NEW PEOPLES BANKSHARES INC 10-Q

Item 1 Financial Statements NEW PEOPLES BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 2025 AND DECEMBER 31, 2024 (IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA) (UNAUDITED) June 30, December 31, 2025 2024 ASSETS Cash and due from banks 18,838 $ 13,218 Interest-bearing deposits with banks 53,195 54,300 Federal funds sold 126 150 Total cash and cash equivalents 72,159 67,668 Investment securities available-for-sale, at fair value 96,749 95,984 Loans receivable 695,815 657,536 Allowance for credit losses ( 7,948 ) ( 7,684 ) Net loans 687,867 649,852 Bank premises and equipment, net 16,896 17,070 Other real estate owned 57 87 Accrued interest receivable 3,581 3,458 Deferred taxes, net 4,368 4,809 Insurance benefit receivable — 5,417 Right-of-use assets – operating leases 3,234 3,413 Other assets 8,019 7,167 Total assets 892,930 $ 854,925 LIABILITIES Deposits: Noninterest bearing 233,567 $ 224,938 Interest-bearing 548,342 525,044 Total deposits 781,909 749,982 Borrowed funds 26,986 24,986 Lease liabilities – operating leases 3,234 3,413 Accrued interest payable 1,427 1,442 Accrued expenses and other liabilities 4,530 4,361 Total liabilities 818,086 784,184 SHAREHOLDERS’ EQUITY Common stock - $ 2.00 par value; 50,000,000 shares authorized; 23,600,878 and 23,636,724 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively 47,202 47,273 Additional paid-in-capital 14,416 14,451 Retained earnings 23,552 21,001 Accumulated other comprehensive loss ( 10,326 ) ( 11,984 ) Total shareholders’ equity 74,844 70,741 Total liabilities and shareholders’ equity 892,930 $ 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 AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) For the Three Months Ended June 30, For the Six Months Ended June 30, 2025 2024 2025 2024 INTEREST AND DIVIDEND INCOME Loans including fees $ 10,540 9,374 $ 20,452 $ 18,587 Federal funds sold 3 2 5 3 Interest-earning deposits with banks 663 1,009 1,355 1,835 Investments 711 583 1,413 1,113 Dividends on equity securities (restricted) 41 43 84 86 Total interest and dividend income 11,958 11,011 23,309 21,624 INTEREST EXPENSE Deposits 3,450 3,508 6,899 6,658 Borrowed funds 294 533 586 1,066 Total interest expense 3,744 4,041 7,485 7,724 NET INTEREST INCOME 8,214 6,970 15,824 13,900 PROVISION FOR CREDIT LOSSES 154 472 413 429 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 8,060 6,498 15,411 13,471 NONINTEREST INCOME Service charges and fees 899 967 1,776 1,882 Card processing and interchange 988 971 1,853 1,866 Financial services fees 356 372 674 694 Net gain on sale and disposal of premises and equipment 1 53 2 20 Other noninterest income 192 169 544 391 Total noninterest income 2,436 2,532 4,849 4,853 NONINTEREST EXPENSES Salaries and employee benefits 3,652 3,594 7,450 7,241 Occupancy and equipment expense 874 861 1,858 1,730 Data processing and telecommunications 665 617 1,299 1,261 Other operating expenses 2,022 1,766 3,878 3,583 Total noninterest expenses 7,213 6,838 14,485 13,815 INCOME BEFORE INCOME TAXES 3,283 2,192 5,775 4,509 INCOME TAX EXPENSE 751 508 1,335 1,039 NET INCOME $ 2,532 1,684 $ 4,440 $ 3,470 Earnings per share Basic and diluted $ 0.11 0.07 $ 0.19 $ 0.15 Average Weighted Shares of Common Stock Basic and diluted 23,607,372 23,692,984 23,616,941 23,714,675 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 AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024 (IN THOUSANDS) (UNAUDITED) For the Three Months Ended June 30, For the Six Months Ended June 30, 2025 2024 2025 2024 NET INCOME $ 2,532 $ 1,684 $ 4,440 $ 3,470 Other comprehensive income (loss): Investment securities activity Unrealized gains (losses) arising during the period ( 280 ) 786 2,099 ( 271 ) Related tax (expense) benefit 58 ( 165 ) ( 441 ) 57 TOTAL OTHER COMPREHENSIVE INCOME (LOSS) ( 222 ) 621 1,658 ( 214 ) TOTAL COMPREHENSIVE INCOME $ 2,310 $ 2,305 $ 6,098 $ 3,256 The accompanying notes are an integral part of these consolidated financial statements. 5 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 Net income — — — 1,684 — 1,684 Other comprehensive income, net of tax — — — — 621 621 Repurchase of common stock ( 36 ) ( 71 ) ( 19 ) — — ( 90 ) Balance June 30, 2024 23,676 $ 47,352 $ 14,479 $ 16,267 $ ( 11,867 ) $ 66,231 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 Net income — — — 2,532 — 2,532 Other comprehensive loss, net of tax — — — — ( 222 ) ( 222 ) Repurchase of common stock ( 13 ) ( 26 ) ( 12 ) — — ( 38 ) Balance June 30, 2025 23,601 $ 47,202 $ 14,416 $ 23,552 $ ( 10,326 ) $ 74,844 The accompanying notes are an integral part of these consolidated financial statements. 6 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2025 AND 2024 (IN THOUSANDS) (UNAUDITED) 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,440 $ 3,470 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 745 827 Provision for (recovery of) credit losses 413 429 Income on bank owned life insurance — ( 37 ) Gain on sale of mortgage loans ( 9 ) ( 4 ) Gain on sale or disposal of premises and equipment ( 2 ) ( 20 ) Gain on sale of other real estate owned ( 6 ) ( 34 ) Loans originated for sale ( 380 ) ( 105 ) Proceeds from sales of loans originated for sale 389 109 Net amortization/accretion of bond premiums/discounts 37 125 Deferred tax benefit — ( 260 ) Net change in: Accrued interest receivable ( 123 ) 14 Other assets ( 542 ) ( 744 ) Accrued interest payable ( 15 ) 473 Accrued expenses and other liabilities ( 102 ) ( 300 ) Net cash provided by operating activities 4,845 3,943 CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans ( 38,350 ) ( 1,798 ) Purchase of securities available-for-sale ( 4,770 ) ( 8,048 ) Proceeds from repayments and maturities of securities available-for-sale 6,067 5,188 Net purchase of equity securities (restricted) ( 258 ) ( 36 ) Payments for the purchase of premises and equipment and software ( 444 ) ( 1,488 ) Proceeds from sale of premises and equipment 2 1,033 Proceeds from sale of other real estate owned 50 108 Proceeds from bank owned life insurance benefit 5,417 — Net cash used in investing activities ( 32,286 ) ( 5,041 ) CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings 5,000 — Repayment of long-term debt ( 3,000 ) — Net change in noninterest bearing deposits 8,629 ( 7,259 ) Net change in interest-bearing deposits 23,298 34,020 Dividends paid ( 1,889 ) ( 1,661 ) Repurchase of common stock ( 106 ) ( 175 ) Net cash provided by financing activities 31,932 24,925 Net increase in cash and cash equivalents 4,491 23,827 Cash and cash equivalents, beginning of the period 67,668 64,977 Cash and cash equivalents, end of the period $ 72,159 $ 88,804 Supplemental disclosure of cash paid during the period for: Interest $ 7,500 $ 7,251 Taxes 880 1,000 Supplemental disclosure of non-cash transactions: Transfer of loans to other real estate owned 14 20 Change in unrealized losses on securities available-for-sale 2,099 ( 271 ) 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 June 30, 2025 and December 31, 2024, and the results of operations for the three- and six-month periods ended June 30, 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 or shareholders’ equity. The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in the Company’s Annual report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 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- and six-month periods ended June 30, 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 June 30, For the six months ended June 30, 2025 2024 2025 2024 Net income $ 2,532 $ 1,684 $ 4,440 $ 3,470 Weighted average shares outstanding 23,607,372 23,692,984 23,616,941 23,714,675 Weighted average dilutive shares outstanding 23,607,372 23,692,984 23,616,941 23,714,675 Basic and diluted earnings per share $ 0.11 $ 0.07 $ 0.19 $ 0.15 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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2025: Total capital to risk weighted assets $ 104,547 15.81 % $ 52,908 8.00 % $ 66,135 10.00 % Tier 1 capital to risk weighted assets 96,278 14.56 % 39,681 6.00 % 52,908 8.00 % Tier 1 capital to average assets 96,278 10.74 % 35,862 4.00 % 44,827 5.00 % Common equity Tier 1 capital to risk weighted assets 96,278 14.56 % 29,761 4.50 % 42,988 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 June 30, 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 June 30, 2025 U.S. Treasuries $ 7,113 $ 1 $ 268 $ 6,846 U.S. Government Agencies 10,208 34 463 9,779 Taxable municipals 24,241 - 5,077 19,164 Corporate bonds 2,500 3 201 2,302 Mortgage backed securities 65,758 92 7,192 58,658 Total securities available-for-sale $ 109,820 $ 130 $ 13,201 $ 96,749 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 June 30, 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 June 30, 2025 U.S. Treasuries $ - $ - $ 6,113 $ 268 $ 6,113 $ 268 U.S. Government Agencies 1,503 11 5,623 452 7,126 463 Taxable municipals 2,094 205 22,147 4,872 24,241 5,077 Corporate bonds - - 2,000 201 2,000 201 Mortgage backed securities 9,488 170 47,414 7,022 56,902 7,192 Total $ 13,085 $ 386 $ 83,297 $ 12,815 $ 96,382 $ 13,201 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 June 30, 2025, the available-for-sale portfolio included 179 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 $ 35.5 million and $ 35.2 million as of June 30, 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 or six months ended June 30, 2025 and 2024. The amortized cost and fair value of investment securities as of June 30, 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 $ 3,739 $ 3,677 1.41 % Due after one year through five years 12,357 11,895 2.88 % Due after five years through ten years 23,553 22,118 3.32 % Due after ten years 70,171 59,059 2.32 % Total $ 109,820 $ 96,749 2.57 % 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 $ 3.0 million and $ 2.7 million as of June 30, 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 June 30, 2025, and December 31, 2024, are summarized as follows: Schedule of loans receivable outstanding (Dollars in thousands) June 30, 2025 December 31, 2024 Real estate secured: Commercial $ 250,962 $ 243,646 Construction and land development 39,671 36,112 Residential 1-4 family 249,221 234,860 Multifamily 37,715 32,379 Farmland 20,704 16,921 Total real estate loans 598,273 563,918 Commercial 60,320 60,587 Agriculture 5,259 4,025 Consumer installment and all other loans 31,963 29,006 Total loans $ 695,815 $ 657,536 Also included in total loans above are deferred loan fees of $ 2.2 million and $ 2.0 million as of June 30, 2025 and December 31, 2024, respectively. Deferred loan costs were $ 2.0 million and $ 1.9 million, as of June 30, 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 fees or costs are recognized at that time. Loans receivable on nonaccrual status as of June 30, 2025, and December 31, 2024, are summarized as follows: Schedule of loans receivable nonaccrual status June 30, 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 $ 193 $ - $ 193 $ 411 $ - $ 411 Construction and land development 28 - 28 300 - 300 Residential 1-4 family 2,239 178 2,417 2,232 178 2,410 Farmland 19 - 19 - - - Total real estate loans 2,479 178 2,657 2,943 178 3,121 Commercial 53 - 53 66 - 66 Agriculture - 752 752 16 - 16 Consumer installment loans and other loans 26 - 26 56 14 70 Total loans receivable on nonaccrual status $ 2,558 $ 930 $ 3,488 $ 3,081 $ 192 $ 3,273 Total interest income not recognized on nonaccrual loans for the three and six months ended June 30, 2025, and June 30, 2024, was $ 24,000 and $ 62,000 and $ 43,000 and $ 69,000 , 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 of June 30, 2025 and December 31, 2024: Schedule of summary of impaired loans June 30, 2025 December 31, 2024 Unpaid Principal Balance Related Allowance Unpaid Principal Balance Related Allowance (Dollars in thousands) Real estate secured: Commercial $ 3,242 $ - $ 396 $ - Residential 1-4 family 660 178 1,008 177 Total real estate loans 3,902 178 1,704 177 Agriculture 752 28 - - Consumer installment loans and other loans - - 13 3 Total $ 4,654 $ 206 $ 1,717 $ 180 The following table is an age analysis of past due loans receivable as of June 30, 2025, segregated by class: 12 Schedule of analysis of past due loans receivable June 30, 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 $ — $ 7 $ 186 $ 193 $ 250,769 $ 250,962 Construction and land development 90 — — 90 39,581 39,671 Residential 1-4 family 1,931 342 755 3,028 246,193 249,221 Multifamily — — — — 37,715 37,715 Farmland — — — — 20,704 20,704 Total real estate loans 2,021 349 941 3,311 594,962 598,273 Commercial 62 — 24 86 60,234 60,320 Agriculture — — 752 752 4,507 5,259 Consumer installment and all other loans 169 23 14 206 31,757 31,963 Total loans $ 2,252 $ 372 $ 1,731 $ 4,355 $ 691,460 $ 695,815 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 June 30, 2025: Schedule of credit risk grade of loans As of June 30, 2025 (Dollars are in thousands) 2025 2024 2023 2022 2021 Prior Revolving Total Commercial real estate Pass $ 19,176 $ 19,884 $ 45,051 $ 45,934 $ 41,956 $ 76,219 $ 351 $ 248,571 Special mention — — — — — — — — Substandard — — — 186 2,197 8 — 2,391 Total commercial real estate $ 19,176 $ 19,884 $ 45,051 $ 46,120 $ 44,153 $ 76,227 $ 351 $ 250,962 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Construction and Land Development Pass $ 5,511 $ 22,934 $ 3,254 $ 2,171 $ 2,282 $ 3,491 $ — $ 39,643 Special mention — — — — — — — — Substandard — 28 — — — — — 28 Total construction and land development $ 5,511 $ 22,962 $ 3,254 $ 2,171 $ 2,282 $ 3,491 $ — $ 39,671 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential 1-4 family Pass $ 19,084 $ 20,398 $ 28,267 $ 27,013 $ 38,678 $ 81,746 $ 31,311 $ 246,497 Special mention — — — — — 287 — 287 Substandard — 104 255 — — 1,930 148 2,437 Total residential 1-4 family $ 19,084 $ 20,502 $ 28,522 $ 27,013 $ 38,678 $ 83,963 $ 31,459 $ 249,221 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Multifamily Pass $ 7,648 $ 1,454 $ 4,611 $ 9,682 $ 6,575 $ 7,745 $ — $ 37,715 Special mention — — — — — — — — Substandard — — — — — — — — Total multifamily $ 7,648 $ 1,454 $ 4,611 $ 9,682 $ 6,575 $ 7,745 $ — $ 37,715 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Farmland Pass $ 5,048 $ 2,648 $ 1,334 $ 1,993 $ 2,707 $ 6,821 $ — $ 20,551 Special mention — — — — — 134 — 134 Substandard — — — — — 19 — 19 Total farmland $ 5,048 $ 2,648 $ 1,334 $ 1,993 $ 2,707 $ 6,974 $ — $ 20,704 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 11,499 $ 13,661 $ 11,115 $ 3,394 $ 1,768 $ 3,139 $ 15,688 $ 60,264 Special mention — — — — — 2 — 2 Substandard — — — — 24 — 30 54 Total commercial $ 11,499 $ 13,661 $ 11,115 $ 3,394 $ 1,792 $ 3,141 $ 15,718 $ 60,320 Current period gross charge-offs $ — $ ( 8 ) $ — $ — $ — $ — $ ( 10 ) $ ( 18 ) Agriculture Pass $ 846 $ 804 $ 198 $ 281 $ 141 $ 131 $ 2,106 $ 4,507 Special mention — — — — — — — — Substandard — — — — — — — — Doubtful — 305 — — — — 447 752 Total agriculture $ 846 $ 1,109 $ 198 $ 281 $ 141 $ 131 $ 2,553 $ 5,259 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ ( 50 ) $ ( 50 ) Consumer and All Other Pass $ 9,562 $ 11,244 $ 6,191 $ 1,905 $ 972 $ 938 $ 1,126 $ 31,938 Special mention — — — — — — — — Substandard — 2 13 10 — — — 25 Total consumer and all other $ 9,562 $ 11,246 $ 6,204 $ 1,915 $ 972 $ 938 $ 1,126 $ 31,963 Current period gross charge-offs $ ( 65 ) $ ( 16 ) $ ( 12 ) $ ( 5 ) $ ( 1 ) $ ( 2 ) $ ( 14 ) $ ( 115 ) Total $ 78,374 $ 93,466 $ 100,289 $ 92,569 $ 97,300 $ 182,610 $ 51,207 $ 695,815 Total current period gross charge-offs $ ( 65 ) $ ( 24 ) $ ( 12 ) $ ( 5 ) $ ( 1 ) $ ( 2 ) $ ( 74 ) $ ( 183 ) 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 June 30, 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 June 30, 2025 Beginning balance $ 2,592 $ 316 $ 2,909 $ 372 $ 155 $ 771 $ 114 $ 603 $ 7,832 Charge-offs - - - - - - ( 50 ) ( 55 ) ( 105 ) Recoveries - 11 12 3 - 1 - 39 66 Provision for credit losses ( 31 ) 33 77 57 27 ( 35 ) ( 2 ) 29 155 Ending balance $ 2,561 $ 360 $ 2,998 $ 432 $ 182 $ 737 $ 62 $ 616 $ 7,948 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 Six months ended June 30, 2025 Beginning balance $ 12,565 $ 322 $ 2,923 $ 382 $ 149 $ 751 $ 36 $ 556 $ 7,684 Charge-offs - - - - - ( 18 ) ( 50 ) ( 115 ) (183) Recoveries - 26 22 6 3 2 - 66 125 Provision for credit losses ( 4 ) 12 53 44 30 2 76 109 322 Ending balance $ 2,561 $ 360 $ 2,998 $ 432 $ 182 $ 737 $ 62 $ 616 $ 7,948 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 $ - $ - $ 1,930 $ 148 $ 2,437 $ 4,874 Charge-offs ( 180 ) - ( 75 ) ( 95 ) - ( 162 ) - ( 279 ) ( 791 ) Recoveries 106 44 100 - 297 9 - 157 713 Provision for credit losses 2,639 174 2,643 477 ( 148 ) ( 1,026 ) ( 112 ) ( 1,759 ) 2,888 Ending balance $ 12,565 $ 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 in 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 months. As of June 30, 2025, the deferral periods have ended and 51 loans totaling $ 7.9 million participating in the deferral program have commenced regular payments. One loan totaling $ 178,000 , which was extended beyond the terms of the short-term deferral program, was in default. As of December 31, 2024, 36 loans totaling $ 9.2 million were 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 and six months ended June 30, 2025. 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 June 30, 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 and six months ended June 30, 2025 and June 30, 2024, $ 0 and $ 92,000 and $ 50,000 and $ 3 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 six months ended June 30, 2025, and the year ended December 31, 2024: Schedule of activity in other real estate owned (Dollars in thousands) June 30, 2025 December 31, 2024 Balance, beginning of period $ 87 $ 157 Additions 14 1,330 Proceeds from sales ( 50 ) ( 1,474 ) Adjustment of carrying value — ( 9 ) Net gains from sales 6 83 Balance, end of period $ 57 $ 87 As of June 30, 2025 four loans secured by residential real estate, totaling $ 278,000 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 $96.7 million and $96.0 million as of June 30, 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 June 30, 2025 and December 31, 2024: Schedule of summary of assets and liabilities measured at fair value June 30, 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 $ — $ 6,846 $ — U.S. Government Agencies — 9,779 — Taxable municipals — 19,164 — Corporate bonds — 2,302 — Mortgage-backed securities — 58,658 — (On a non-recurring basis) Other real estate owned — — 57 Collateral dependent loans with ACL: Agriculture — — 277 Total $ — $ 96,749 $ 334 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 June 30, 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%. For Level 3 assets measured at fair value on a recurring or non-recurring basis as of June 30, 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 June 30, 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 $ 277 $ - Appraised Value Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 – 18 % Consumer installment 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 June 30, 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) June 30, 2025 Financial instruments – assets Net loans $ 687,867 $ 673,725 $ - $ - $ 673,725 Financial instruments – liabilities Time deposits 280,010 279,607 - 279,607 - Borrowed funds 26,986 25,136 - 25,136 - 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 June 30, 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 June 30, 2025 was 6.75 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 June 30, 2025 was 3.37 %. For the three and six months ended June 30, 2025 and 2024, operating lease expenses were $ 145,000 and $ 288,000 ; and $ 145,000 and $ 289,000 , respectively. The Company’s other operating leases were evaluated and determined to be immaterial to the financial statements. As of June 30, 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 2025 $ 287 2026 575 2027 596 2028 586 2029 492 Thereafter 1,243 Total lease payments 3,779 Less: imputed interest ( 545 ) Total $ 3,234 NOTE 13 BORROWED FUNDS Borrowed funds totaled $ 26,986 and $ 24,986 as of June 30, 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. On June 30, 2025 a short-term advance of $ 5 .0 million was drawn from FHLB. 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 and six months ended June 30, 2025 and 2024: Schedule of revenue from contracts with customers For the three months ended For the six months ended June 30, June 30, (Dollars in thousands) 2025 2024 2025 2024 Service charges and fees $ 899 $ 967 $ 1,776 $ 1,882 Card processing and interchange income 988 971 1,853 1,866 Financial services fees 356 372 674 694 Other noninterest income 193 222 546 411 Total noninterest income $ 2,436 $ 2,532 $ 4,849 $ 4,853 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 June 30, For the six months ended June 30, (Dollars in thousands) 2025 2024 2025 2024 Other operating expenses $ 934 $ 864 $ 1,813 $ 1,759 ATM network expense 417 377 845 753 Legal, accounting, and professional fees 234 216 471 450 Loan related expenses 175 101 254 195 FDIC insurance premiums 99 97 197 189 Advertising 89 77 156 130 Consulting fees 41 40 83 80 Printing and supplies 36 26 61 55 Other real estate owned expenses, net ( 3 ) ( 32 ) ( 2 ) ( 28 ) Total other operating expenses $ 2,022 $ 1,766 $ 3,878 $ 3,583 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