.

As of December 31, 2024, the scheduled maturities of time deposits are as follows (dollars are in

of maturities

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.

of related party

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.

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

the year ended December 31,

3 unchanged sentences

and other reductions

Total related party

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

NPB Insurance Services,

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

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.

Total related party deposits held at the Bank were

$ 17.9 million and $ 15.6 million as of December 31, 2024 and 2023, respectively.

NPB Insurance Services, Inc.

holds a 39% membership

interest in Lonesome Pine Title Agency, LLC, which provides title insurance.

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 % of their salary for 2024 and

2023, respectively.

The Company contributed approximately $ 529,000 and $ 519,000 to the defined contribution plan during the years ended

December 31, 2024 and 2023, 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.

The Plan provides for

cash incentive awards to Plan participants based on the Company’s quarterly earnings per share of common stock over the period

specified in the Plan.

Certain members of management are eligible to participate in the Plan.

Individual awards

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

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

under the Plan.

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

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

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

continuous employment with the Company through the applicable anniversary.

Awards are settled on the earliest of a participant’s

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

Vested portions of an award

are generally paid in three installments.

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

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.

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

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.

December 31, 2024 and 2023, 605,000

and 500,000 notional shares,

respectively, have been awarded, and for the years ended December 31, 2024 and 2023 expense totaling $ 160,000

was recorded.

The Bank maintains

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

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

14 OTHER REAL ESTATE OWNED

The following table

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

of other real estate owned

are in thousands)

The Bank maintains a salary continuation plan for key

executives which was established in 2002 and was funded by single premium life insurance policies.

Expenses related to the plan were approximately

$ 24,000 and $ 26,000 for the years ended December 31, 2024 and 2023, respectively.

NOTE 14 OTHER REAL ESTATE OWNED

The following table summarizes the activity

in other real estate owned for the years ended December 31, 2024 and 2023:

Schedule of activity in other real estate owned

in thousands)

beginning of year

from premises and equipment

made to finance sales

of carrying value

(losses) from sales

During 2023, four

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

During 2022, three former branch offices that were transferred from premises to other real

estate owned during 2021, were sold, resulting in valuation adjustments of $137,000 and net losses totaling $5,000, respectively.

As of December 31,

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

residential real estate.

15 BANK OWNED LIFE INSURANCE

As of December 31,

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

policies covering former key officers.

The Company recognized

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

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

during the year ended December 31, 2022.

16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK

A principal source

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

As of December 31, 2024, one loan secured by

residential real estate totaling approximately $ 16,000 was in the process of foreclosure.

As of December 31, 2023, four loans totaling

approximately $ 401,000 were in the process of foreclosure, of which three loans totaling $ 117,000 were secured by residential real estate.

NOTE 15 BANK OWNED LIFE INSURANCE

As of December 31, 2024 and 2023, the Bank had an aggregate

total cash surrender value of $ 0 and $ 4.6 million, respectively, on life insurance policies covering former key officers.

one policy was surrendered at market value resulting in a loss of $ 49,000 .

In December 2024, a death benefit receivable of $ 5.4 million

was recorded, resulting in an income accrual of $ 1.6 million.

Excluding the loss on surrender and the accrual of

income on the death benefit, the Company recognized income of approximately $ 73,000 and $ 40,000 during the years ended December 31, 2024

and 2023, respectively.

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.

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

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

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

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

17 LEASING ACTIVITIES

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.

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.

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

As of December

31, 2024, the Bank leases four branch offices and a former branch office now used as administrative 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, 2024 is 7.27 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.

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.

of December 31, 2023, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars

are in thousands):

The weighted average discount

rate for the leases as of December 31, 2024 was 3.36 %.

The Company’s operating lease costs for the years

ended December 31, 2024 and 2023, as a result of the transactions discussed above, were $ 558,000 and $ 465,000 , respectively.

The Company’s other operating leases were evaluated

and determined to be immaterial to the financial statements.

As of December 31, 2024, future minimum

rental commitments under the non-cancellable operating leases discussed above are as follows (dollars are in thousands):

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

1 unchanged sentence

imputed interest

18 BORROWED FUNDS

The following table

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

NOTE 18 BORROWED FUNDS

The following table presents the breakdown of

borrowed funds as of December 31, 2024 and 2023:

of breakdown of borrowed funds

16 unchanged sentences

Paid during the year

(a) - The Bank has

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

real estate loans.

Bank has the ability to borrow up to an additional $86.6 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 $196.1 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.

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

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

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

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

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

TPS I - On July 7,

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

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

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

260 basis points.

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.

Following are maturities of borrowed funds

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

had no overnight borrowings subject to daily rate changes from the FHLB at December 31, 2024 or 2023.

We have used our line of credit with FHLB to issue

letters of credit totaling $14.0 million to the Treasury Board of Virginia for collateral on public funds deposited in the Bank.

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 consisted

of $30.0 million in unsecured federal funds line of credit facilities with correspondent banks as of December 31, 2024 and 2023, respectively

exclusive of any outstanding balance.

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

were no short term FHLB advances outstanding.

(d) – A short-term, fixed rate borrowing under

the FRB Bank Term Funding Program in the amount of $10.0 million at December 31, 2023, was prepaid without penalty during the fourth quarter

(e) – As of December 31, 2024 and 2023, there

was a fixed rate, FHLB advance in the amount of $10.0 million outstanding, which matures in 2028.

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 Secured Overnight Financing Rate (SOFR)

plus 260 basis points.

During 2024, a principal reduction of $ 1.2 million was paid.

On January 7, 2025, a principal reduction

of $ 3 .0 million 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.

Following are maturities of borrowed funds as of December 31, 2024 (dollars

in thousands):

of maturities of borrowed funds

and thereafter

19 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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.

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

NOTE 19 FINANCIAL INSTRUMENTS WITH OFF-BALANCE

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, 2024 and 2023 were as follows:

of financial instruments with credit risk

2 unchanged sentences

letters of credit

Commitments to extend

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

established in the contract.

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

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

represent future cash requirements.

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

The amount of

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

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

Standby letters of

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

Standby letters of

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

The credit risk involved

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

The Bank’s policy

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

20 CREDIT ALLOWANCE FOR UNFUNDED COMMITMENTS

The Company maintains

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

in other liabilities on the consolidated balance sheet.

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

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

The estimate includes consideration of the likelihood

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

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

risk characteristics as its loan portfolio segments.

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

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

are not excluded from the credit losses estimate.

On January 1, 2023,

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

ASC Topic 326.

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

commitments of $63,000.

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

liabilities was $285,000.

21 LEGAL CONTINGENCIES

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

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.

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.

As of December 31, 2024 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, and those commitments are excluded from

the credit losses estimate.

For the years end December 31, 2024 and 2023, the Company

recorded a provision of $ 119,000 and a reversal of $ 63,000 , respectively, to the liability for credit losses for unfunded commitments.

As of December 31, 2024 and 2023, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities

was $ 404,000 and $ 285,000 , respectively.

NOTE 21 LEGAL CONTINGENCIES

In the course of

operations, we may become a party to legal proceedings in the normal course of business.

As of December 31, 2024, 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.

Requirements and Ratios

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.

subject to various capital requirements administered by federal banking agencies.

Failure to meet minimum capital requirements can initiate

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

on the Bank’s financial statements.

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

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

items as calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative judgments

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

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

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.

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

of capital requirements

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, 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

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, 2024, 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, 2024 and 2023, respectively.

of capital requirement

Capital Requirement

6 unchanged sentences

Risk Weighted Assets

December 31, 2022:

Capital to Risk Weighted Assets

3 unchanged sentences

Risk Weighted Assets

Accordingly, as of

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

There are no conditions

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

The Bank is also

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

and Consumer Protection Act of 2010.

Accordingly, as of December 31, 2024 and 2023, 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

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

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

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

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

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

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

(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 8.19% at December 31, 2024.

The capital conservation buffer is designed to absorb

losses during periods of economic stress.

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

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

of the shortfall.

As of both December 31, 2023 and 2022, the Common Equity Tier 1 Capital to Risk-weighted Assets ratio, the Tier 1 Capital

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

Bank, all exceeded the minimum requirements.

23 FAIR VALUES

The Company established

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

The three broad levels defined by this hierarchy are:

Quoted prices

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

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

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

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

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

These items do not have two-way markets and are measured

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

judgment or estimation.

A description of

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

to the valuation hierarchy are as follows:

Investment Securities

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

Fair value measurement

is based upon quoted prices.

The Company’s available for sale securities, totaling $89.8 million and $96.1 million as of December

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

independent pricing service.

Collateral Dependent

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

differentiate it from other loans within our loan pools.

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

basis and excluded from the collective evaluation.

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

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

the borrower's industry, among other things.

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

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

of the collateral.

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

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

We reevaluate the fair value of collateral

supporting collateral dependent loans on a quarterly basis.

The fair value of real estate collateral supporting collateral dependent

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

Other Real Estate

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

real estate owned.

These assets are carried at the lower of their carrying value or fair value.

Fair value is based upon

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

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:

of summary of assets and liabilities measured at fair value Schedule

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, 2024 and 2023, the Common Equity Tier 1 Capital to Risk-weighted Assets ratio,

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

ratio of the Bank, all exceeded the minimum requirements.

The 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:

Quoted prices are available in active markets

for identical assets or liabilities as of the reported date.

Pricing inputs are other than quoted prices

in active markets, which are either directly or indirectly observable as of the reported 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.

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

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.

Company’s available for sale securities, totaling $96.0 million and $89.8 million as of December 31, 2024 and 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.

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.

records foreclosed assets as nonrecurring Level 3.

The aggregate carrying amounts of foreclosed assets were approximately $ 87,000 and

$ 157,000 as of December 31, 2024 and 2023, respectively.

Assets and liabilities measured at fair value are as

follows as of December 31, 2024:

of summary of assets and liabilities measured at fair value

(Dollars are in thousands)

Quoted market

price in active markets

Significant other

observable inputs

Significant unobservable

a recurring basis)

(Dollars in thousands)

market price in active markets

other observable inputs

unobservable inputs

(On a recurring basis)

Available for sale investments

Government Agencies

backed securities

a non-recurring basis)

Taxable municipals

Corporate bonds

Mortgage backed securities

(On a non-recurring basis)

Other real estate owned

dependent loans with ACL:

Assets and liabilities

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

Collateral dependent loans with ACL:

Consumer installment and all other loans

Not included in the above table is a residential 1-4

family mortgage loan totaling $178,000 that has a specific allowance for credit loss allocation of 100% due to the destruction of the

Assets and liabilities measured at fair value are as

follows as of December 31, 2023:

(Dollars are in thousands)

10 unchanged sentences

Other real estate owned

estate secured:

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:

dependent loans with ACL:

For Level 3 assets

measured at fair value on a recurring or non-recurring basis as of December 31, 2024 and 2023, the significant unobservable inputs used

in the fair value measurements were as follows:

of significant unobservable inputs In level 3 assets

(Dollars in thousands)

Fair Value at

Valuation Technique

Significant Unobservable

General Range

of Significant Unobservable Input Values

in thousands)

Value at December 31,

Unobservable Inputs

Range of Significant Unobservable Input Values

dependent loans with ACL:

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

and all other

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

Real Estate Owned

1 unchanged sentence

to reflect current market conditions and estimated costs to sell

Value of Financial Instruments

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:

Fair Value of Financial

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:

of estimated fair value of financial instruments

Value Measurements

are in thousands)

in thousands)

market price in active markets

Significant other

observable inputs

Significant unobservable

other observable inputs

unobservable inputs

instruments – assets

2 unchanged sentences

instruments – liabilities

Fair value estimates

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

estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings

of a particular financial instrument.

Because no market exists for a significant portion of the Company’s financial instruments,

fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics

of various financial instruments and other factors.

These estimates are subjective in nature and involve uncertainties and matters of

significant judgment and therefore cannot be determined with precision.

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

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be

determined with precision.

Changes in assumptions can significantly affect the estimates.

Estimated fair values

have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation

methodology suitable for each category of financial instruments.

The Company’s fair value estimates, methods and assumptions are

set forth below for the Company’s other financial instruments.

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

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

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

however, an actual exit

price may differ.

24 REVENUE FROM CONTRACTS WITH CUSTOMERS

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.

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 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, 2024 and 2023.

of revenue from contracts with customers

are in thousands)

in thousands)

charges and fees

3 unchanged sentences

noninterest income

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.

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

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

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

fees include such charges as monthly account maintenance fees.

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.

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.

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

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

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.

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:

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, 2024 and 2023:

of noninterest expenses

are in thousands)

in thousands)

operating expenses

1 unchanged sentence

and professional fees

system termination costs

related expenses

2 unchanged sentences

real estate owned expenses, net

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

On February 28, 2024,

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

On February 28, 2024,

the Board of Directors authorized the continuation of the Company’s repurchase of up to 500,000 shares of its common stock through

March 31, 2025.

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

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

310,030 shares available for repurchase.

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

negotiated transactions.

27 RECENT ACCOUNTING DEVELOPMENTS

The following is

a summary of recent authoritative announcements:

In June 2022, the

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

Value Measurement (Topic 820):

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

clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity

security and, therefore, is not considered in measuring fair value.

The ASU is effective for fiscal years, including interim periods

within those fiscal years, beginning after December 15, 2023.

NOTE 26 SUBSEQUENT

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.

On February 24, 2025, the Board of Directors declared

a dividend of $ 0.08 per share payable March 31, 2025 to shareholders of record as of March 17, 2025.

On January 24, 2025, 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, 2026.

This is a continuation

of the repurchase program originally announced April 28, 2022, which was set to expire March 31, 2025.

To the date of this announced continuation,

286,792 shares have been repurchased at an average price of $2.42 per share, leaving 213,208 shares available for repurchase.

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 December 2023, the 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.

ASU is effective for annual periods beginning after December 15, 2024.

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

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

The amendments should be applied on

a prospective basis;

however, retrospective application is permitted.

The Company does not expect these amendments to have a material

effect on its consolidated financial statements.

In November 2024, the 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.

The FASB subsequently issued ASU 2025-01,

“Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the

Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt

the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting

periods beginning after December 15, 2027.

Early adoption of ASU 2024-03 is permitted.

Implementation of ASU 2024-03 may be applied prospectively

or retrospectively.

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

In December 2023,

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

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

Early adoption is permitted for annual financial statements

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

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

on its consolidated financial statements.

Other accounting

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

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

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

BALANCE SHEETS

OF DECEMBER 31, 2023 AND 2022

in Thousands)

CONDENSED BALANCE SHEETS

AS OF DECEMBER 31, 2024 AND 2023

(Dollars in Thousands)

of parent corporation only condensed balance sheets

5 unchanged sentences

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

and 23,745,900 shares issued and outstanding at December 31, 2024 and 2023, respectively

other comprehensive loss

1 unchanged sentence

liabilities and shareholders’ equity

STATEMENTS OF INCOME

THE YEARS ENDED DECEMBER 31, 2023 AND 2022

in thousands)

CONDENSED STATEMENTS

FOR THE YEARS

ENDED DECEMBER 31, 2024 AND 2023

of parent corporation only condensed statements of income

6 unchanged sentences

before income taxes

STATEMENTS OF CASH FLOWS

THE YEARS ENDED DECEMBER 31, 2023 AND 2022

in thousands)

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

(Dollars in thousands)

of parent corporation only condensed statements of cash flows

3 unchanged sentences

decrease in other assets

increase in other liabilities

(decrease) increase in accrued interest payable and other liabilities

cash provided by operating activities

3 unchanged sentences

dividends paid

used in financing activities

(decrease) increase in cash and cash equivalents

cash used in financing activities

increase (decrease) in cash and cash equivalents

and cash equivalents, beginning of year

and cash equivalents, end of year

in and Disagreements with Accountants on Accounting and Financial Disclosure

Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data