NEW PEOPLES BANKSHARES INC 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission file number: 000-33411 NEW PEOPLES BANKSHARES, INC. (Exact name of registrant as specified in its charter) Virginia (State or other jurisdiction of incorporation or organization) 31-1804543 (I.R.S. Employer Identification No.) 67 Commerce Drive , Honaker , Virginia (Address of principal executive offices) 24260 (Zip Code) ( 276 ) 873-7000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [X] Emerging growth company [ ] If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of shares outstanding of the registrant’s common stock was 23,607,903 as of May 07, 2025. NEW PEOPLES BANKSHARES, INC. INDEX Page PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2025 (Unaudited) and December 31, 202 3 Consolidated Statements of Income – Three months ended March 31, 2025 and 2024 (Unaudited) 4 Consolidated Statements of Comprehensive Income – Three months ended March 31, 2025 and 2024 (Unaudited) 5 Consolidated Statements of Changes in Stockholders’ Equity – Three months ended March 31, 2025 and 2024 (Unaudited) 6 Consolidated Statements of Cash Flows – Three months ended March 31, 2025 and 2024 (Unaudited) 7 Notes to Consolidated Financial Statements 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures about Market Risk 30 Item 4. Controls and Procedures 30 PART II OTHER INFORMATION Item 1. Legal Proceedings 31 Item 1A. Risk Factors 31 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31 Item 3. Defaults upon Senior Securities 31 Item 4. Mine Safety Disclosures 32 Item 5. Other Information 32 Item 6. Exhibits 32 SIGNATURES 33 Part I Financial Information Item 1 Financial Statements NEW PEOPLES BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 2025 AND DECEMBER 31, 2024 (IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA) (UNAUDITED) March 31, December 31, 2025 2024 ASSETS Cash and due from banks 16,486 $ 13,218 Interest-bearing deposits with banks 66,632 54,300 Federal funds sold 162 150 Total cash and cash equivalents 83,280 67,668 Investment securities available-for-sale, at fair value 98,625 95,984 Loans receivable 670,731 657,536 Allowance for credit losses ( 7,832 ) ( 7,684 ) Net loans 662,899 649,852 Bank premises and equipment, net 17,035 17,070 Other real estate owned 57 87 Accrued interest receivable 3,647 3,458 Deferred taxes, net 4,310 4,809 Insurance benefit receivable — 5,417 Right-of-use assets – operating leases 3,348 3,413 Other assets 7,546 7,167 Total assets 880,747 $ 854,925 LIABILITIES Deposits: Noninterest bearing 234,094 $ 224,938 Interest-bearing 542,756 525,044 Total deposits 776,850 749,982 Borrowed funds 21,986 24,986 Lease liabilities – operating leases 3,348 3,413 Accrued interest payable 1,348 1,442 Accrued expenses and other liabilities 4,643 4,361 Total liabilities 808,175 784,184 SHAREHOLDERS’ EQUITY Common stock - $ 2.00 par value; 50,000,000 shares authorized; 23,613,947 and 23,636,724 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively 47,228 47,273 Additional paid-in-capital 14,428 14,451 Retained earnings 21,020 21,001 Accumulated other comprehensive loss ( 10,104 ) ( 11,984 ) Total shareholders’ equity 72,572 70,741 Total liabilities and shareholders’ equity 880,747 $ 854,925 The accompanying notes are an integral part of these consolidated financial statements. 3 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) For the Three Months Ended March 31, INTEREST AND DIVIDEND INCOME 2025 2024 Loans including fees $ 9,912 $ 9,213 Federal funds sold 2 2 Interest-earning deposits with banks 692 826 Investments 702 530 Dividends on equity securities (restricted) 43 43 Total interest and dividend income 11,351 10,614 INTEREST EXPENSE Deposits 3,449 3,151 Borrowed funds 292 533 Total interest expense 3,741 3,684 NET INTEREST INCOME 7,610 6,930 PROVISION FOR (RECOVERY OF) CREDIT LOSSES 259 ( 43 ) NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) CREDIT LOSSES 7,351 6,973 NONINTEREST INCOME Service charges and fees 877 915 Card processing and interchange 865 895 Financial services fees 318 322 Net gain (loss) on sale and disposal of premises and equipment 2 ( 33 ) Other noninterest income 351 222 Total noninterest income 2,413 2,321 NONINTEREST EXPENSES Salaries and employee benefits 3,798 3,647 Occupancy and equipment expense 984 869 Data processing and telecommunications 634 644 Other operating expenses 1,856 1,817 Total noninterest expenses 7,272 6,977 INCOME BEFORE INCOME TAXES 2,492 2,317 INCOME TAX EXPENSE 584 531 NET INCOME $ 1,908 $ 1,786 Earnings per share Basic and diluted $ 0.08 $ 0.08 Average Weighted Shares of Common Stock Basic and diluted 23,626,617 23,736,387 The accompanying notes are an integral part of these consolidated financial statements. 4 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (IN THOUSANDS) (UNAUDITED) For the Three Months Ended March 31, 2025 2024 NET INCOME $ 1,908 $ 1,786 Other comprehensive income (loss): Investment securities activity Unrealized gains (losses) arising during the period 2,380 ( 1,056 ) Related tax (expense) benefit ( 500 ) 221 TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 1,880 ( 835 ) TOTAL COMPREHENSIVE INCOME $ 3,788 $ 951 The accompanying notes are an integral part of these consolidated financial statements. 5 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (IN THOUSANDS INCLUDING SHARE DATA) (UNAUDITED) Shares of Common Stock Common Stock Additional Paid-in- Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance, December 31, 2023 23,746 $ 47,492 $ 14,514 $ 14,458 $ ( 11,653 ) $ 64,811 Net income — — — 1,786 — 1,786 Other comprehensive loss, net of tax — — — — ( 835 ) ( 835 ) Cash dividend declared ($0.07 per share) — — — ( 1,661 ) — ( 1,661 ) Repurchase of common stock ( 34 ) ( 69 ) ( 16 ) — — ( 85 ) Balance, March 31, 2024 23,712 $ 47,423 $ 14,498 $ 14,583 $ ( 12,488 ) $ 64,016 Balance, December 31, 2024 23,637 $ 47,273 $ 14,451 $ 21,001 $ ( 11,984 ) $ 70,741 Net income — — — 1,908 — 1,908 Other comprehensive income, net of tax — — — — 1,880 1,880 Cash dividend declared ($0.08 per share) — — — ( 1,889 ) — ( 1,889 ) Repurchase of common stock ( 23 ) ( 45 ) ( 23 ) — — ( 68 ) Balance, March 31, 2025 23,614 $ 47,228 $ 14,428 $ 21,020 $ ( 10,104 ) $ 72,572 The accompanying notes are an integral part of these consolidated financial statements. 6 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (IN THOUSANDS) (UNAUDITED) 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,908 $ 1,786 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 374 424 Provision for (recovery of) credit losses 259 ( 43 ) Income on bank owned life insurance — ( 18 ) Gain on sale of mortgage loans ( 9 ) ( 4 ) (Gain) loss on sale or disposal of premises and equipment ( 2 ) 33 Loans originated for sale ( 380 ) ( 105 ) Proceeds from sales of loans originated for sale 389 109 Net amortization/accretion of bond premiums/discounts 15 71 Deferred tax benefit ( 1 ) ( 261 ) Net change in: Accrued interest receivable ( 189 ) ( 19 ) Other assets ( 365 ) ( 331 ) Accrued interest payable ( 94 ) 304 Accrued expenses and other liabilities 125 368 Net cash provided by operating activities 2,030 2,314 CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans ( 13,214 ) ( 337 ) Purchase of securities available-for-sale ( 2,939 ) ( 3,098 ) Proceeds from repayments and maturities of securities available-for-sale 2,663 2,762 Net purchase of equity securities (restricted) ( 20 ) ( 36 ) Payments for the purchase of premises and equipment ( 268 ) ( 299 ) Proceeds from sale of premises and equipment 2 — Proceeds from sale of other real estate owned 30 — Proceeds from bank owned life insurance benefit 5,417 — Net cash used in investing activities ( 8,329 ) ( 1,008 ) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long-term debt 3,000 — Net change in noninterest bearing deposits 9,156 791 Net change in interest-bearing deposits 17,712 23,521 Dividends paid ( 1,889 ) ( 1,661 ) Repurchase of common stock ( 68 ) ( 85 ) Net cash provided by financing activities 24,911 22,566 Net increase in cash and cash equivalents 21,911 23,872 Cash and cash equivalents, beginning of the period 67,668 64,977 Cash and cash equivalents, end of the period $ 83,280 $ 88,849 Supplemental disclosure of cash paid during the period for: Interest $ 3,835 $ 3,380 Supplemental disclosure of non-cash transactions: Change in unrealized losses on securities available-for-sale 2,380 ( 1,056 ) The accompanying notes are an integral part of these consolidated financial statements. 7 NEW PEOPLES BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 NATURE OF OPERATIONS Nature of Operations – New Peoples Bankshares, Inc. (New Peoples or the Company) is a financial holding company whose principal activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the Bank). New Peoples and the Bank are organized and incorporated under the laws of the Commonwealth of Virginia. As a state-chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (the Federal Reserve). The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern West Virginia, western North Carolina and northeastern Tennessee. These services include commercial and consumer loans along with traditional deposit products such as checking and savings accounts. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements conform to U. S. generally accepted accounting principles (GAAP) and to general industry practices. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position as of March 31, 2025 and December 31, 2024, and the results of operations for the three-month periods ended March 31, 2025 and 2024. The Notes included herein should be read in conjunction with the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period. The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (hereinafter, collectively referred to as the Company, we, us or our). All significant intercompany balances and transactions have been eliminated. In accordance with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for credit losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income. The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in the Company’s Annual report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2024 except for the following: Accounting Standards Adopted in 2025 – In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 was effective for the Company on January 1, 2025. The adoption of this standard had no material impact on the consolidated financial statements. 8 NOTE 3 EARNINGS PER SHARE Basic earnings per share computations are based on the weighted average number of shares outstanding during each period. Diluted earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the three-month periods ended March 31, 2025 and 2024, there were no potential common shares. Basic and diluted net income per common share calculations follow: Schedule of basic and diluted net loss per common share calculations (Dollars in thousands, except per share data) For the three months ended March 31, 2025 2024 Net income $ 1,908 $ 1,786 Weighted average shares outstanding 23,626,617 23,736,387 Weighted average dilutive shares outstanding 23,626,617 23,736,387 Basic and diluted earnings per share $ 0.08 $ 0.08 NOTE 4 CAPITAL Capital Requirements and Ratios Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. To qualify as a "Small Bank Holding Company" under federal regulations, a bank must have consolidated assets of $3.0 billion or less. The primary benefit of being deemed a "Small Bank Holding Company" is the exemption from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (BASEL III rules) became fully phased in on January 1, 2019. Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer required is 2.50%. At March 31, 2025, the Bank had a capital conservation buffer of 7.86%. Amounts recorded to accumulated other comprehensive income (loss) are not included in computing regulatory capital. Management believes as of March 31, 2025, the Bank met all capital adequacy requirements to which it was subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2025, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a three-year period the Day 1 adverse regulatory capital effects of the Current Expected Credit Loss (“CECL”) accounting standard. Additionally, in March 2020, the U.S. federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years. The final rule was adopted and became effective in September 2020. The Company implemented the CECL model commencing January 1, 2023, and elected not to phase in the effect of CECL on regulatory capital. The Bank’s actual capital amounts and ratios are presented in the following table as of March 31, 2025 and December 31, 2024, respectively. 9 Schedule of bank’s actual capital amounts and ratios presented Actual Minimum Capital Requirement Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio March 31, 2025: Total capital to risk weighted assets 101,829 15.86 % $ 51,351 8.00 % $ 64,188 10.00 % Tier 1 capital to risk weighted assets 93,802 14.61 % 38,513 6.00 % 51,351 8.00 % Tier 1 capital to average assets 93,802 10.67 % 35,162 4.00 % 43,953 5.00 % Common equity Tier 1 capital to risk weighted assets 93,802 14.61 % 28,885 4.50 % 41,722 6.50 % December 31, 2024: Total capital to risk weighted assets 101,769 16.19 % $ 50,300 8.00 % 62,875 10.00 % Tier 1 capital to risk weighted assets 93,907 14.94 % 37,725 6.00 % 50,300 8.00 % Tier 1 capital to average assets 93,907 10.70 % 35,113 4.00 % 43,892 5.00 % Common equity Tier 1 capital to risk weighted assets 93,907 14.94 % 28,294 4.50 % 40,869 6.50 % NOTE 5 INVESTMENT SECURITIES The amortized cost and estimated fair value of available-for-sale (“AFS”) securities as of March 31, 2025 and December 31, 2024 are as follows: Schedule of securities amortized cost and estimated fair value Gross Gross Approximate Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value March 31, 2025 U.S. Treasuries $ 7,617 $ 1 $ 313 $ 7,305 U.S. Government Agencies 9,855 21 481 9,395 Taxable municipals 23,928 2 4,704 19,226 Corporate bonds 2,500 3 201 2,302 Mortgage backed securities 67,516 104 7,223 60,397 Total securities available-for-sale $ 111,416 $ 131 $ 12,922 $ 98,625 December 31, 2024 U.S. Treasuries $ 8,370 $ — $ 409 $ 7,961 U.S. Government Agencies 9,380 11 586 8,805 Taxable municipals 23,940 — 5,416 18,524 Corporate bonds 2,499 — 246 2,253 Mortgage backed securities 66,965 11 8,535 58,441 Total securities available-for-sale $ 111,154 $ 22 $ 15,192 $ 95,984 The following table details unrealized losses and related fair values in the AFS portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2025 and December 31, 2024. Schedule of fair value and gross unrealized losses on investment securities Less than 12 Months 12 Months or More Total (Dollars in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses March 31, 2025 U.S. Treasuries $ — $ — $ 6,303 $ 313 $ 6,303 $ 313 U.S. Government Agencies 741 13 5,871 468 6,612 481 Taxable municipals 718 73 17,526 4,631 18,244 4,704 Corporate bonds — — 1,799 201 1,799 201 Mortgage backed securities 6,861 108 41,971 7,115 48,832 7,223 Total $ 8,320 $ 194 $ 73,470 $ 12,728 $ 81,790 $ 12,922 December 31, 2024 U.S. Treasuries $ 980 $ 20 $ 6,981 $ 389 $ 7,961 $ 409 U.S. Government Agencies 2,221 38 6,026 548 8,247 586 Taxable municipals 1,559 212 16,965 5,204 18,524 5,416 Corporate bonds 499 1 1,755 245 2,254 246 Mortgage backed securities 14,982 311 42,018 8,224 57,000 8,535 Total $ 20,241 $ 582 $ 73,745 $ 14,610 $ 93,986 $ 15,192 10 As of March 31, 2025, the available-for-sale portfolio included 174 investments for which the fair market value was less than amortized cost. As of December 31, 2024, the available-for-sale portfolio included 195 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 $ 36.1 million and $ 35.2 million as of March 31, 2025 and December 31, 2024, respectively, were pledged as collateral 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 three months ended March 31, 2025 and 2024. The amortized cost and fair value of investment securities as of March 31, 2025, by contractual maturity, are shown in the following schedule. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Schedule of amortized cost and fair value of investment securities contractual maturity Weighted (Dollars in thousands) Amortized Fair Average Securities Available-for-Sale Cost Value Yield Due in one year or less $ 3,236 $ 3,194 2.03 % Due after one year through five years 12,516 12,051 2.08 % Due after five years through ten years 23,418 21,908 3.18 % Due after ten years 72,246 61,472 3.02 % Total $ 111,416 $ 98,625 2.56 % The Bank, as a member bank of the Federal Reserve Bank of Richmond (“Federal Reserve Bank”) and the Federal Home Loan Bank of Atlanta (FHLB), is required to hold stock in each. The Bank also owns stock in CBB Financial Corp., which is a correspondent of the Bank. These equity securities, which are included in other assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $ 2.7 million and $ 2.7 million as of March 31, 2025 and December 31, 2024, respectively. The stock has no quoted market value and no ready market exists. When evaluating these securities for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Equity securities are viewed as long-term investments and management believes the Company has the ability and the intent to hold these securities until their value is recovered. NOTE 6 LOANS Loans receivable outstanding as of March 31, 2025, and December 31, 2024, are summarized as follows: Schedule of loans receivable outstanding (Dollars in thousands) March 31, 2025 December 31, 2024 Real estate secured: Commercial $ 249,143 $ 243,646 Construction and land development 35,875 36,112 Residential 1-4 family 237,664 234,860 Multifamily 32,157 32,379 Farmland 17,927 16,921 Total real estate loans 572,766 563,918 Commercial 62,021 60,587 Agriculture 5,004 4,025 Consumer installment and all other loans 30,940 29,006 Total loans $ 670,731 $ 657,536 Also included in total loans above are deferred loan fees of $ 2.1 million and $ 2.0 million as of March 31, 2025 and December 31, 2024, respectively. Deferred loan costs were $ 1.9 million and $ 1.9 million, as of March 31, 2025 and 11 December 31, 2024, 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 costs is recognized at that time. Loans receivable on nonaccrual status as of March 31, 2025, and December 31, 2024, are summarized as follows: Schedule of loans receivable nonaccrual status March 31, 2025 December 31, 2024 With No Allowance With an Allowance Total With No Allowance With an Allowance Total (Dollars in thousands) Real estate secured: Commercial $ 405 $ - $ 405 $ 411 $ - $ 411 Construction and land development 329 - 329 300 - 300 Residential 1-4 family 2,689 178 2,867 2,232 178 2,410 Total real estate loans 3,423 178 3,601 2,943 178 3,121 Commercial 59 - 59 66 - 66 Agriculture - 802 802 - - - Consumer installment loans and other loans 45 - 45 56 14 70 Total loans receivable on nonaccrual status $ 3,527 $ 980 $ 4,507 $ 3,081 $ 192 $ 3,273 Total interest income not recognized on nonaccrual loans for the three months ended March 31, 2025, and March 31, 2024, was $ 38,000 and $ 26,000 , respectively. The Company evaluates loans that do not share risk characteristics on an individual basis utilizing the collateral or discounted cash flow methods. The following table presents the unpaid principal balance of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to those loans as March 31, 2025 and December 31, 2024: Schedule of summary of impaired loans March 31, 2025 December 31, 2024 Unpaid Principal Balance Related Allowance Unpaid Principal Balance Related Allowance (Dollars in thousands) Real estate secured: Commercial $ 396 $ - $ 396 $ - Construction and land development 300 - 300 - Residential 1-4 family 1,388 178 1,008 177 Total real estate loans 2,084 178 1,704 177 Agriculture 802 78 - - Consumer installment loans and other loans - - 13 3 Total $ 2,886 $ 256 $ 1,717 $ 180 The following table is an age analysis of past due loans receivable as of March 31, 2025, segregated by class: 12 Schedule of analysis of past due loans receivable March 31, 2025 (Dollars in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Real estate secured: Commercial $ 326 $ — $ 396 $ 722 $ 248,421 $ 249,143 Construction and land development — — 300 300 35,575 35,875 Residential 1-4 family 1,692 633 477 2,802 234,862 237,664 Multifamily — — — — 32,157 32,157 Farmland 205 — — 205 17,722 17,927 Total real estate loans 2,223 633 1,173 4,029 568,737 572,766 Commercial — 26 13 39 61,982 62,021 Agriculture 815 — — 815 4,189 5,004 Consumer installment and all other loans 113 7 2 122 30,818 30,940 Total loans $ 3,151 $ 666 $ 1,188 $ 5,005 $ 665,726 $ 670,731 The following table is an age analysis of past due loans receivable as of December 31, 2024, segregated by class: December 31, 2024 (Dollars in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Real estate secured: Commercial $ — $ 255 $ 156 $ 411 $ 243,235 $ 243,646 Construction and land development 3 333 — 336 35,776 36,112 Residential 1-4 family 2,413 1,810 510 4,733 230,127 234,860 Multifamily — — — — 32,379 32,379 Farmland 207 — — 207 16,714 16,921 Total real estate loans 2,623 2,398 666 5,687 558,231 563,918 Commercial 166 77 — 243 60,344 60,587 Agriculture 37 — — 37 3,988 4,025 Consumer installment and all other loans 89 88 30 207 28,799 29,006 Total loans $ 2,915 $ 2,563 $ 696 $ 6,174 $ 651,362 $ 657,536 The Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings: Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors. Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date. Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful - Loans classified doubtful have all the weaknesses inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. 13 The following table presents the credit risk grade of loans by origination year as of March 31, 2025: Schedule of credit risk grade of loans As of March 31, 2025 (Dollars are in thousands) 2024 2023 2022 2021 2020 Prior Revolving Total Commercial real estate Pass $ 8,844 $ 19,769 $ 46,919 $ 47,054 $ 45,056 $ 80,724 $ 370 $ 248,736 Special mention — — — — — — — — Substandard — — — 255 142 10 — 407 Total commercial real estate $ 8,844 $ 19,769 $ 46,919 $ 47,309 $ 45,198 $ 80,734 $ 370 $ 249,143 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Construction and Land Development Pass $ 1,978 $ 20,627 $ 4,979 $ 2,183 $ 2,176 $ 3,602 $ — $ 35,545 Special mention — — — — — — — — Substandard — 330 — — — — — 330 Total construction and land development $ 1,978 $ 20,957 $ 4,979 $ 2,183 $ 2,176 $ 3,602 $ — $ 35,875 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential 1-4 family Pass $ 8,658 $ 20,312 $ 24,553 $ 28,797 $ 38,591 $ 84,010 $ 28,852 $ 233,773 Special mention — — — — — 292 — 292 Substandard — 104 255 40 786 2,270 144 3,599 Total residential 1-4 family $ 8,658 $ 20,416 $ 24,808 $ 28,837 $ 39,377 $ 86,572 $ 28,996 $ 237,664 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Multifamily Pass $ 552 $ 1,500 $ 4,635 $ 10,208 $ 6,759 $ 8,503 $ — $ 32,157 Special mention — — — — — — — — Substandard — — — — — — — — Total multifamily $ 552 $ 1,500 $ 4,635 $ 10,208 $ 6,759 $ 8,503 $ — $ 32,157 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Farmland Pass $ 1,496 $ 2,666 $ 1,331 $ 1,983 $ 2,773 $ 7,538 $ — $ 17,787 Special mention — — — — — 140 — 140 Substandard — — — — — — — — Total farmland $ 1,496 $ 2,666 $ 1,331 $ 1,983 $ 2,773 $ 7,678 $ — $ 17,927 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 8,021 $ 15,816 $ 12,275 $ 3,980 $ 2,029 $ 3,312 $ 16,527 $ 61,960 Special mention — — — — — 2 — 2 Substandard — — — — 26 — 33 59 Total commercial $ 8,021 $ 15,816 $ 12,275 $ 3,980 $ 2,055 $ 3,314 $ 16,560 $ 62,021 Current period gross charge-offs $ — $ ( 8 ) $ — $ — $ — $ — $ ( 10 ) $ ( 18 ) Agriculture Pass $ 356 $ 863 $ 290 $ 299 $ 165 $ 170 $ 2,044 $ 4,187 Special mention — — — — — — — — Substandard — 305 — — — 16 496 817 Total agriculture $ 356 $ 1,168 $ 290 $ 299 $ 165 $ 186 $ 2,540 $ 5,004 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer and All Other Pass $ 5,526 $ 12,546 $ 6,301 $ 2,368 $ 1,185 $ 1,868 $ 1,108 $ 30,902 Special mention — — — — — — — — Substandard — 3 14 10 9 2 — 38 Total consumer and all other $ 5,526 $ 12,549 $ 6,315 $ 2,378 $ 1,194 $ 1,870 $ 1,108 $ 30,940 Current period gross charge-offs $ ( 35 ) $ ( 8 ) $ ( 7 ) $ ( 5 ) $ ( 1 ) $ ( 4 ) $ — $ ( 60 ) Total $ 35,431 $ 94,841 $ 101,552 $ 97,177 $ 99,697 $ 192,459 $ 49,574 $ 670,731 Total current period gross charge-offs $ ( 35 ) $ ( 16 ) $ ( 7 ) $ ( 5 ) $ ( 1 ) $ ( 4 ) $ ( 10 ) $ ( 78 ) 14 The following table presents the credit risk grade of loans by origination year as of December 31, 2024: As of December 31, 2024 (Dollars are in thousands) 2024 2023 2022 2021 2020 Prior Revolving Total Commercial real estate Pass $ 20,653 $ 47,052 $ 43,553 $ 46,902 $ 27,155 $ 56,369 $ 1,541 $ 243,225 Special mention — — — — — 9 — 9 Substandard — — 255 141 — 16 — 412 Total commercial real estate $ 20,653 $ 47,052 $ 43,808 $ 47,043 $ 27,155 $ 56,394 $ 1,541 $ 243,646 Current period gross charge-offs $ — $ — $ — $ ( 179 ) $ — $ — $ ( 1 ) $ ( 180 ) Construction and Land Development Pass $ 17,654 $ 5,078 $ 6,240 $ 3,019 $ 1,719 $ 2,089 $ — $ 35,799 Special mention — — — — — 12 — 12 Substandard 301 — — — — — — 301 Total construction and land development $ 17,955 $ 5,078 $ 6,240 $ 3,019 $ 1,719 $ 2,101 $ — $ 36,112 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential 1-4 family Pass $ 19,094 $ 27,861 $ 29,510 $ 38,329 $ 11,265 $ 78,424 $ 26,933 $ 231,416 Special mention — — — — — 319 — 319 Substandard 104 257 42 723 238 1,647 114 3,125 Total residential 1-4 family $ 19,198 $ 28,118 $ 29,552 $ 39,052 $ 11,503 $ 80,390 $ 27,047 $ 234,860 Current period gross charge-offs $ — $ ( 38 ) $ — $ — $ — $ ( 37 ) $ — $ ( 75 ) Multifamily Pass $ 1,564 $ 4,829 $ 10,313 $ 6,818 $ 2,505 $ 6,350 $ — $ 32,379 Special mention — — — — — — — — Substandard — — — — — — — — Total multifamily $ 1,564 $ 4,829 $ 10,313 $ 6,818 $ 2,505 $ 6,350 $ — $ 32,379 Current period gross charge-offs $ — $ ( 53 ) $ — $ — $ — $ ( 42 ) $ — $ ( 95 ) Farmland Pass $ 2,669 $ 1,333 $ 2,045 $ 2,812 $ 730 $ 7,186 $ — $ 16,775 Special mention — — — — — 146 — 146 Substandard — — — — — — — — Total farmland $ 2,669 $ 1,333 $ 2,045 $ 2,812 $ 730 $ 7,332 $ — $ 16,921 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 18,298 $ 13,490 $ 4,780 $ 2,305 $ 801 $ 2,560 $ 18,284 $ 60,518 Special mention — — — — — 2 — 2 Substandard 1 — — 31 — — 35 67 Total commercial $ 18,299 $ 13,490 $ 4,780 $ 2,336 $ 801 $ 2,562 $ 18,319 $ 60,587 Current period gross charge-offs $ — $ ( 34 ) $ ( 55 ) $ — $ — $ — $ ( 73 ) $ ( 162 ) Agriculture Pass $ 1,333 $ 322 $ 339 $ 232 $ 35 $ 195 $ 1,553 $ 4,009 Special mention — — — — — — — — Substandard — — — — — 16 — 16 Total agriculture $ 1,333 $ 322 $ 339 $ 232 $ 35 $ 211 $ 1,553 $ 4,025 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer and All Other Pass $ 14,500 $ 7,982 $ 2,706 $ 1,276 $ 424 $ 880 $ 1,158 $ 28,926 Special mention — — — — — — — — Substandard 17 22 20 19 2 — — 80 Total consumer and all other $ 14,517 $ 8,004 $ 2,726 $ 1,295 $ 426 $ 880 $ 1,158 $ 29,006 Current period gross charge-offs $ ( 163 ) $ ( 62 ) $ ( 14 ) $ ( 7 ) $ ( 9 ) $ — $ ( 24 ) $ ( 279 ) Total $ 96,188 $ 108,226 $ 99,803 $ 102,607 $ 44,874 $ 156,220 $ 49,618 $ 657,536 Total current period gross charge-offs $ ( 163 ) $ ( 187 ) $ ( 69 ) $ ( 186 ) $ ( 9 ) $ ( 79 ) $ ( 98 ) $ ( 791 ) 15 NOTE 7 ALLOWANCE FOR CREDIT LOSSES FOR LOANS (“ACLL”) In determining the amount of our allowance for credit losses, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases to our provision. The following table presents a disaggregated analysis of activity in the allowance for credit losses for loans as of March 31, 2025 and December 31, 2024: Schedule of allowance for credit losses for loans Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Total Three months ended March 31, 2025 Beginning balance $ 2,565 $ 322 $ 2,923 $ 382 $ 149 $ 751 $ 36 $ 556 $ 7,684 Charge-offs — — — — — ( 18 ) — ( 60 ) ( 78 ) Recoveries $ — $ 15 $ 10 $ 3 3 1 — 27 59 Provision for credit losses 27 ( 21 ) ( 24 ) ( 13 ) 3 37 78 80 167 Ending balance $ 2,592 $ 316 $ 2,909 $ 372 $ 155 $ 771 $ 114 $ 603 $ 7,832 Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Total Year ended December 30, 2024 Beginning balance $ — $ 104 $ 255 $ 40 $ 786 $ 2,270 $ 144 $ 3,599 $ 7,198 Charge-offs ( 180 ) — ( 75 ) ( 95 ) — ( 162 ) — ( 279 ) ( 791 ) Recoveries 106 44 100 — 297 9 — 157 713 Provision for credit losses 2,639 174 2,643 437 ( 934 ) ( 1,366 ) ( 108 ) ( 2,921 ) 564 Ending balance $ 2,565 $ 322 $ 2,923 $ 382 $ 149 $ 751 $ 36 $ 556 $ 7,684 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 amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, against the allowance for credit losses, 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. On February 15, 2025, severe flash flooding occurred in Tazewell and Buchanan, Counties Virgina. 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 these natural disasters, we offered short-term payment deferrals of 3 to 6 months. As of March 31, 2025, 54 loans totaling $ 8.1 million are participating in the deferral program. One loan totaling $ 13,000 was in default, and another loan totaling $ 178,000 was extended beyond the terms of the short-term deferral program. As of December 31, 2024, 36 loans totaling $ 9.2 million are participating in the 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. There were no loans modified to borrowers experiencing financial difficulties in the three-month period ended March 31, 2025, other than those impacted by the natural disasters. 16 NOTE 9 CREDIT ALLOWANCE FOR UNFUNDED COMMITMENTS The Company maintains a separate allowance for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheet. The allowance for credit losses for off-balance-sheet credit exposures is adjusted through a provision for credit losses in the income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives, utilizing the same models and approaches for the Company's other loan portfolio segments described above, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement. As of March 31, 2025 and December 31, 2024, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities was $ 496,000 and $ 404,000 , respectively. During the three months ended March 31, 2025, $ 92,000 was included in the Provision for Credit Losses. NOTE 10 OTHER REAL ESTATE OWNED The following table summarizes the activity in other real estate owned for the three months ended March 31, 2025, and the year ended December 31, 2024: Schedule of activity in other real estate owned (Dollars in thousands) March 31, 2025 December 31, 2024 Balance, beginning of period $ 87 $ 157 Additions — 1,330 Proceeds from sales ( 30 ) ( 1,474 ) Adjustment of carrying value — ( 9 ) Net gains from sales — 83 Balance, end of period $ 57 $ 87 As of March 31, 2025 five loans secured by residential real estate, totaling $ 197,000 were in the process of foreclosure. NOTE 11 FAIR VALUES The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of Financial Accounting Standards Board (the FASB) ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market and in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market and in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. 17 In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are valued using other financial instruments, the parameters of which can be directly observed. Level 3: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy are as follows: Investment Securities Available-for-sale - Investment securities AFS are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s AFS securities, totaling $98.6 million and $96.0 million as of March 31, 2025 and December 31, 2024, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service. Collateral Dependent Loans with an ACL - In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. Other Real Estate Owned –Other real estate owned is adjusted to fair value upon transfer of the loans, or former bank premises, to other real estate owned. These assets are carried at the lower of their carrying value or fair value. Fair value is based upon observable market prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When observable market prices are not available, management determines the fair value of the foreclosed asset using independent third-party appraisals, evaluated to determine whether or not the property is further impaired below the appraised value, and adjusts for estimated costs of disposition. The Company records foreclosed assets as nonrecurring Level 3. 18 Assets and liabilities measured at fair value are as follows as of March 31, 2025 and December 31, 2024: Schedule of summary of assets and liabilities measured at fair value March 31, 2025 (Dollars in thousands) Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) (On a recurring basis) Available-for-sale investments U.S. Treasuries $ — $ 7,305 $ — U.S. Government Agencies — 9,395 — Taxable municipals — 19,226 — Corporate bonds — 2,302 — Mortgage-backed securities — 60,397 — (On a non-recurring basis) Other real estate owned — — 57 Collateral dependent loans with ACL: Agriculture — — 724 Total $ — $ 98,625 $ 781 December 31, 2024 (Dollars in thousands) Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) (On a recurring basis) Available-for-sale investments U.S. Treasuries $ — $ 7,961 — U.S. Government Agencies — 8,805 $ — Taxable municipals — 18,524 — Corporate bonds — 2,253 — Mortgage-backed securities — 58,441 — (On a non-recurring basis) Other real estate owned — — 87 Collateral dependent loans with ACL: Consumer installment and all other loans — — 11 Total $ — $ 95,984 $ 98 Not included in the tables above as of March 31, 2025 and December 31, 2024 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 collateral. For Level 3 assets measured at fair value on a recurring or non-recurring basis as of March 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows: 19 Schedule of significant unobservable inputs In level 3 assets (Dollars in thousands) Fair Value at March 31, 2025 Fair Value at December 31, 2024 Valuation Technique Significant Unobservable Inputs General Range of Significant Unobservable Input Values Collateral dependent loans with ACL: Agriculture $ 724 $ — Appraised Value Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 – 18 % Consumer and all other — 11 Appraised Value/Other estimates from Independent Sources Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 – 18 % Other Real Estate Owned $ 57 $ 87 Appraised Value/Comparable Sales/Other Estimates from Independent Sources Discounts to reflect current market conditions and estimated costs to sell 0 – 18 % Fair Value of Financial Instruments Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. The following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments presented below. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different. The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis as of March 31, 2025, and December 31, 2024, are as follows: Schedule of estimated fair value of financial instruments Fair Value Measurements (Dollars in thousands) Carrying Amount Fair Value Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) March 31, 2025 Financial instruments – assets Net loans $ 662,899 $ 647,770 $ — $ — $ 647,770 Financial instruments – liabilities Time deposits 272,608 272,295 — 272,295 — Borrowed funds 21,986 20,227 — 20,227 — December 31, 2024 Financial instruments – assets Net loans $ 649,852 $ 633,023 $ — $ — $ 633,023 Financial instruments – liabilities Time deposits 268,739 268,509 — 268,509 — Borrowed funds 24,986 23,071 — 23,071 — 20 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates. Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments. The carrying values of cash and due from banks, federal funds sold, deposits with no stated maturities, and accrued interest approximates fair value and are excluded from the table above. NOTE 12 LEASING ACTIVITIES As of March 31, 2025, the Bank leases four branch offices, one administrative office, one loan production office and sublets a lot adjacent to another branch office. The lease agreements have maturity dates ranging from 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 March 31, 2025 was 6.98 years. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to the lease term for each transaction. This methodology is expected to be used for any other subsequent lease agreements. The weighted average discount rate for the leases as of March 31, 2025 was 3.37 %. For the three months ended March 31, 2025 and 2024, operating lease expenses were $ 142,000 and $ 140,000 , respectively. The Company’s other operating leases were evaluated and determined to be immaterial to the financial statements. As of March 31, 2025, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars are in thousands): Schedule of future minimum rental commitments under the non-cancellable operating leases Schedule of future minimum rental commitments 2025 $ 431 2026 575 2027 596 2028 586 2029 492 Thereafter 1,243 Total lease payments 3,923 Less: imputed interest ( 575 ) Total $ 3,348 NOTE 13 BORROWED FUNDS Borrowed funds totaled $ 21,986 and $ 24,986 as of March 31, 2025 and December 31, 2024, respectively. For additional information on borrowed funds, refer to Note 18 in Item 8 of Form 10-K for the year ended December 31, 2024. On January 7, 2025, a voluntary principal payment of $ 3 .0 million was made on an outstanding trust preferred security. 21 NOTE 14 REVENUE FROM CONTRACTS WITH CUSTOMERS All our revenue from contracts with customers as defined in ASC 606 is recognized within noninterest income. Refer to Note 24 in our Annual Report on Form 10-K for the year ended December 31, 2024 for a description of how each revenue stream is accounted for under ASC 606. The following table presents noninterest income by revenue stream for the three months ended March 31, 2025 and 2024: Schedule of revenue from contracts with customers For the three months ended March 31, (Dollars in thousands) 2025 2024 Service charges and fees 877 $ 915 Card processing and interchange income 865 895 Financial services fees 318 322 Other noninterest income 353 189 Total noninterest income 2,413 $ 2,321 NOTE 15 NONINTEREST EXPENSES Other operating expenses, included as part of noninterest expenses, consisted of the following for the periods presented: Schedule of noninterest expenses For the three months ended March 31, (Dollars in thousands) 2025 2024 Other operating expenses $ 879 $ 895 ATM network expense 428 376 Legal, accounting, and professional fees 237 234 FDIC insurance premiums 98 92 Loan related expenses 79 94 Advertising 67 53 Consulting fees 42 40 Printing and supplies 25 29 Other real estate owned expenses, net 1 4 Total other operating expenses $ 1,856 $ 1,817 NOTE 16 RECENT ACCOUNTING DEVELOPMENTS The following is a summary of recent authoritative announcements: In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. 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 the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. 22 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Caution About Forward-Looking Statements We make forward-looking statements in this quarterly report on Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include statements regarding expectations, intentions, projections and beliefs concerning our profitability, liquidity, and allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may cause actual results to differ from projections include: the success or failure of our efforts to implement our business plan; any required increase in our regulatory capital ratios; satisfying other regulatory requirements that may arise from examinations, changes in the law and other similar factors; deterioration of asset quality; changes in the level of our nonperforming assets and charge-offs; fluctuations of real estate values in our markets; our ability to attract and retain talent; demographical changes in our markets which negatively impact the local economy; the uncertain outcome of current or future legislation or regulations or policies of state and federal regulators; the successful management of interest rate risk; the successful management of liquidity; changes in general economic and business conditions in our market area and the United States in general; credit risks inherent in making loans such as changes in a borrower’s ability to repay and our management of such risks; competition with other banks and financial institutions, and companies outside of the banking industry, including online lenders and those companies that have substantially greater access to capital and other resources; demand, development and acceptance of new products and services we have offered or may offer; deposit flows and competition for deposits; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rate, market and monetary fluctuations; the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues and other catastrophic events; geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad; technology utilized by us, including the successful core operating system conversion in 2025; our ability to successfully manage cybersecurity, including generative artificial intelligence risks; our ability to assist in managing third party fraud against customer accounts including but not limited to check, credit and debit card, and electronic funds transfer fraud; our reliance on third-party vendors and correspondent banks; changes in generally accepted accounting principles; changes in governmental regulations, tax rates and similar matters; and, other risks, which may be described, from time to time, in our filings with the SEC. 23 Because of these uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Critical Accounting Policies For discussion of our significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2024, and Note 2 Summary of Significant Accounting Policies, in Item 1 of this Form 10-Q. Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. Our most critical accounting policies relate to our allowance for credit losses. The allowance for credit losses reflects the estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated, and additional provisions could be required. For further discussion of the estimates used in determining the allowance for credit losses, we refer you to the section on “Asset Quality” in this discussion. Overview and Highlights Net income for the three months ended March 31, 2025 was $1.9 million, an increase of $122,000, or 6.83%, from the same period in 2024. Net interest income increased 9.81%, or $680,000, from $6.9 million for the quarter ended March 31, 2024 to $7.6 million for the quarter ended March 31, 2025. The increase was primarily due to an increase in the yield and average balance of earning assets, specifically loans which increased 27 basis points (”bps”) and $23.5 million when comparing the first three months of 2025 to 2024. The balance sheet grew to $880.7 million in total assets as of March 31, 2025, from $854.9 million as of December 31, 2024. Gross loans increased $13.2 million to $670.7 million as of March 31, 2025. Additionally, interest-bearing deposits in other banks increased $12.3 million to $66.6 million as of March 31, 2025. During the first three months of 2025 total deposits increased $26.9 million or 14.53% annualized to $776.9 million. A dividend of $0.08 per share was paid to shareholders during the first quarter of 2025, a 14.3% increase over the dividend paid in 2024. During the first quarter of 2025, we extended a previously announced stock repurchase program, to continue through March 31, 2026. Since the inception of the program through March 31, 2025, the Company has repurchased 308,139 shares at an average price of $2.46 per share. Comparison of the Three Months ended March 31, 2025 and 2024 Quarter-to-date highlights include: · Returns on average assets and equity of 0.90% and 10.78% for the first quarter of 2025, compared to 0.86% and 11.11% for the first quarter of 2024, respectively; · Net interest margin was 3.69% for the first quarter of 2025 compared to 3.48% for the first quarter of 2024; · Net interest income was $7.6 million for the first quarter of 2025, an increase of $680,000, or 9.81%, compared to the first quarter of 2024; · Noninterest income was $2.4 million, an increase of $92,000, or 3.96%, during the first quarter of 2025 compared to the first quarter of 2024; and · Noninterest expense was $7.3 million, an increase of $295,000, or 4.23%, for the first quarter of 2025 compared to the first quarter of 2024. During the first quarter of 2025, interest income increased $737,000 to $11.4 million due to the combination of an increase of 19 bps in the yield on earning assets to 5.51% and a $32.7 million increase in the average balance of earning assets. The loan portfolio was the primary driver of both increases, as the yield rose 27 bps to 6.10%, while the average balance increased $23.5 million for the comparative quarters ending March 31, 2025 and 2024. Investment securities contributed $172,000 as the average balance, excluding the unrealized loss, increased $6.7 million and the yield rose 52 bps, as we reinvest cash flows and grow the portfolio in a higher interest rate environment. The increased interest income was partially offset by increased interest expense which rose $57,000 to $3.7 million during the first quarter of 2025 as compared to $3.7 million reported for the same period in 2024. Interest-bearing deposits accounted for $298,000 of the increase as the average rate increased 7 bps and the average balance increased $37.0 million for the comparative quarters ending March 31, 2025 and 2024. The increase attributable to interest-bearing deposits was partially offset by a decrease in the cost of borrowed funds, which decreased 57 bps to 5.26%, as the related interest expense decreased $241,000. The decline was also impacted by the decreased average balance related to a $10 million borrowing from the Federal Reserve Bank under the Bank Term Funding Program that was repaid in October 2024, combined with $4.2 million in principal payments made on trust preferred securities in October 2024 and January 2025. In addition, the variable rate paid on the trust preferred securities decreased as overnight and short-term borrowing rates declined during the last half of 2024. As a result, the cost of total interest-bearing liabilities decreased 4 bps to 2.73% during the first quarter of 2025 as compared to the first quarter of 2024. As a result, net interest income for the quarter ended March 31, 2025 increased $680,000, or 9.81%, when compared to the quarter ended March 31, 2024, while the net interest margin increased 21 bps to 3.69% for the quarter ending March 31, 2025, as compared to 3.48% for the same period in 2024 due to the increase in the yield on earning assets outpacing the cost of funds. 24 The following table shows the rates paid on earning assets and interest-bearing liabilities for the periods indicated: Net Interest Margin Analysis Average Balances, Income and Expense, and Yields and Rates Three Months Ended March 31, 2025 2024 Average Income/ Yields/ Average Income/ Yields/ (Dollars are in thousands) Balance Expense Rates Balance Expense Rates ASSETS Loans (1) (2) $ 659,022 $ 9,912 6.10% $ 635,571 $ 9,213 5.83% Federal funds sold 139 2 4.40% 121 2 5.31% Interest bearing deposits in other banks 64,406 692 4.36% 61,940 826 5.36% Taxable investment securities 111,306 745 2.71% 104,566 573 2.19% Total earning assets 834,873 11,351 5.51% 802,198 10,614 5.32% Less: Allowance for credit losses (7,788) (7,426) Non-earning assets 37,411 38,791 Total assets $ 864,496 $ 833,563 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing demand deposits $ 72,394 $ 137 0.77% $ 72,144 $ 137 0.76% Savings and money market deposits 186,941 779 1.69% 160,832 543 1.36% Time deposits 274,564 2,533 3.74% 263,972 2,471 3.77% Total interest-bearing deposits 533,899 3,449 2.62% 496,948 3,151 2.55% Other borrowings 10,000 88 3.51% 20,000 209 4.13% Trust preferred securities 12,186 204 6.69% 16,186 324 7.91% Total borrowed funds 22,186 292 5.26% 36,186 533 5.83% Total interest-bearing liabilities 556,085 3,741 2.73% 533,134 3,684 2.77% Non-interest-bearing deposits 227,045 226,246 Other liabilities 9,580 9,519 Total liabilities 792,710 768,899 Shareholders’ equity 71,786 64,664 Total liabilities and shareholders’ equity $ 864,496 $ 833,563 Net interest income $ 7,610 $ 6,930 Net interest margin 3.69% 3.48% Net interest spread 2.78% 2.55% (1) Nonaccrual loans and loans held for sale have been included in average loan balances. (2) Tax exempt income is not significant and has been treated as fully taxable. Net interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing liabilities. The following table sets forth the amounts of the total changes in interest income and interest expense which can be attributed to rates and volume for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. 25 Volume and Rate Analysis Increase (decrease) Three Months Ended 2025 Compared to 2024 (Dollars in thousands) Volume Effect Rate Effect Rate and Volume Effect Change in Interest Income/ Expense Interest income: Loans $ 1,367 $ 1,714 $ (2,382) $ 699 Federal funds sold 1 (1) - - Interest bearing deposits in other banks 132 (622) 356 (134) Taxable investment securities 148 544 (520) 172 Total earning assets 1,648 1,635 (2,546) 737 Interest expense: Interest-bearing demand deposits 2 3 (5) - Savings and money market deposits 355 534 (653) 236 Time deposits 399 (62) (275) 62 Other borrowings (413) (124) 416 (121) Trust preferred securities (316) (197) 393 (120) Total interest-bearing liabilities 27 154 (124) 57 Change in net interest income $ 1,621 $ 1,481 $ (2,422) $ 680 The provision for credit losses charged to the income statement for the quarter ended March 31, 2025 was $259,000 compared to a net reversal of $43,000 for the three months ended March 31, 2024. The March 2025 provision reflects the impact of valuation allowances for two specifically assessed borrower relationships, while the reversal recorded in 2024, was due to the resolution of a loan relationship for which a specific allowance allocation had been assigned, along with net recoveries on previously charged-off loans recorded during the first quarter of 2024. Also, the provision for credit losses on unfunded commitments was $92,000 for the first quarter of 2025 due to growth in construction loans which are expected to be drawn over the next 12-18 months. For a discussion of the factors affecting the allowance for credit losses, including provision expense, refer to Note 7, Allowance for Credit Losses for Loans, in Item 1 of this Form 10-Q. Noninterest income increased $92,000 to $2.4 million for the quarter ended March 31, 2025 from $2.3 million for the comparable quarter in 2024. Modest decreases in earnings from service charges and card processing activities totaling $68,000 were offset by a branded card incentive payment of $141,000. Modest decreases in service charges and card processing revenues over the past several quarters result from changes in customer spending habits. Noninterest expense was $7.3 million for the quarter ended March 31, 2025 compared to $7.0 million for the quarter ended March 31, 2024. The $295,000 dollar increase resulted from increases in salaries and benefits, and occupancy costs, which combined for an increase of $266,000, and increases in advertising and ATM network expenses which combined for an increase of $66,000. The increase in salaries and benefits is attributed to normal recurring salary adjustments and staffing costs for the recently opened loan production office. Occupancy costs were impacted by $47,000 in costs incurred in “refreshing” a branch office and $42,000 in costs for snow and ice removal to keep our branch locations open and safe during the winter storms. ATM and card processing expense increases of $52,000 related to normal recurring cost increases, while advertising increases were due to product and service marketing efforts and costs incurred for a brand update. These increases were partially offset by a combined decrease of $31,000 in loan and loan related expenses and other operating expenses. The conversion of our core operating system is scheduled for the fourth quarter of 2025. While estimated deconversion costs of approximately $850,000 were accrued for in 2024, we cannot be certain that all costs associated with this transition were captured and that there may be non-capitalized costs incurred and charged to expense during 2025. The efficiency ratio, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, decreased to 72.55% during the first quarter of 2025 from 75.42% for the first quarter of 2024. We continue to assess our operational procedures and structure to improve efficiencies and contain costs. 26 Income tax expense for the first quarter of 2025 totaled $584,000, an increase of $53,000, or 9.98%, from $531,000 recorded during the same period in 2024. The effective tax rate for the three months ended March 31, 2025, was 23.43%, compared to 22.92% for the same period in 2024. The increase in the effective tax rate is largely the result of earnings generated in states that assess an excise or income tax. Balance Sheet Total assets as of March 31, 2025 were $880.7 million, an increase of $25.8 million, or 12.25% annualized, from $854.9 million as of December 31, 2024. Gross loans of $670.7 million as of March 31, 2025 reflected an increase of $13.2 million from $657.5 million as of December 31, 2024. Liquid assets in the form of cash and cash equivalents increased $15.6 million, or 93.57% annualized, during the first quarter of 2025. Investment securities increased $2.6 million during the first three months of 2025 due to purchases of $2.9 million, and a decrease in the unrealized loss on available-for-sale securities of $2.4 million which more than offset maturities, payments and amortization of $2.7 million. Gross loans receivable increased $13.2 million to $670.7 million as of March 31, 2025 from $657.5 million as of December 31, 2024. Commercial and residential real estate loans increased $5.5 million and $2.8 million, respectively, from December 31, 2024 to March 31, 2025. Consumer loans increased $1.9 million or 27.04% annualized, which included the purchase of $2.5 million of individual loans during the quarter. Commercial and agriculture loans increased $1.4 million and $979,000, respectively, during the first quarter of 2025. Deposits totaled $776.9 million as of March 31, 2025 compared to $750.0 million as of December 31, 2024. The increase of $26.9 million, or 14.53% annualized, was due to efforts to attract and retain time deposits and money market account relationships, combined with cyclical funds inflows. As a result of these efforts and seasonality, total time deposits increased $3.9 million, money market accounts increased $10.0 million, and noninterest bearing deposits increased $9.1 million during the first quarter of 2025. The increase in time and money market deposits contributed to the increase in our cost of interest-bearing deposits, which increased 7 bps to 2.62% for the three months ended March 31, 2025, as compared to the same period in 2024, as previously discussed, due to the shift in the mix of the deposit portfolio as average deposit growth over the last year has mainly occurred in the higher-rate products as depositors seek to maximize their return on these deposits. As of March 31, 2025, borrowed funds totaled $22.0 million, a decrease of $3.0 million from December 31, 2024. Since December 31, 2024, a $3.0 million principal reduction was paid toward outstanding trust preferred securities. This repayment, made from available liquidity, will improve net interest income and the net interest margin in future periods. During the first three months of 2025, total shareholders’ equity increased $1.8 million to $72.6 million as of March 31, 2025, due to net income of $1.9 million and a decrease in the net unrealized loss on available-for-sale securities of $1.9 million. These increases to capital were offset by dividends paid to shareholders of $1.9 million, and the repurchase of common stock totaling $68,000. Consequently, book value per share increased to $3.07 as of March 31, 2025, compared to $2.99 as of December 31, 2024. The Bank remains well capitalized per regulatory guidance. As previously announced, on January 24, 2025, the Board of Directors extended the repurchase of up to 500,000 shares of the Company’s common stock through March 31, 2026. During the first quarter of 2025 the Company repurchased 22,777 shares at an average price of $3.00 per share. Since the commencement of the repurchase plan in 2022, 308,139 shares have been repurchased at an average price of $2.46 per share. Asset Quality The allowance for credit losses was $7.8 million, or 1.17% as a percentage of total loans, as of March 31, 2025, and $7.7 million, or 1.17%, as of December 31, 2024. The allowance for credit losses on unfunded commitments was $496,000 as of March 31, 2025, as compared to $404,000 at December 31, 2024. The increase in the allowance for credit losses on unfunded commitments was due to an increase in loan commitments, specifically residential and commercial real estate construction loan commitments. Annualized net charge-offs (recoveries) as a percentage of average loans were 0.01% during the first three months of 2025 compared to 0.02% during the fourth quarter of 2024 and (0.09)% during the first quarter of 2024. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $4.6 million as of March 31, 2025, an increase of $1.2 million, or 35.83%, since year-end 2024. Nonaccrual loans increased $1.2 million during the first three months of 2025 due principally to a single loan relationship totaling $802,000 being placed in nonaccrual status. Nonperforming assets as a percentage of total assets were 0.52% as of March 31, 2025, and 0.39% as of December 31, 2024. 27 Other real estate owned decreased $30,000 to $57,000 as of March 31, 2025, compared to December 31, 2024, due to the sale of a property during the first quarter of 2025. Expenses associated with other real estate owned were $1,000 for the three months ended March 31, 2025, compared to expenses of $4,000 during the three months ended March 31, 2024. For detailed information on nonaccrual loans and other real estate owned as of March 31, 2025 and December 31, 2024, refer to Note 6 Loans and Note 10 Other Real Estate Owned in Item 1 of this Form 10-Q. Loans rated substandard or below totaled $5.3 million as of March 31, 2025, an increase of $1.3 million from $4.0 million as of December 31, 2024, largely due to a single loan relationship totaling $802,000 that was downgraded during the first quarter of 2025. Total past due loans decreased to $5.0 million as of March 31, 2025 from $6.2 million as of December 31, 2024. The allowance for credit losses is maintained at a level that management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio, whether or not the losses are actually ever realized. Through our quarterly assessment, we continue to adjust the CECL model to best reflect the risks in the portfolio. However, future provisions may be deemed necessary. During the first three months of 2025, we maintained the adjustments to our qualitative factors initiated in 2024, to consider risk factors associated with commercial real estate and residential mortgage loans. Those changes, along with recoveries of loans previously charged off and the assessment of the historical and specific risks associated with the loan portfolio, resulted in a provision for credit losses of $259,000, of which $167,000 was a provision for the loan portfolio; and $92,000 was a provision for unfunded commitments. The following table summarizes components of the allowance for credit losses and related loans as of March 31, 2025 and December 31, 2024: Selected Credit Ratios March 31, December 31, (Dollars in thousands) 2025 2024 Allowance for credit losses - loans $ 7,832 $ 7,684 Total loans 670,731 657,536 Allowance for credit losses to total loans 1.17% 1.17% Nonaccrual loans $ 4,507 $ 3,273 Nonaccrual loans to total loans 0.67% 0.50% Ratio of allowance for credit losses loans to nonaccrual loans 1.74X 2.35X Charge-offs net of recoveries $ 19 $ 78 Average loans $ 659,022 $ 641,022 Net (recoveries) charge-offs to average loans1 0.01% 0.01% 1 - Annualized Deferred Tax Asset and Income Taxes Due to timing differences between the book and tax treatments of several income and expense items, a net deferred tax asset, excluding the deferred tax asset on the unrealized loss on securities available-for-sale of $2.7 million and $3.2 million, existed as of March 31, 2025 and December 31, 2024, respectively. Our income tax expense was computed at the federal corporate income tax rate of 21% of taxable income and a blended state tax rate of 2.4%. We have no significant nontaxable income or nondeductible expenses. Capital Resources The Company meets the eligibility criteria to be classified as a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement issued in February 2015 and is therefore not obligated to report consolidated regulatory capital. The Bank continues to be subject to various capital requirements administered by banking agencies. The Bank’s capital ratios along with the minimum regulatory thresholds to be considered well-capitalized are presented in Note 4 in Item 1 of this Form 10-Q. 28 As of March 31, 2025, the Bank remains well capitalized under the regulatory framework for prompt corrective action. The ratios mentioned above for the Bank comply with the Federal Reserve rules to align with the Basel III Capital requirements. Book value per common share was $3.07 and $2.99 as of March 31, 2025 and December 31, 2024, respectively. The increase in book value was due largely to a decrease in the unrealized loss on available for sale investment securities earnings for the quarter of $1.9 million combined with net earnings for the quarter of $1.9 million, which more than offset the dividend payment of $0.08 per share and the repurchase of common shares of $68,000 during the first quarter of 2025. Other key performance indicators are as follows: Three months ended March 31, 2025 2024 Return on average assets1 0.90 % 0.86 % Return on average shareholders’ equity1 10.78 % 11.11 % Average equity to average assets 8.30 % 7.76 % 1 - Annualized Under current economic conditions, we believe it is prudent to continue to retain capital sufficient to support planned asset growth while being able to absorb potential losses that may occur if asset quality deteriorates, and based upon projections, we believe our current capital levels will be sufficient. During the first quarter of 2025, the Company paid a cash dividend of $0.08 per common share to our shareholders. Future payments of cash dividends will depend on a number of factors including but not limited to maintaining positive retained earnings, compliance with regulatory rules governing the payment of dividends, strategic plans, and sufficient capital at the Bank to allow payment of dividends to the Company. On April 28, 2022 the board of directors of the Company authorized the repurchase of up to 500,000 shares of the Company’s outstanding common stock through March 31, 2025. As previously reported, this plan was extended by the Board of Directors through March 31, 2026. The actual means and timing of any purchases, number of shares and prices or range of prices will be determined by the Company in its discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. As of March 31, 2025, the Company has repurchased 308,139 shares at an average price of $2.46 per share since inception of the plan. During the quarter ended March 31, 2025, the Company repurchased 22,777 shares at an average price of $3.00 per share. There is no assurance that the Company will purchase any additional shares under this program. Liquidity We closely monitor our liquidity and our liquid assets in the form of cash, due from banks, federal funds sold and unpledged available-for-sale investments. Collectively, those balances were $145.8 million as of March 31, 2025, up from $128.5 million as of December 31, 2024. The increase is primarily due to deposit growth exceeding funding needs for loan growth. A surplus of short-term assets is maintained at levels management deems adequate to meet potential liquidity needs As of March 31, 2025, all of our investments are classified as available-for-sale, providing an additional source of liquidity in the amount of $62.5 million, which is net of the $36.1 million of securities pledged as collateral. Generally, the investment portfolio serves as a source of liquidity while yielding a higher return at the purchase date when compared to other short-term investment options, such as federal funds sold and overnight deposits with the Federal Reserve Bank of Richmond (the FRB). Due to the unrealized loss on securities available-for-sale, the sale of investments, other than shorter-term investments with minimal unrealized losses or more recently purchased investments, would not be a main source of liquidity at this time due to the immediate impact on regulatory capital; however, the majority of the portfolio is considered high credit quality investments and would be available to pledge against borrowed funds. Total investment securities increased $2.6 million, or 11.16%, annualized during the first quarter of 2025 from $96.0 million as of December 31, 2024 to $98.6 million as of March 31, 2025. The Bank also has additional borrowing capacity on lines for which investments and certain loans are currently pledged. Our loan to deposit ratio was 86.34% and 87.67% as of March 31, 2025 and December 31, 2024, respectively. 29 Available third-party sources of liquidity as of March 31, 2025 include the following: a line of credit with the FHLB, access to brokered certificates of deposit markets and the discount window at the Federal Reserve Bank. We also have the ability to borrow $30.0 million in unsecured federal funds through credit facilities extended by correspondent banks. We have used our line of credit with the FHLB to issue letters of credit totaling $14.0 million to the Treasury Board of Virginia for collateral on public funds. No draws on these letters of credit have been issued. The letters of credit are considered to be draws on our FHLB line of credit. In May 2023, we borrowed $10.0 million from the FHLB, through a fixed rate 5-year advance, to support loan fundings and other general liquidity needs. An additional $189.8 million was available as of March 31, 2025 on the $213.8 million line of credit. Full use of the FHLB borrowing capacity would require the Company to pledge additional assets. As of March 31, 2025 we held brokered time deposits of $3.0 million, unchanged from December 31, 2024. Internet accounts are limited to customers located in our primary market area and the surrounding geographical area. The average balance of and the rate paid on deposits is shown in the net interest margin analysis tables. Total reciprocal Certificate of Deposit Registry Services (“CDARS”) time deposits were $7.3 million and $7.0 million as of March 31, 2025 and December 31, 2024, respectively. Aside from the availability of CDARS time deposits, we also offer a similar deposit product for transaction account customers through Intrafi Cash Service (“ICS”). As of March 31, 2025 approximately $22.0 million were placed in this product as compared to $23.7 million at December 31, 2024. Both the CDARS and ICS offerings assist us in maintaining deposit relationships, while assuring the depositors’ funds retain federal deposit insurance coverage. Additional liquidity is available through the Federal Reserve Bank discount window for overnight funding needs. We may collateralize this line with investment securities and loans at our discretion; however, while we do not anticipate using this as a primary funding source, securities with an estimated market value of $28.8 million were pledged as of March 31, 2025. Time deposits of $250,000 or more were approximately 7.23% of total deposits at March 31, 2025 and 6.84% of total deposits at December 31, 2024. In January 2025, we made a voluntary principal payment of $3.0 million on an outstanding trust preferred security. We may consider making future principal payments based on our available liquidity and considering other funding opportunities that may be available. With the on-balance sheet liquidity and other external sources of funding, we believe the Bank has adequate liquidity and capital resources to meet our requirements and needs for the foreseeable future. However, liquidity can be further affected by a number of factors such as counterparty willingness or ability to extend credit, regulatory actions and customer preferences, some of which are beyond our control. With the current economic uncertainty resulting from inflation, the impact of proposed tariffs and the wars in Ukraine and Gaza, we continue monitoring our liquidity position, specifically cash on hand in order to meet customer demands. Additionally, our contingency funding plan is reviewed quarterly with our Asset Liability Committee. Off Balance Sheet Items and Contractual Obligations There have been no material changes during the three months ended March 31, 2025, to the off-balance sheet items and the contractual obligations disclosed in our 2024 Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. Item 4. Controls and Procedures We have carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer (our CEO) and our Executive Vice President and Chief Financial Officer (our CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were operating effectively in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 30 Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2025, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting. Part II Other Information Item 1. Legal Proceedings In the course of operations, we may become a party to legal proceedings in the normal course of business. At March 31, 2025, we do not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or any of its subsidiaries or to which the property of the Company or any of its subsidiaries is subject, in the opinion of management, will materially impact the financial condition or liquidity of the Company. Item 1A. Risk Factors Not Applicable. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (a) Sales of Unregistered Securities – None (b) Use of Proceeds – Not Applicable (c) Issuer Purchases of Securities Stock Repurchase Program The Company has an approved one-year stock repurchase program that authorizes the repurchase of up to 500,000 of the Company’s common shares that was extended through March 31, 2026. Repurchases may be made through open market purchases or in privately negotiated transactions. Shares repurchased will be returned to the status of authorized and unissued shares of common stock. The actual means and timing of any purchases, number of shares and prices or range of prices will be determined by the Company. Shares of the Company’s common stock were repurchased during the three months ended March 31, 2025, as detailed below. Under the terms of the stock repurchase program, the Company has the remaining authority to repurchase up to 191,861 shares of common stock. Period Beginning on First Day of Month Ended Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs January 31, 2025 3,718 $ 3.06 3,718 210,920 February 28, 2025 10,681 $ 3.00 10,681 200,239 March 31, 2025 8,378 $ 2.99 8,378 191,861 Total 22,777 $ 3.00 22,777 Item 3. Defaults Upon Senior Securities None. 31 Item 4. Mine Safety Disclosures Not Applicable. Item 5. Other Information Trading Arrangements – During the three months ended March 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted , modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933). Item 6. Exhibits The following exhibits are filed as part of this report or are incorporated by reference: No. Description 3.1 Amended Articles of Incorporation of New Peoples Bankshares, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarterly period ended June 30, 2008 filed on August 11, 2008). 3.2 Bylaws of New Peoples Bankshares, Inc. (incorporated by reference to Exhibit 3.2 to Form 8-K filed on August 26, 2020). 4.1 Specimen Common Stock Certificate of New Peoples Bankshares, Inc. (incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarterly period ended June 30, 2012 filed on August 14, 2012). 4.2 Description of New Peoples Bankshares, Inc.’s Securities (incorporated by reference to Exhibit 4.2 to Form 10-K for the year ended December 31, 2024, filed on April 1, 2025). 10.1 First Amendment, dated as of August 7, 2023, to the Employment Agreement, dated as of December 1, 2016, by and among New Peoples Bankshares, Inc., New Peoples Bank, Inc. and C. Todd Asbury. 31.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act. 31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act. 32 Certification by Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002. 101 The following materials for the Company’s Form 10-Q for the quarterly period ended March 31, 2025, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements, tagged as blocks of text. 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW PEOPLES BANKSHARES, INC. (Registrant) By: /s/ JAMES W. KISER James W. Kiser President and Chief Executive Officer Date: May 15, 2025 By: /s/ CHRISTOPHER G. SPEAKS Christopher G. Speaks Executive Vice President and Chief Financial Officer Date: May 15, 2025 33