What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-03-31 · 709 added, 758 removed, 121 unchanged (92% of the section changed)

1 unchanged sentence

Caution About Forward-Looking Statements

We make forward looking statements in this annual report

on Form 10-K 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.

These forward-looking statements

are based on various factors and were derived using numerous assumptions as of the date of this Form 10-K and are subject to significant

The following important factors, among others, that

may cause actual results to differ from that expressed in such forward-looking statements include:

the success or failure of our efforts to implement

our business plan;

any required increase in our regulatory capital

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

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

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.

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

changes in generally accepted accounting principles;

changes in governmental regulations, tax rates

and similar matters;

other risks, which may be described, from

time to time, in our filings with the SEC.

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.

The following commentary discusses major components

of our business and presents an overview of our consolidated financial position as of December 31, 2024 and 2023, as well as results of

operations for the years ended December 31, 2024 and 2023.

This discussion should be reviewed in conjunction with the consolidated financial

statements and accompanying notes and other statistical information presented elsewhere in this Form 10-K.

New Peoples generates a significant amount of its income

from the net interest income earned by the Bank.

Net interest income is the difference between interest income and interest expense.

income depends on the volume of interest-earning assets outstanding during the period and the interest rates earned thereon.

interest expense is a function of the average amount of interest-bearing deposits and borrowed money outstanding during the period and

the interest rates paid thereon.

The quality of the assets further influences the amount of interest income lost on nonaccruing loans

and the amount of provision expense added to the allowance for credit losses.

The Bank also generates noninterest income from service

charges and fees on deposit accounts, debit and credit card interchange income, and commissions on insurance and investment products sold.

Critical Accounting Policies

Certain critical accounting policies affect the more

significant judgments and estimates used in the preparation of our financial statements.

Our most critical accounting estimates 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 “Allowance for Credit Losses” in this discussion.

For further discussion of our other critical accounting

policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements, contained in Item 8 of this

For the year ended December 31, 2024, net income was

$8.2 million, or basic and diluted net income per share of $0.35, compared to a net income of $7.2 million, or basic and diluted net income

per share of $0.30, for the year ended December 31, 2023, an increase of $1.0 million, or 14.20%.

Retained earnings increased $6.5 million,

or 45.26%, to $21.0 million as of December 31, 2024 from $14.5 million as of December 31, 2023.

Results for the year ended December 31, 2024 were impacted

by several non-recurring events.

On December 31, 2024 the Bank provided notice of termination of the contract with our core systems provider.

We plan to complete the conversion to a new core systems provider in the fourth quarter of 2025.

As a result of the termination notice,

we recorded termination charges and certain conversion costs estimated to be $850,000.

During the fourth quarter of 2024, we had two transactions

in our bank owned life insurance portfolio (“BOLI”) that disposed of the entire portfolio.

One policy was cancelled and redeemed,

resulting in a loss of $49,000;

and a benefit claim was filed on the second policy resulting in a gain of $1.6 million.

We make forward-looking

statements in this annual report on Form 10-K 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.

These forward-looking statements are based on various factors and were derived using numerous assumptions as of the date of this Form

10-K and are subject to significant risks.

The following important

factors, among others, that may cause actual results to differ from that expressed in such forward-looking statements include:

success or failure of our efforts to implement our business plan;

required increase in our regulatory capital ratios;

other regulatory requirements that may arise from examinations, changes in the law and other similar factors;

deterioration

of asset quality;

in the level of our nonperforming assets and charge-offs;

of real estate values in our markets;

ability to attract and retain talent;

changes in our markets which negatively impact the local economy;

uncertain outcome of current or future legislation or regulations or policies of state and federal regulators;

successful management of interest rate risk;

successful management of liquidity;

in general economic and business conditions in our market area and the United States in general;

risks inherent in making loans such as changes in a borrower’s ability to repay and our management of such risks;

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;

and changes in technology, including artificial intelligence, and the Company’s ability to develop timely and competitive products

and services and effectively manage related risks;

acceptance of new products and services we have offered or may offer;

flows and competition for deposits;

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;

occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic

conditions, including trade restrictions and tariffs, and acts or threats of terrorism, international hostilities, military conflicts

or actions taken by the U.S.

or other governments in response thereto, which could impact business and economic conditions in the

continued effective operation of our information technology systems and third-party service providers, including the stabilization

and ongoing performance of our core processing platform following the system conversion completed during the fourth quarter of 2025;

effects of cyber incidents or other failures, disruptions, or breaches of our operational or security systems, or those of our third-party

vendors or other service providers, including as a result of cyber threats or attacks;

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;

reliance on third-party vendors and correspondent banks;

in generally accepted accounting principles;

in governmental regulations, tax rates, and similar matters;

risks which may be described, from time to time, in our filings with the SEC.

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.

The following commentary

discusses major components of our business and presents an overview of our consolidated financial position as of December 31, 2025 and

2024, as well as results of operations for the years ended December 31, 2025 and 2024.

This discussion should be reviewed in conjunction

with the consolidated financial statements and accompanying notes and other statistical information presented elsewhere in this Form

New Peoples generates

a significant amount of its income from the net interest income earned by the Bank.

Net interest income is the difference between interest

income and interest expense.

Interest income depends on the volume of interest-earning assets outstanding during the period and the interest

rates earned thereon.

The Bank's interest expense is a function of the average amount of interest-bearing deposits and borrowed money

outstanding during the period and the interest rates paid thereon.

The quality of our assets further influences the amount of interest

income lost on nonaccruing loans and the amount of provision expense added to the allowance for credit losses.

The Bank also generates

noninterest income from service charges and fees on deposit accounts, debit and credit card interchange income, and commissions on insurance

and investment products sold.

Critical Accounting

Certain critical

accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.

critical accounting estimates 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 “Allowance for Credit Losses” in this discussion.

For further discussion

of our other critical accounting policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements,

contained in Item 8 of this Form 10-K.

Results for the year

ended December 31, 2025 reflect continued growth in interest-earning assets and improved net interest margin, partially offset by

increases in expenses primarily due to annual employee reviews, incentive accruals based on Company performance and contractual and inflationary

increases for third party services.

Loan demand remained solid throughout the year, supporting balance sheet growth, while management

continued to emphasize disciplined pricing, credit quality, and expense management.

Capital and liquidity levels remained strong at year

end, providing flexibility to support ongoing operations and future growth while continuing to exceed regulatory requirements.

For the year ended

December 31, 2025, the Company reported net income of $10.1 million, or $0.43 per diluted share, compared to $8.2 million, or $0.35 per

diluted share, for the year ended December 31, 2024.

The increase was primarily driven by growth in average interest-earning assets

and an improvement in net interest margin, reflecting higher loan yields, lower funding costs and disciplined pricing.

In 2024, the Bank

provided notice of termination of the contract with our core systems provider.

As a result of this decision, termination charges and

certain conversion costs were recorded in 2024, totaling an estimated $850,000.

Additionally, during the fourth quarter of 2024, we completed

two transactions in our bank owned life insurance (“BOLI”) portfolio.

One policy was cancelled and redeemed, resulting in

a loss of approximately $49,000, while a benefit claim was filed on the second policy, resulting in a gain of $1.6 million.

After consideration

of the tax impact, these non-recurring items increased earnings by $756,000 or $0.03 per basic and diluted share.

In 2023, other noninterest

income included $257,000 in insurance proceeds recovery related to costs incurred during the cybersecurity incident in 2022.

The following

non-GAAP table summarizes the impact of these nonrecurring events:

of the tax impact, these non-recurring items increased 2024 earnings by approximately $756,000, or $0.03 per basic and diluted share.

The conversion to the new core systems provider was completed in the fourth quarter of 2025.

After consideration of the tax impact, additional

conversion-related costs decreased earnings for 2025 by approximately $221,000, or $0.01 per basic and diluted share.

The following non-GAAP

table summarizes the impact of these non-recurring events:

in thousands)

income (GAAP)

for nonrecurring items:

Adjust for non-recurring items:

BOLI redemption

system conversion

nonrecurring items

non-recurring items

Non-recurring

items net of tax

adjusted for nonrecurring items (non-GAAP)

Adjusted net income and net income per share are non-GAAP

financial measures that management uses to supplement the evaluation of the Company’s operating results and believes is beneficial

to the users of its financial statements in evaluating the Company’s current operating results in relation to past periods.

As discussed in “Net Interest Income and Net

Interest Margin”, net interest income for the year ended December 31, 2024 was $28.5 million compared to $28.0 million for the year

ended December 31, 2023.

net income (non-GAAP)

Adjusted net income

and net income per share are non-GAAP financial measures that management uses to supplement the evaluation of New Peoples’s operating

results and believes is beneficial to the users of its financial statements in evaluating New Peoples’s current operating results

in relation to past periods.

As discussed in “Net

Interest Income and Net Interest Margin,” net interest income for the year ended December 31, 2025 was $33.2 million compared to

$28.5 million for the year ended December 31, 2024.

The increase was primarily due to a $41.0 million increase in average earning assets

Average interest-bearing

liabilities increased $65.3 million to $549.5 million during the comparative twelve-month periods.

For the year ended December 31, 2024, noninterest income

was $11.3 million, an increase of $1.3 million from the $9.9 million in 2023.

Excluding non-recurring items, noninterest income was unchanged

at $9.7 million for 2024 and 2023, due to nonrecurring income of $1.6 million and $257,000 recorded in 2024 and 2023, respectively

For the year ended December 31, 2024, noninterest expense

was $28.8 million, an increase of $800,000 from $28.0 million in 2023.

Excluding non-recurring items, noninterest expense decreased $90,000

to $27.9 million compared to $28.0 million for the year ended December 31, 2023.

Total assets as of December 31, 2024 were $854.9 million,

an increase of $28.6 million, or 3.46%, from $826.3 million as of December 31, 2023.

Gross loans increased $19.4 million, or 3.04%, during

2024 due to continuing loan demand.

Investment securities increased $6.2 million during 2024 primarily due to securities purchases executed

throughout the year.

All of the Company's investments are designated as available-for-sale.

Deposits totaled $750.0 million as of December 31,

2024 compared to $716.5 million as of December 31, 2023.

The increase of $33.5 million, or 4.68%, was due to efforts to attract and retain

deposits, specifically time deposits through targeted promotional rates and terms and money market accounts through more aggressive pricing

of rates, combined with cyclical funds inflows.

As a result of these efforts, total time deposits increased $16.4 million during the year

ended December 31, 2024.

New Peoples Bank remains well-capitalized.

ratio is 10.70% as of December 31, 2024, compared to 11.11% as of December 31, 2023.

The Company’s key performance indicators are

ended December 31,

and a 37 basis point improvement in the net interest margin.

Average interest-bearing liabilities increased $26.2 million to $575.7 million

during the comparative twelve-month periods.

For the year ended

December 31, 2025, noninterest income was $9.9 million, a decrease of $1.3 million from $11.3 million in 2024.

Excluding the non-recurring

items totaling $1.5 million in 2024, noninterest income increased approximately $172,000 primarily due to a branded card incentive and

other miscellaneous revenue items.

For the year ended

December 31, 2025, noninterest expense was $29.1 million, an increase of approximately $318,000 from $28.8 million in 2024.

non-recurring items, noninterest expense increased approximately $880,000 during 2025 primarily due to increases in employee compensation,

incentive compensation based on performance, health insurance coverage, and data processing costs.

Total assets as of

December 31, 2025 were $909.7 million, an increase of $54.8 million, or 6.41%, from $854.9 million as of December 31, 2024.

increased $52.1 million, or 7.92%, during 2025 due to continuing loan demand.

Investment securities increased approximately $449,000

during 2025 primarily due to a $5.2 million improvement in the unrealized loss on investment securities and purchases executed throughout

the year largely offset by maturities, calls, payments, and amortization.

All of New Peoples's investments are designated as available-for-sale.

Deposits totaled

$798.3 million as of December 31, 2025 compared to $750.0 million as of December 31, 2024.

The increase of $48.3 million, or 6.44%, was

due to efforts to attract and retain deposits, specifically time deposits through targeted promotional rates and terms and money market

accounts through disciplined pricing.

As a result of these efforts, total time deposits increased $23.1 million and money market and

saving accounts increased $28.2 million during the year ended December 31, 2025.

New Peoples Bank

remains well-capitalized as of December 31, 2025 and had a leverage ratio of 10.93% compared to 10.70% as of December 31, 2024.

New Peoples’s

key performance indicators are as follows:

Year ended December 31,

Return on average assets

Return on average shareholders' equity

Average shareholders’ equity to average assets ratio

Income and Net Interest Margin

The Company’s primary source of income is net

interest income, which increased $502,000, or 1.79%, in 2024 compared to 2023 due primarily to an increase in average earning assets

which increased $59.6 million or 7.8% in 2024.

Loans and interest bearing deposits in other banks were the principal drivers of this growth

increasing $32.3 million and $29.7 million, respectively.

Combined with the increase in the volume of earning assets, the yield on these

assets increased 55 basis points (bps;

1 basis point is equal to 1/100th of 1 percent) to 5.42%.

The yield on loans increased 61 bps to

The increase in interest income was partially offset by the cost of interest-bearing liabilities which increased 105 bps to 2.93%

during the year ended December 31, 2024 compared to 1.88% during the year ended December 31, 2023.

Time deposits were the primary contributor

to the increase in interest expense due to an increase of 137 bps in the cost of time deposits to 3.94% and a $50.6 million increase in

the average balance due to a strategy to attract and retain time deposits.

Additionally, the cost of borrowed funds decreased 64 bps to

5.79%, as the cost of other borrowings increased 44 bps to 4.04% while trust preferred securities costs rose 7 bps to 7.72%.

the rate increases in borrowed funds, the total average balance increased $9.8 million due primarily to the Bank Term Funding Program

borrowing taken in December 2023 and repaid during the fourth quarter of 2024.

These rate and volume activities combined to result in

an increase in net interest income of $502,000, while the net interest margin decreased to 3.47% for the year ended December 31, 2024,

from 3.67% for 2023.

The following table shows the rates

paid on earning assets and interest-bearing liabilities for the periods indicated.

Margin Analysis

Average shareholders' equity to average assets

In the fourth quarter

of 2025, the Bank completed the conversion of its core banking systems.

Due to the timing of the conversion late in the year, management

had limited time to address routine post-conversion matters associated with implementation and reporting.

As is typical with a core

systems conversion, management encountered certain matters during and immediately following implementation;

however, management is not

aware of any issues that resulted in material operational disruptions, customer impacts, or financial reporting deficiencies.

Net Interest Income

and Net Interest Margin

New Peoples’s

primary source of income is net interest income, which increased $4.6 million, or 16.25%, in 2025 compared to 2024.

in net interest income was primarily due to growth in average interest-earning assets, specifically loans, and an increase in net

interest margin.

The improvement in net interest margin reflected higher loan yields driven by loan growth and pricing actions taken

during the year as well as repricing of maturing time deposits in a lower interest rate environment following reductions in the target

range for the federal funds rate totaling approximately 100 basis points during the latter part of 2024 and an additional 75 basis points

Management continued to focus on balance sheet mix and disciplined pricing in a competitive funding environment.

The following table shows the rates paid

on earning assets and interest-bearing liabilities for the periods indicated.

Net Interest Margin

Average Balances,

Income and Expense, and Yields and Yields and Rates

Income and Expense, and Yields and Rates

are in thousands)

bearing deposits in other banks

investment securities

Interest-bearing

deposits in other banks

securities (2)

earning assets

Allowance for credit losses

AND SHAREHOLDERS’ EQUITY

for credit losses

LIABILITIES AND SHAREHOLDERS'

Interest-bearing

2 unchanged sentences

interest-bearing deposits

Other borrowings

preferred securities

9 unchanged sentences

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 tables

2 unchanged sentences

and Rate Analysis

Increase (decrease)

2025 Compared to 2024

in thousands)

and Volume Effect

Volume Effect

in Interest Income/Expense

bearing deposits in other banks

Interest income:

Interest-bearing deposits in other banks

Investment securities

earning assets

Total earning

Interest expense:

Interest-bearing

1 unchanged sentence

and money market deposits

Time deposits

Other borrowings

preferred securities

1 unchanged sentence

in net interest income

and Rate Analysis

2024 Compared to 2023

in thousands)

and Volume Effect

Volume Effect

in Interest Income/Expense

bearing deposits in other banks

Interest income:

Interest-bearing deposits in other banks

Investment securities

earning assets

Interest expense:

Interest-bearing

1 unchanged sentence

and money market deposits

Time deposits

Other borrowings

preferred securities

1 unchanged sentence

in net interest income

The increases in interest income and interest expense

during 2024 were driven by a combination of increased interest rates and increased volumes of interest earning assets and liabilities.

Overall, our net interest margin decreased 20 bps to 3.47% in 2024 compared to 3.67% in 2023.

The increase in interest income is attributed to an

increase in the average balance and yield on earning assets.

Average earning assets increased $59.6 million.

Specifically average loans

increased $32.3 million or 5.31%, and average interest-bearing deposits in other banks increased $29.7 million, or 66.1%.

the yield on average earning assets improved 55 bps to 5.42% for the year ended December 31, 2024 compared to 4.87% for the year ended

December 31, 2023.

Overall, loan interest income, including fees, increased $5.7 million during the year ended December 31, 2024 compared

to December 31, 2023.

Interest expense increased $7.0 million, due primarily

to an increase in the average balance and yield on interest bearing liabilities.

Average time deposits and, money market and savings deposits

increased $50.6 million and $6.9 million, respectively.

These increases were largely due to aggressive pricing on these deposit products

as the cost of interest-bearing deposits increased 109 bps to 2.74%.

The increase in yield on interest bearing deposits was partially

offset by a decrease in cost of borrowed funds which fell 64 bps to 5.79% due to principal payments made on trust preferred securities

and the relatively lower cost for the Bank Term Funding Program borrowing that was outstanding throughout most of 2024.

Our primary source of income is interest earned on

Total gross loans increased $19.4 million during 2024, or 3.04%, to $657.5 million as of December 31, 2024 as compared to $638.1

million as of December 31, 2023.

The primary drivers of this increase in total loans were increases in construction loans, commercial

real estate loans and commercial loans which increased $7.3 million to $36.1 million, $3.5 million to $243.6 million and $7.4 million

to $60.6 million, respectively.

These increases resulted from small business development efforts throughout 2024 and a commercial loan

promotion offered.

In addition, consumer installment and all other loans increased $5.9 million due to private student loan originations

of $1.8 million and the acquisition of $2.9 million in consumer loans.

These increases offset reductions in residential and multi-family

mortgage loans which decreased $3.4 million to $234.9 million and $2.2 million to $32.4 million during 2024.

For more detail on loan balances,

refer to Note 6 of the consolidated financial statements contained in Item 8 of this Form 10-K.

Nonaccrual loans decreased approximately $261,000 during

2024 from $3.5 million as of December 31, 2023 to $3.3 million as of December 31, 2024.

Nonaccrual loans negatively affect interest income

as these loans are nonearning assets.

When doubt about the collectability of a loan exists, it is

the Bank’s policy to stop accruing interest on that loan under the following circumstances:

(a) whenever we are advised

by the borrower that scheduled payment or interest payments cannot be met, (b) when conditions indicate that payment of principal

and interest can no longer be expected, or (c) when any such loan becomes delinquent for 90 days and is not both well secured and

in the process of collection.

All interest accrued but not collected on loans that are placed on nonaccrual is charged off and reversed

against interest income in the current period.

In the case of a nonaccrual loan that is well secured and in the process of collection,

the interest accrued but not collected is not reversed.

Interest received on these loans is accounted for on the cash basis or cost-recovery

method until qualifying for return to accrual.

Generally, loans are returned to accrual status when all the principal and interest amounts

contractually due are brought current, six consecutive timely payments are made, and prospects for future contractual payments are reasonably

As illustrated in

the rate/volume analysis above, the increase in net interest income during 2025 was primarily attributable to growth in average earning

asset balances and improved asset yields, and lower interest expense mainly due to the repricing of maturing time deposits, general declines

in short-term interest rates, repayments of borrowings, and principal reductions on trust preferred securities.

Our primary source

of income is interest earned on loans.

Total gross loans increased $52.1 million during 2025, or 7.92%, to $709.6 million as of December

31, 2025 as compared to $657.5 million as of December 31, 2024.

The primary drivers of this increase in total loans were increases in

commercial, residential 1-4 family, and multifamily real estate loans of $12.1 million to $255.7 million, $17.8 million to $252.6 million,

and $13.6 million to $46.0 million, respectively.

These increases resulted from customer relationship development and continued demand

for commercial and consumer lending products, and the opening of a loan production office in Wytheville, Virginia during 2025.

detail on loan balances, refer to Note 7 of the consolidated financial statements contained in Item 8 of this Form 10-K.

Nonaccrual loans

increased approximately $325,000 from $3.3 million as of December 31, 2024 to $3.6 million as of December 31, 2025.

Nonaccrual loans

negatively affect interest income as these loans are nonearning assets.

When doubt about the collectability of a loan exists, it is the

Bank’s policy to stop accruing interest on that loan under the following circumstances:

(a) whenever we are advised by the

borrower that scheduled payment or interest payments cannot be met, (b) when conditions indicate that payment of principal and interest

can no longer be expected, or (c) when any such loan becomes delinquent for 90 days and is not both well secured and in the process

of collection.

All interest accrued but not collected on loans that are placed on nonaccrual is charged off and reversed against interest

income in the current period.

In the case of a nonaccrual loan that is well secured and in the process of collection, the interest accrued

but not collected is not reversed.

Interest received on these loans is accounted for on the cash basis or cost-recovery method until

qualifying for return to accrual.

Generally, loans are returned to accrual status when all the principal and interest amounts contractually

due are brought current, six consecutive timely payments are made, and prospects for future contractual payments are reasonably assured.

For more detail on nonaccrual loans, refer to Note 7 of the consolidated financial statements in Item 8 of this Form 10-K.

Individually evaluated loans increased during 2024

to $1.7 million as of December 31, 2024, from $1.1 million as of December 31, 2023.

I nterest income

and cash receipts on individually evaluated loans are handled differently depending on whether or not the loan is on nonaccrual status.

If the individually evaluated loan is not on nonaccrual status, the interest income on the loan is computed using the effective interest

For more detail on individually evaluated loan balances, refer to Note 6 of

the consolidated financial statements in Item 8 of this Form 10-K.

The following table presents the dollar composition

and percentage of our loan portfolio as of December 31:

Individually evaluated

loans increased during 2025 to $2.2 million as of December 31, 2025, from $1.7 million as of December 31, 2024.

Interest income and cash

receipts on individually evaluated loans are handled differently depending on whether or not the loan is on nonaccrual status.

individually evaluated loan is not on nonaccrual status, the interest income on the loan is computed using the effective interest method.

For more detail on individually evaluated loan balances, refer to Note 7 of the consolidated financial statements in Item 8 of this Form

The following table

presents the dollar composition and percentage of our loan portfolio as of December 31:

in thousands)

estate secured:

and land development

real estate loans

installment loans and all other loans

Real estate secured:

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment loans and all other loans

allowance for credit losses

Our loan maturities, and distribution between

fixed and variable rate loans as of December 31, 2024 are shown in the following tables:

Our loan maturities,

and distribution between fixed and variable rate loans as of December 31, 2025 are shown in the following tables:

in thousands)

2 unchanged sentences

Fifteen Years

estate secured:

Real estate secured:

and land development

1 unchanged sentence

installment loans and all other loans

The following table presents the dollar amount of fixed

rate and variable rate loans with maturities greater than one year as of December 31, 2024:

in thousands)

The following table

presents the dollar amount of fixed rate and variable rate loans with maturities greater than one year as of December 31, 2025:

(Dollars in thousands)

estate secured:

2 unchanged sentences

installment loans and all other loans

Contractual maturities of loans do not reflect the

actual term of our loan portfolio.

The average life of mortgage loans is substantially less than the contractual life due to prepayments

and enforcement of due on sale clauses.

Scheduled principal amortization also reduces the average life of the loan portfolio.

life of mortgage loans tends to increase when current market mortgage rates are substantially above rates on existing loans while the

average life decreases when rates on existing loans are substantially above current market rates.

Some variable rate loans may not reprice, or fully

reprice, at their next reset date due to instances where the reset rate may not be above the rate floor or may be more than the allowable

rate increase under the terms of the loan.

In these instances, it may take several reset periods before these loans are fully adjusted.

Contractual maturities

of loans do not reflect the actual term of our loan portfolio.

The average life of mortgage loans is substantially less than the contractual

life due to prepayments and enforcement of due on sale clauses.

Scheduled principal amortization also reduces the average life of the

loan portfolio.

The average life of mortgage loans tends to increase when current market mortgage rates are substantially above rates

on existing loans while the average life decreases when rates on existing loans are substantially above current market rates.

Some variable rate

loans may not reprice, or fully reprice, at their next reset date due to instances where the reset rate may not be above the rate floor

or may be more than the allowable rate increase under the terms of the loan.

In these instances, it may take several reset periods before

these loans are fully adjusted.

Allowance for

Credit Losses

The Company maintains

New Peoples maintains

its allowance for credit losses based on the expected loss methodology that is referred to as the current expected credit loss (“CECL”)

4 unchanged sentences

for credit losses.

The allowance for credit losses is a valuation

account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries do

not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Accrued interest receivable is excluded from

the estimate of credit losses.

The allowance for credit losses represents management’s

estimate of lifetime credit losses inherent in loans as of the balance sheet date.

The allowance for credit losses is estimated by management

using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable

and supportable forecasts.

The Company primarily utilizes the cohort and

the probability of default/loss given default methodologies for its reasonable and supportable forecasting of current expected credit

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

the calculation, the Company may consider the following qualitative adjustment factors:

lending policies and procedures, national

and local economic conditions, the experience and ability of management and staff, the volume and severity of past due, rated and nonaccrual

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

The Company measures expected credit losses

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

Loans that do not share risk characteristics are evaluated on an

individual basis.

The Company designates loan relationships of $250,000 or more that have been determined to meet the regulatory definitions

of “classified” as individually evaluated.

The fair value of individually evaluated loans is measured using the fair value

of collateral (“collateral method”) or the discounted cash flow (“DCF”) method.

The allowance for credit losses increased to $7.7 million

as of December 31, 2024 from $7.3 million as of December 31, 2023.

The allowance for credit losses at the end of 2024 was approximately

1.17% of total loans as compared to 1.14% at the end of 2023.

Provisions for credit losses for loans receivable of approximately $506,000

and $712,000 were recorded during the years ended December 31, 2024 and 2023, respectively.

Loans charged off, net of recoveries, totaled

approximately $78,000, or 0.01% of average loans, for the year ended December 31, 2024, compared to approximately $103,000, or 0.02% of

average loans, in 2023.

The allowance for credit losses represents an amount that, in the Company's judgment, will be adequate to absorb

expected and estimable losses inherent in the loan portfolio.

The judgment in determining the level of the allowance is based on evaluations

of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods

of time, changes in the nature and volume of the loan portfolio, current reasonable and supportable forecasts of economic conditions that

may affect a borrower's ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses.

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

becomes available.

Nonaccrual loans decreased approximately $261,000 during

2024 from $3.5 million as of December 31, 2023 to $3.3 million as of December 31, 2024.

The amount of interest income that would have

been recognized on these loans had they been accruing interest was approximately $49,000 and $61,000 in the years ended December 31, 2024

and 2023, respectively.

There were no loans past due 90 days or greater and still accruing interest at either December 31, 2024 or 2023.

There are no commitments to lend additional funds to non-performing borrowers.

A majority of our loans are collateralized by real

estate located in our market area.

It is our policy to sufficiently collateralize loans to help minimize exposure to losses in cases of

The allowance for

credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected

on the loans.

Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Accrued interest receivable

is excluded from the estimate of credit losses.

The allowance for

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

The allowance

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

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

New Peoples primarily

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

current expected credit losses.

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

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

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

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

and competition.

New Peoples measures

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

Loans that do not share risk characteristics

are evaluated on an individual basis.

New Peoples designates loan relationships of $250,000 or more that have been determined to meet

the regulatory definitions of “classified” as individually evaluated.

The fair value of individually evaluated loans is measured

using the fair value of collateral (“collateral method”) or the discounted cash flow (“DCF”) method.

The allowance for

credit losses increased to $8.1 million as of December 31, 2025 from $7.7 million as of December 31, 2024.

The allowance for credit losses

at the end of 2025 was approximately 1.14% of total loans as compared to 1.17% at the end of 2024.

Provisions for credit losses for loans

receivable of approximately $739,000 and $506,000 were recorded during the years ended December 31, 2025 and 2024, respectively.

charged off, net of recoveries, totaled approximately $316,000, or 0.05% of average loans, for the year ended December 31, 2025, compared

to approximately $78,000, or 0.01% of average loans, in 2024.

The allowance for credit losses represents an amount that, in New Peoples's

judgment, will be adequate to absorb expected and estimable losses inherent in the loan portfolio.

The judgment in determining the level

of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies

and charge-offs for relevant periods of time, changes in the nature and volume of the loan portfolio, current reasonable and supportable

forecasts of economic conditions that may affect a borrower's ability to repay and the value of collateral, overall portfolio quality

and review of specific potential losses.

This evaluation is inherently subjective because it requires estimates that are susceptible

to significant revision as more information becomes available.

Nonaccrual loans

increased approximately $325,000 from $3.3 million as of December 31, 2024 to $3.6 million as of December 31, 2025.

The amount of interest

income that would have been recognized on these loans had they been accruing interest was approximately $49,000 for both of the years

ended December 31, 2025 and 2024.

Loans past due 90 days or greater and still accruing interest totaled approximately $165,000 at December

There were no loans past due 90 days or greater and still accruing interest as of December 31, 2024.

There are no commitments

to lend additional funds to non-performing borrowers.

A majority of our

loans are collateralized by real estate located in our market area.

It is our policy to sufficiently collateralize loans to help minimize

exposure to losses in cases of default.

Increasing real estate values in our area have reduced this exposure somewhat.

However, while we consider our market area to

be somewhat diverse, certain areas are more reliant upon agriculture, coal mining

and natural gas.

As a result, increased risk of loan impairments is possible due to the volatile nature of the coal mining and natural

gas industries.

Commercial and commercial real estate loans are initially

risk rated by the originating loan officer.

If deterioration in the financial condition of the borrower and/or their capacity to repay

the debt occurs, the loan may be downgraded by the loan officer or our watch list committee.

Guidance for risk rate grading is established

by the regulatory authorities who periodically review the Bank’s loan portfolio for compliance.

Classifications used by the Bank

are Pass, Special Mention, Substandard, Doubtful and Loss.

With regard to the Bank’s consumer and consumer

real estate loan portfolio, we use the guidance found in the Uniform Retail Credit Classification and Account Management Policy which

affects our estimate of the allowance for credit losses.

Under this approach, a consumer or consumer real estate loan must initially have

a credit risk grade of Pass or better.

Subsequently, if the loan becomes contractually 90 days past due or the borrower files for bankruptcy

protection, the loan is downgraded to Substandard and placed in nonaccrual status.

If the loan is unsecured upon being deemed Substandard,

the entire loan amount is charged-off.

For non-1-4 family residential loans that are 90 days

or more past due or in bankruptcy, the collateral value less estimated liquidation costs are compared to the loan balance to calculate

any potential deficiency.

However, while

we consider our market area to be somewhat diverse, certain areas are more reliant upon agriculture, coal mining, and natural gas.

a result, increased risk of loan impairments is possible due to the volatile nature of the coal mining and natural gas industries.

Commercial and commercial

real estate loans are initially risk rated by the originating loan officer.

If deterioration in the financial condition of the borrower

and/or their capacity to repay the debt occurs, the loan may be downgraded by the loan officer or our watch list committee.

for risk rate grading is established by the regulatory authorities who periodically review the Bank’s loan portfolio for compliance.

Classifications used by the Bank are Pass, Special Mention, Substandard, Doubtful and Loss.

With regard to the

Bank’s consumer and consumer real estate loan portfolio, we use the guidance found in the Uniform Retail Credit Classification

and Account Management Policy which affects our estimate of the allowance for credit losses.

Under this approach, a consumer or consumer

real estate loan must initially have a credit risk grade of Pass or better.

Subsequently, if the loan becomes contractually 90 days past

due or the borrower files for bankruptcy protection, the loan is downgraded to Substandard and generally placed in nonaccrual status.

If the loan is unsecured upon being deemed Substandard, the entire loan amount is charged off.

For non-1-4 family

residential loans that are 90 days or more past due or in bankruptcy, the collateral value less estimated liquidation costs are compared

to the loan balance to calculate any potential deficiency.

If the collateral is sufficient, then no charge-off is necessary.

If a deficiency exists, then upon the loan

becoming contractually 120 days past due, the deficiency is charged-off against the allowance for credit losses.

In the case of 1-4 family

residential or home equity loans, upon the loan becoming 120 days past due, or at the time of foreclosure, a current value is obtained

and after application of an estimated liquidation discount, a comparison is made to the loan balance to calculate any deficiency.

Subsequently,

any noted deficiency is then charged-off against the allowance for credit losses when the loan becomes contractually 180 days past due,

or at the time of foreclosure.

If the customer has filed bankruptcy, then within 60 days of the bankruptcy notice, any calculated deficiency

is charged-off against the allowance for credit losses.

Collection efforts continue by means of repossessions or foreclosures, and upon

bank ownership, liquidation ensues.

Annualized net charge-offs, as a percentage of average

loans, was 0.01% during the year ended December 31, 2024, compared to 0.02% for the same period of 2023.

The allowance for credit losses

is maintained at a level that management deems appropriate to absorb any potential future losses and known credit losses 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.

If a deficiency

exists, then upon the loan becoming contractually 120 days past due, the deficiency is charged off against the allowance for credit losses.

In the case of 1-4 family residential or home equity loans, upon the loan becoming 120 days past due, or at the time of foreclosure,

a current value is obtained and after application of an estimated liquidation discount, a comparison is made to the loan balance to calculate

any deficiency.

Subsequently, any noted deficiency is then charged off against the allowance for credit losses when the loan becomes

contractually 180 days past due, or at the time of foreclosure.

If the customer has filed bankruptcy, then within 60 days of the bankruptcy

notice, any calculated deficiency is charged off against the allowance for credit losses.

Collection efforts continue by means of repossessions

or foreclosures, and upon bank ownership, liquidation.

As discussed, the

allowance for credit losses is maintained at a level that management deems appropriate to absorb any potential future losses and known

credit losses 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 year ended December 31, 2024,

we made modest adjustments to our qualitative factors to consider risk factors associated with commercial real estate and residential

mortgage loans and the impacts of the hurricane Helene.

we maintained the adjustments to our qualitative factors initiated in 2024 to consider risk factors associated with commercial real estate

and residential mortgage loans;

however, we removed the qualitative factor related to Hurricane Helene.

During the third quarter of 2024,

customers residing in North Carolina, southwest Virginia, northeast Tennessee and southern West Virginia were impacted by Hurricane Helene.

We assessed the impact of the storm on our customers and any collateral securing outstanding loans and adjusted the allowance for credit

Additionally, we worked with customers impacted by this natural disaster and provided short-term payment deferrals to affected

These deferral periods have expired, and at this time, we are not aware of any widespread impairment of collateral other than

one property in which a $138,000 partial charge-off was taken during 2025.

Accordingly, we eliminated the adjustment in the allowance

for credit losses for the potential impacts of the storm.

Those changes, along with the assessment of the historical and specific risks

associated with the loan portfolio, resulted in a net provision for credit losses of $625,000, of which $506,000 was provided for the

loan portfolio and $119,000 was provided to the allowance for unfunded commitments.

The following table summarizes components of the allowance

for credit losses and related loans as of December 31, 2024 and 2023:

associated with the loan portfolio, resulted in a net provision for credit losses of approximately $806,000, of which $739,000 was provided

for the loan portfolio and $67,000 was provided to the allowance for unfunded commitments.

The following table

summarizes components of the allowance for credit losses and related loans as of December 31, 2025 and 2024:

Credit Ratios

5 unchanged sentences

net of recoveries

charge-offs to average loans

The following table shows the average balance, net

charge-offs or recoveries and percentage of net charge-offs or recoveries by each major category of loans for the years ended December

31, 2024 and 2023:

Average Balance

Net Charge-offs (Recoveries)

Net Charge-offs (Recoveries) as % of Average Loan Type

Average Balance

Net Charge-offs (Recoveries)

Net Charge-offs (Recoveries) as % of Average Loan Type

Net charge-offs

to average loans

The following table

shows the average balance, net charge-offs or recoveries and percentage of net charge-offs or recoveries by each major category of loans

for the years ended December 31, 2025 and 2024:

Allocation of the

Allowance for Credit Losses

Charge-offs (Recoveries)

Charge-offs (Recoveries) as % of Average Loan Type

Charge-offs (Recoveries)

Charge-offs (Recoveries) as % of Average Loan Type

Real estate secured:

Construction and land development

1 unchanged sentence

Total real estate loans

The following table shows the balance and percentage

of our allowance for credit losses allocated to each major category of loans.

Allocation of the Allowance for Credit Losses

Consumer installment loans and all

The following table

shows the balance and percentage of our allowance for credit losses allocated to each major category of loans.

in thousands)

estate secured:

Real estate secured:

and land development

real estate loans

and all other loans

We have allocated the allowance according to the amount

deemed to be reasonably necessary to provide for the expected credit losses within each of the categories of loans.

The allocation of

the allowance as shown in the table above should not be interpreted as an indication that credit losses in future years will occur in

the same proportions or that the allocation indicates future credit loss trends.

Furthermore, the portion allocated to each loan category

is not the total amount available for future losses that might occur within such categories since the total allowance is a general allowance

applicable to the entire portfolio.

The allocation of the allowance for credit losses is

based on our judgment of the relative risk associated with each type of loan.

We have allocated 33.4% of the allowance to commercial real

estate loans, which constituted 37.1% of our loan portfolio at December 31, 2024.

This allocation decreased slightly compared to 34.7%

in 2023, due primarily to the slight decrease in nonaccrual and past due loans for this segment of the loan portfolio.

Consumer installement loans and all other

We have allocated

9.8% of the allowance to commercial loans, which constituted 9.2% of our loan portfolio at December 31, 2024.

This allocation percentage

increased compared to December 31, 2023, due to the increase in this component of the loan portfolio.

Both residential and commercial real estate loans are

secured by real estate whose value tends to be easily ascertainable.

These loans are made consistent with appraisal policies and real

estate lending policies, which detail maximum loan-to-value ratios and maturities.

We allocated 4.2% of the allowance to real estate construction

loans, which constituted 5.5% of our loan portfolio as of December 31, 2024.

Construction loans are secured by real estate with values

that are dependent upon market and economic conditions.

Additionally, these credits are generally shorter-term projects of eighteen months

These loans are made consistent with appraisal policies

and real estate lending policies which detail maximum loan-to-value ratios and maturities.

We allocated 38.0% of the allowance to residential

real estate loans, which constituted 35.7% of our loan portfolio as of December 31, 2024.

We allocated 7.2% of the allowance to consumer and

all other loans, which constituted 4.4% of our loan portfolio as of December 31, 2024.

Our allocation increased compared to the allocation

as of December 31, 2023, due to the impact of activity on overdrawn deposit accounts.

Other Real Estate Owned

Other real estate owned decreased $70,000, or 44.59%,

to approximately $87,000 as of December 31, 2024 from $157,000 as of December 31, 2023.

During 2024, five properties were sold in the

amount of $1.5 million and four properties were acquired in the amount of $1.3 million.

While the levels of problem credits and foreclosed

properties have been reduced significantly over the past several years, we remain mindful of the impact on earnings and capital as we

work to achieve our goal to reduce nonperforming assets.

However, we may recognize some losses and reductions in the allowance for credit

losses as we expedite the resolution of these problem assets.

Investment Securities

Total investment securities increased $6.2 million,

or 6.88%, to $96.0 million as of December 31, 2024 from $89.8 million as of December 31, 2023.

All securities are classified as available-for-sale

for liquidity purposes.

The increase in investment securities during 2024 was due to purchases of $23.3 million, which more than offset

sales of $2.1 million, and maturities, payments and amortization of $14.6 million and a $419,000 increase in the unrealized loss on securities

available-for-sale.

During the third quarter of 2024, odd lot investment securities totaling $2.1 million were sold, and the proceeds

were used to reinvest in other securities.

These sales generated a net gain of $4,000.There were no sales of securities during 2023.

2023, there were maturities, calls and paydowns of $9.4 million, and the Company purchased $0.5 million in investment securities.

securities with a carrying value of $35.2 million and $36.8 million as of December 31, 2024 and 2023, respectively, were pledged to secure

public deposits and for other purposes required, or permitted, by law.

Our strategy is to invest excess funds in investment

securities, which typically yield more interest income than other short-term investment options, such as federal funds sold and overnight

deposits with the Federal Reserve Bank of Richmond, but which still provide liquidity.

The fair value of our investment portfolio is substantially

affected by changes in interest rates.

Losses could be realized if liquidity and/or business strategy necessitate the sale of securities

in a loss position, due to Federal Reserve actions, U.S.

fiscal policies or other factors affecting market interest rates.

the allowance according to the amount deemed to be reasonably necessary to provide for the expected credit losses within each of the

categories of loans.

The allocation of the allowance as shown in the table above should not be interpreted as an indication that credit

losses in future years will occur in the same proportions or that the allocation indicates future credit loss trends.

Furthermore, the

portion allocated to each loan category is not the total amount available for future losses that might occur within such categories since

the total allowance is a general allowance applicable to the entire portfolio.

As of December 31,

31, 2024, we had a net unrealized loss in our investment portfolio totaling $15.2 million as compared to a $14.8 million loss as of December

As market interest rates increase, the level of unrealized losses could change substantially.

However, these changes would have

no impact on earnings or regulatory capital, unless the securities were sold at a loss.

We believe that all unrealized losses resulted

from temporary changes in interest rates and current market conditions and are not a result of credit deterioration.

No allowance for

credit losses on available-for-sale securities was recorded as of December 31, 2024 and 2023.

We monitor our portfolio regularly and use

it to maintain liquidity, manage interest rate risk and enhance earnings.

The fair value and weighted average yield of investment

securities as of December 31, 2024 are shown in the following schedule by contractual maturity and do not reflect principal paydowns for

amortizing securities.

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay

obligations with or without call or prepayment penalties.

Weighted average yields are calculated by dividing the contractual interest

for each time period by the average amortized contractual cost.

2025, the allowance for credit losses was primarily allocated to loan segments that represent the largest portions of the loan portfolio

and exhibit the most significant exposure to credit risk based on portfolio composition, credit performance, and economic sensitivity.

Commercial real estate

loans accounted for $2.9 million, or 35.2% of the allowance for credit losses, compared to 36.0% of total loans outstanding at December

The increase in allocation from the prior year reflects continued growth in commercial real estate balances and increased utilization

of variable-rate loan structures.

These factors resulted in higher modeled expected credit losses and supported qualitative adjustments

related to borrower cash-flow dependence and sensitivity to economic conditions.

These loans are made

consistent with appraisal policies and real estate lending policies which detail maximum loan-to-value ratios and maturities.

Residential 1–4

family real estate loans represented 34.5% of the allowance for credit losses, compared to 35.6% of total loans outstanding at December

This allocation declined from the prior year primarily due to stable delinquency trends, portfolio seasoning, and a decline

in classified loans.

Management also reduced certain qualitative risk factors previously applied to this segment as overall credit performance

remained stable.

Management believes

overall credit quality remained stable during 2025, and the allowance for credit losses was appropriate as of December 31, 2025.

Other Real Estate

Other real estate

owned totaled approximately $89,000 and $87,000 as of December 31, 2025 and December 31, 2024, respectively.

During 2025, the sale of

one property was offset by the foreclosure of another property with a similar net book value.

While the levels

of problem credits and foreclosed properties have been reduced significantly over the past several years, we remain mindful of the impact

on earnings and capital as we work to achieve our goal to reduce nonperforming assets.

However, we may recognize some losses and reductions

in the allowance for credit losses as we expedite the resolution of these problem assets.

Total investment

securities increased approximately $449,000 to $96.4 million as of December 31, 2025 from $96.0 million as of December 31, 2024.

securities are classified as available-for-sale for liquidity purposes.

The increase in investment securities during 2025 was due to

purchases of $9.3 million and a decrease in the unrealized loss on available-for-sale securities of $5.2 million which more than offset

maturities, calls, payments, and amortization of $14.0 million.

Investment securities with a carrying value of $32.5 million and $35.2

million as of December 31, 2025 and 2024, respectively, were pledged to secure public deposits and for other purposes required, or permitted,

Our strategy is to

invest excess funds in investment securities, which typically yield more interest income than other short-term investment options, such

as federal funds sold and overnight deposits with the Federal Reserve Bank of Richmond, but which still provide liquidity.

The fair value of

our investment portfolio is substantially affected by changes in interest rates.

Losses could be realized if liquidity and/or business

strategy necessitate the sale of securities in a loss position due to Federal Reserve actions, U.S.

fiscal policies or other factors

affecting market interest rates.

As of December 31, 2025, we had a net unrealized loss in our investment portfolio totaling $10.0 million

as compared to a $15.2 million loss as of December 31, 2024.

As market interest rates fluctuate, the level of unrealized losses could

change substantially.

However, these changes would have no impact on earnings or regulatory capital unless the securities were sold at

We believe that all unrealized losses resulted from temporary changes in interest rates and current market conditions and are

not a result of credit deterioration.

No allowance for credit losses on available-for-sale securities was recorded as of December 31,

2025 and 2024.

We monitor our portfolio regularly and use it to maintain liquidity, manage interest rate risk, and enhance earnings.

The fair value and

weighted average yield of investment securities as of December 31, 2025 are shown in the following schedule by contractual maturity and

do not reflect principal paydowns for amortizing securities.

Expected maturities will differ from contractual maturities because issuers

may have the right to call or prepay obligations with or without call or prepayment penalties.

Weighted average yields are calculated

by dividing the contractual interest for each time period by the average amortized contractual cost

Than One Year

to Five Years

(Dollars in thousands)

Government agencies

Taxable municipals

Corporate bonds

Municipal securities

Mortgage-backed securities

Bank Owned Life Insurance

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

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

During 2024, one policy was surrendered at market value resulting in a loss of $49,000.

Collateralized mortgage obligations - guaranteed

Owned Life Insurance

The Bank had no bank

owned life insurance policies as of December 31, 2025.

During 2024 one bank

owned life insurance policy was surrendered at market value resulting in a loss of approximately $49,000.

In December 2024, a death benefit

receivable of $5.4 million was recorded, resulting in an income accrual of $1.6 million.

Excluding the loss on surrender and the income accrued

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

Total deposits were $750.0 million as of December 31,

2024, an increase of $33.5 million, or 4.68%, from $716.5 million as of December 31, 2023, due to efforts to attract and retain deposits,

specifically time deposits, combined with more aggressive pricing on money market accounts and cyclical fund inflows.

Most of the increase

was driven by money market deposits which increased $30.2 million, or 55.9%, to $84.1 million, and time deposits, which increased $16.4

million, or 6.51%, to $268.7 million as of December 31, 2024 and 2023.

These increases more than offset a reduction in noninterest bearing

demand deposits of $8.9 million.

The increases in time and money market deposits resulted from small business development efforts throughout

2024, revamping certain accounts to better suit customer needs and offering periodic rate promotions.

Information detailing average deposit balances and

average rates paid on deposits is presented in the Net Interest Margin Analysis table contained in the “Net Interest Income and

Net Interest Margin” section.

Core deposits are considered to include demand deposits

and other types of transaction accounts, such as commercial relationships and savings and money market products.

Noninterest bearing

demand deposits decreased $8.9 million in 2024, while interest bearing demand deposits, savings and money market deposits increased $26.0

Overall, we continue to maintain core deposits through attractive consumer and commercial deposit products and strong ties with

our customer base and communities.

Time deposits of $250,000 or more equaled approximately

6.84% of deposits at the end of 2024 and 7.36% of deposits at the end of 2023.

As of December 31, 2024 and 2023, uninsured deposits

are estimated to be $91.9 million and $93.8 million, respectively.

Estimated uninsured deposits represented 12.3% and 13.1% of total

deposits as of December 31, 2024 and 2023, respectively.

Included in estimated uninsured deposits are $22.9 million and $27.9 million

of public funds, for such respective periods, considered secured via pledged securities or letters of credit we have with the Federal

Home Loan Bank of Atlanta (the FHLB).

The following table shows maturities of all time

deposits considered uninsured by the FDIC or otherwise.

of Time Deposits of Greater Than $250,000

Total deposits were

$798.3 million as of December 31, 2025, an increase of $48.3 million, or 6.44%, from $750.0 million as of December 31, 2024, due to efforts

to attract and retain time deposits and money market account relationships, including replacing a large, high-rate account with lower-cost

brokered time deposits, combined with cyclical fund inflows.

Most of the increase was driven by money market deposits which increased

$28.9 million, or 34.4%, to $113.0 million, and time deposits, which increased $23.1 million, or 8.5%, to $294.2 million as of December

Information detailing

average deposit balances and average rates paid on deposits is presented in the Net Interest Margin Analysis table contained in the “Net

Interest Income and Net Interest Margin” section.

Core deposits are

considered to include demand deposits and other types of transaction accounts, such as commercial relationships and savings and money

market products.

Noninterest-bearing demand deposits decreased $4.1 million in 2025, while interest-bearing demand deposits, savings

and money market deposits increased $32.4 million.

Overall, we continue to maintain core deposits through attractive consumer and commercial

deposit products and strong ties with our customer base and communities.

As of December 31,

2025 and 2024, uninsured deposits are estimated to be $120.3 million and $91.9 million, respectively.

Estimated uninsured deposits represented

15.1% and 12.3% of total deposits as of December 31, 2025 and 2024, respectively.

Included in estimated uninsured deposits are $28.7

million and $22.9 million of public funds, for such respective periods, considered secured via pledged securities or letters of credit

we have with the Federal Home Loan Bank of Atlanta (the “FHLB”).

The following table

shows maturities of all time deposits considered uninsured by the FDIC or otherwise.

of Time Deposits Greater Than $250,000

in thousands)

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six months through twelve months

As of December 31, 2024 and 2023, $35.2 million and

$36.8 million of securities, respectively, were pledged to collateralize public deposits, including time deposits, held in our Tennessee

offices, and as collateral for credit facilities available through FRB.

Additionally, we held letters of credit from the FHLB for $14.0

million and $12.0 million at December 31, 2024 and 2023, respectively, to secure public deposits, including time deposits, held in our

Virginia offices.

We held $3.0 million in brokered deposits at December

31, 2024, and no brokered deposits as of December 31, 2023.

While not a primary source of funding, brokered deposits provide a means to

efficiently manage funding and liquidity.

Internet accounts are limited to customers located in our primary market area and the surrounding

geographical area.

The average balance of and the average rate paid on deposits is shown in the net interest margin analysis table in

the “Net Interest Income and Net Interest Margin” section.

Total Certificate of Deposit Registry Service (“CDARS”)

time deposits were $7.0 million and $6.3 million at December 31, 2024 and 2023, respectively.

As of December 31,

2025 and 2024, $32.5 million and $35.2 million of securities, respectively, were pledged to collateralize public deposits, including

time deposits, held in our Tennessee offices, and as collateral for credit facilities available through the Federal Reserve Bank (“FRB”).

Additionally, we held letters of credit from the FHLB for $14.0 million at both December 31, 2025 and 2024 to secure public deposits,

including time deposits, held in our Virginia offices.

We held $8.0 million

in brokered deposits at December 31, 2025, and $3.0 million as of December 31, 2024.

While not a primary source of funding, brokered

deposits provide a means to efficiently manage funding and liquidity.

Internet accounts are limited to customers located in our primary

market area and the surrounding geographical area.

The average balance of and the average rate paid on deposits is shown in the net interest

margin analysis table in the “Net Interest Income and Net Interest Margin” section.

Total Certificate of Deposit Registry

Service (“CDARS”) time deposits were $7.0 million at December 31, 2025 and 2024.

Noninterest Income

For the year ended December 31, 2024, noninterest income

totaled $11.3 million.

After excluding non-recurring items, as shown in the table below, which is a non-GAAP measure, noninterest income

was $9.7 million for 2024 compared to $9.9 million for 2023.

A $244,000, or 22.51%, increase in financial services revenue to $1.3 million

from the $1.1 million recorded during 2023 offset modest decreases in service charges and card processing revenue of $48,000 and $28,000,

respectively.

In addition, noninterest income was impacted by the sales of bank properties in 2024 and 2023.

During 2024, a former branch

office and a lot were sold, along with the sale of furniture, resulting in a net gain of $23,000.

During the same period of 2023, two

former office facilities and a vehicle were sold resulting in a net gain of $130,000.

In 2023, other noninterest income included $257,000

in insurance proceeds recovery related to costs incurred during the cybersecurity incident in 2022, that was not repeated in 2024.

this item noninterest income for 2023 and the nonrecurring items in 2024, noninterest income would have been unchanged at $9.7 million.

Noninterest Expense

For the year ended December 31, 2024, noninterest expense

totaled $28.8 million.

After excluding non-recurring items, as shown in the table below, noninterest expense decreased $90,000 to $27.9

million compared to $28.0 million for the year ended December 31, 2023.

The decrease was impacted by reductions in legal and professional

fees, consulting, printing and supplies and loan expenses totaling $450,000.

The expense reductions were partially offset by increases

in advertising, ATM network and deposit insurance expenses, which combined for an increase of $111,000.

While we experienced no significant losses resulting

from fraud in 2024, we experienced an increase in the volume and sophistication of fraudulent transaction attempts.

These fraudulent transaction

attempts ranged from unauthorized electronic transactions to check theft and forgery.

We work continuously with customers to educate them

on identifying potential fraud and the efforts they can take to reduce the risk of fraud.

We expect increased fraudulent transaction attempts

to continue for the foreseeable future.

Our efficiency ratio, a non-GAAP measure, is defined

as noninterest expense divided by the sum of net interest income plus noninterest income and was 72.40% in 2024 compared to 73.71% in

The performance improvement in this ratio is a result of the increase in net interest income, as discussed in the “Net Interest

Income and Net Interest Margin” section earlier in this Item 7.

After adjusting for non-recurring items, the efficiency ratio increases

slightly to 73.01%, as shown in the table below.

We continue to seek opportunities to operate more efficiently through the use of technology,

improving processes, reducing nonperforming assets and increasing productivity.

For the year ended

December 31, 2025, noninterest income decreased $1.3 million to $9.9 million compared to $11.3 million for 2024 mainly due to the $1.6

million benefit claim on bank owned life insurance in 2024.

A decrease of approximately $217,000, or 5.65%, in service charges and fees

offset an increase in card processing revenue of approximately $201,000.

For the year ended

December 31, 2025, noninterest expense totaled $29.1 million compared to $28.8 million for the year ended December 31, 2024.

was primarily related to salaries and benefits of approximately $638,000, loan-related expenses of approximately $165,000, and data processing

costs of approximately $68,000.

The increases were partially offset by a decrease of approximately $562,000 in the costs associated with

the core system conversion and an approximate $214,000 decrease in the expense for the cards reward program.

While we experienced

no significant losses resulting from fraud in 2025, we continued to experience an increase in the volume and sophistication of fraudulent

transaction attempts.

These fraudulent transaction attempts ranged from unauthorized electronic transactions to check theft, forgery,

and what is commonly referred to as friendly fraud, which is the dispute of a valid, authorized transaction by the cardholder resulting

in a chargeback despite delivery of the underlying product or service.

We work continuously with customers to educate them on identifying

potential fraud and the efforts they can take to reduce the risk of fraud.

We expect increased fraudulent transaction attempts to continue

for the foreseeable future.

Our efficiency ratio,

a non-GAAP measure, is defined as noninterest expense divided by the sum of net interest income plus noninterest income and was 67.61%

in 2025 compared to 72.40% in 2024.

The performance improvement in this ratio is a result of the increase in net interest income, as

discussed in the “Net Interest Income and Net Interest Margin” section earlier in this Item 7.

After adjusting for non-recurring

items, the efficiency ratio improves slightly to 66.94%, as shown in the table below.

We continue to seek opportunities to operate more

efficiently through the use of technology, improving processes, reducing nonperforming assets, and increasing productivity.

in thousands)

Interest Income

reported (GAAP)

for nonrecurring items:

1 unchanged sentence

adjusted for nonrecurring items (non-GAAP)

Income Taxes and Deferred Tax Assets

Income taxes were $2.1 million for the year ended December

31, 2024, compared to $2.1 million for the same period in 2023.

The effective tax rates were 20.76%, and 23.01% for 2024 and 2023, respectively.

The effective tax rate for the periods differed from the federal statutory rate of 21.0% principally due to the lessened impact of tax

preference items, along with the effect of certain state income taxes.

The lower effective tax rate in 2024 is the result of non-taxable

income resulting from the BOLI insurance benefit accrual included in pre-tax earnings.

Income Taxes and

Deferred Tax Assets

Income taxes were

$3.0 million for the year ended December 31, 2025, compared to $2.1 million for the same period in 2024.

The effective tax rates were

23.18%, and 20.76% for 2025 and 2024, respectively.

The effective tax rate for the periods differed from the federal statutory rate of

21.0% principally due to the lessened impact of tax preference items, along with the effect of certain state income taxes.

effective tax rate in 2024 is the result of non-taxable income resulting from the BOLI insurance benefit accrual included in pre-tax

Deferred tax assets

represent the future tax benefit of future deductible differences.

1 unchanged sentence

a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value.

The Company has evaluated positive

New Peoples has evaluated positive

and negative evidence to assess the realizability of its deferred taxes.

Based on the evidence, including taxable income projections,

the Company believes it is more likely than not that its deferred tax assets will be realizable.

Accordingly, the Company did not include

New Peoples believes it is more likely than not that its deferred tax assets will be realizable.

Accordingly, New Peoples did not include

a valuation allowance against its deferred tax assets as of December 31, 2025 or 2024.

Tax positions

are evaluated in a two-step process.

The Company first determines whether it is more likely than not that a position will be sustained

upon examination.

If a tax position meets the more likely than not recognition threshold, it is then measured to determine the amount

of benefit to recognize in the financial statements.

The tax position is measured as the largest amount of benefit that is greater than

50% likely of being recognized.

The Company classifies interest and penalties as a component of income tax expense.

Capital Resources

During the year ended December 31, 2024, total shareholders’

equity increased $5.9 million to $70.7 million due to the earnings of $8.2 million which was partially offset by a cash dividend payment

of $1.7 million, the repurchase of common stock totaling $282,000 and the $331,000 increase in the net unrealized loss on available-for-sale

investment securities, net of taxes.

As previously reported, the Board extended the repurchase

of up to 500,000 shares of the Company’s common stock through March 31, 2025.

During 2024, the Company repurchased 109,176 shares

at an average price of $2.58 per share.

Since commencement of the stock repurchase program, 285,362 shares have been repurchased at an

average rate of $2.42.

The Company meets the eligibility criteria to be considered

a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement and does not report

consolidated regulatory capital.

The Bank continues to be subject to various capital requirements administered by banking agencies.

The Bank is characterized as "well capitalized"

under the “prompt corrective action” regulations pursuant to Section 38 of the FDIA.

The capital adequacy ratios for the Bank,

including the minimum ratios to be considered “well capitalized,” are set forth in Note 22, Capital, to the consolidated financial

statements in Item 8 of this Form 10-K.

The Bank is also subject to the rules implementing

the Basel III capital framework and certain related provisions of the Dodd-Frank Act.

The final rules require the Bank to comply with

the following minimum capital ratios:

(i) a Common Equity Tier 1 (“CET1”) ratio of at least 4.5%, plus a 2.5% “capital

conservation buffer” (effectively resulting in a minimum CET1 ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets

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

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

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

capital conservation buffer is designed to absorb losses during periods of economic stress.

Banking institutions with a CET1 ratio above

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

of the shortfall.

As of December 31, 2024, the Bank meets all capital adequacy requirements to which it is subject.

Based upon projections,

we believe our earnings will be sufficient to support the Bank’s planned asset growth.

The Company paid a cash dividend of $0.07 per share

On February 24, 2025, the Board of Directors declared a dividend of $0.08 per share, to be paid on March 31, 2025.

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 parent company.

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

$128.5 million as of December 31, 2024, up from $118.0 million as of December 31, 2023.

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.

The Bank’s primary funding source is deposits

from customers in the markets in which it provides banking services.

As discussed previously, deposits increased during 2024 but competition

for deposits remains intense from both bank and non-bank institutions.

The Company expects that pressure on the rates paid on deposits

will continue and that it may be required to pay higher rates than currently projected to retain existing customers and attract new deposit

relationships to fund loans and other activities.

As discussed below, the Company has other liquidity sources to manage its liquidity

needs as they arise.

As of December 31, 2024, all of our investments are

classified as available-for-sale, providing an additional source of liquidity in the amount of $60.8 million, which is net of the $35.2

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 $6.2 million, or 6.88%, during 2024 from $89.8 million as of December 31, 2023 to $96.0 million as of December 31,

The Bank also has additional borrowing capacity on lines for which investments are currently pledged.

Our loan to deposit ratio was 87.7% as of December

31, 2024 and 89.1% as of December 31, 2023.

Available third-party sources of liquidity remain intact

as of December 31, 2024 which includes the following:

our line of credit with the FHLB totaling $220.1 million subject to pledging requirements,

the brokered certificates of deposit markets, internet certificates of deposit, and the discount window at the FRB.

We also have $30.0

million in unsecured federal funds lines of credit available from three correspondent banks as of December 31, 2024.

We have used our line of credit with FHLB to issue

letters of credit totaling $14.0 million to the Treasury Board of Virginia for collateral on public funds and a $10.0 million fixed rate

borrowing maturing in May of 2028.

Tax positions are

evaluated in a two-step process.

New Peoples first determines whether it is more likely than not that a position will be sustained upon

If a tax position meets the more likely than not recognition threshold, it is then measured to determine the amount of benefit

to recognize in the financial statements.

The tax position is measured as the largest amount of benefit that is greater than 50% likely

of being recognized.

New Peoples classifies interest and penalties as a component of income tax expense.

During the year ended

December 31, 2025, total shareholders’ equity increased $12.1 million to $82.9 million due to earnings of $10.1 million and the

$4.1 million decrease in the net unrealized loss on available-for-sale investment securities, net of taxes which were partially offset

by a cash dividend payment of $1.9 million and the repurchase of common stock totaling approximately $212,000.

During 2025, New

Peoples repurchased 69,711 shares at an average price of $3.04 per share.

Since commencement of the stock repurchase program, 355,073

shares have been repurchased at an average rate of $2.54.

New Peoples meets

the eligibility criteria to be considered a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding

Company Policy Statement and does not report consolidated regulatory capital.

The Bank continues to be subject to various capital requirements

administered by banking agencies.

The Bank is characterized

as "well capitalized" under the “prompt corrective action” regulations pursuant to Section 38 of the FDIA.

capital adequacy ratios for the Bank, including the minimum ratios to be considered “well capitalized,” are set forth in

Note 23, Capital, to the consolidated financial statements in Item 8 of this Form 10-K.

The Bank is also

subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Act.

The final rules

require the Bank to comply with the following minimum capital ratios:

(i) a Common Equity Tier 1 (“CET1”) ratio of at least

4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum CET1 ratio of 7%), (ii) a ratio of Tier

1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier

1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation

buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of

Tier 1 capital to average assets.

The capital conservation buffer is designed to absorb losses during periods of economic stress.

institutions with a CET1 ratio above the minimum but below the conservation buffer face constraints on dividends, equity repurchases,

and compensation based on the amount of the shortfall.

As of December 31, 2025, the Bank meets all capital adequacy requirements to which

it is subject.

Based upon projections, we believe our earnings will be sufficient to support the Bank’s planned asset growth.

New Peoples paid

a cash dividend of $0.08 per share in 2025.

On February 23, 2026, the Board of Directors declared a dividend of $0.09 per share, to be

paid on March 31, 2026.

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 parent company.

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 $141.1 million as of December 31, 2025, up from $128.5 million as of December 31, 2024.

is primarily due to the receipt of the insurance receivable, earnings, and cash flows from investment securities exceeding reinvestment

A surplus of short-term assets is maintained at levels management deems adequate to meet potential liquidity needs.

primary funding source is deposits from customers in the markets in which it provides banking services.

As discussed previously, deposits

increased during 2025 but competition for deposits remains intense from both bank and non-bank institutions.

New Peoples expects that

pressure on the rates paid on deposits will continue and that it may be required to pay higher rates than currently projected to retain

existing customers and attract new deposit relationships to fund loans and other activities.

As discussed below, New Peoples has other

liquidity sources to manage its liquidity needs as they arise.

As of December 31,

2025, all of our investments are classified as available-for-sale, providing an additional source of liquidity in the amount of $63.9

million, which is net of the $32.5 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 FRB.

Although the unrealized loss on securities available-for-sale improved in 2025, selling

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 because of the immediate impact on regulatory capital;

however, the majority of the portfolio consists

of high credit quality investments that could be pledged against borrowed funds.

Total investment securities increased slightly from

$96.0 million as of December 31, 2024 to $96.4 million as of December 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 88.9% as of December 31, 2025 and 87.7% as of December 31, 2024.

Available third-party

sources of liquidity as of December 31, 2025 include the following:

our line of credit with the FHLB totaling $273.3 million subject

to pledging requirements, the brokered certificates of deposit markets, internet certificates of deposit, and the discount window at

We also have $30.0 million in unsecured federal funds lines of credit available from three correspondent banks as of December

We have used our

line of credit with FHLB to issue letters of credit totaling $14.0 million to the Treasury Board of Virginia for collateral on public

funds and a $7.0 million fixed rate borrowing maturing in May of 2028.

No draws on the letters of credit have been issued.

These letters of credit are considered to be draws

on our FHLB line of credit.

An additional $196.1 million was available on December 31, 2024 on the $220.1 million line of credit, of which

$110.6 million is secured by a blanket lien on our residential real estate loans.

use of the FHLB borrowing capacity would require the Company to pledge additional assets.

We held $3.0 million in brokered deposits as of December

No brokered deposits were held as of December 31, 2023.

As of December 31, 2024, we had $7.0 million in reciprocal CDARS time

deposits, compared to $6.3 million as of December 31, 2023.

The Bank has access to additional liquidity through

the FRB’s Discount Window for overnight funding needs.

We have collateralized this line with investment securities.

As part of the

discount window capacity, the FRB offered borrowings through the Bank Term Funding Program, which was created to support businesses and

consumers by making additional funds available to eligible depository institutions.

We participated in this program in December 2023,

through a $10 million borrowing for one year at a rate of 4.83%, which was repaid during the fourth quarter of 2024.

During the fourth quarter of 2024, we made a voluntary

principal payment of $1.2 million on one of the outstanding trust preferred securities, originally issued in 2004.

In January 2025, we

made another voluntary principal payment of $3.0 million on the same trust preferred issue.

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

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

recovering from the lingering effects of the COVID-19 pandemic, inflation 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

These letters

of credit are considered to be draws on our FHLB line of credit.

An additional $252.3 million was available on December 31, 2025 on the

$273.3 million line of credit, of which $130.0 million is secured by a blanket lien on our residential real estate loans and certain

eligible commercial real estate loans.

Full use of the FHLB borrowing capacity would require New Peoples to pledge additional assets.

We held $8.0 million

in brokered deposits as of December 31, 2025 compared to $3.0 million as of December 31, 2024 and $7.0 million in reciprocal CDARS time

deposits as of December 31, 2025 and December 31, 2024.

The Bank has access

to additional liquidity through the FRB’s Discount Window for overnight funding needs.

We have collateralized this line with investment

As part of the discount window capacity, the FRB offered borrowings through the Bank Term Funding Program, which was created

to support businesses and consumers by making additional funds available to eligible depository institutions

During the fourth

quarter of 2024, we made a voluntary principal payment of $1.2 million on one of the outstanding trust preferred securities, originally

issued in 2004.

In January 2025, we made another voluntary principal payment of $3.0 million on the same trust preferred issue.

consider making future principal payments based on our available liquidity and considering other funding opportunities that may be available.

Based on the on-balance

sheet liquidity and available external sources of funding, management believes the Bank has adequate liquidity and capital resources

to meet its operating requirements and obligations for the foreseeable future.

However, liquidity may be adversely affected by a number

of factors including counterparty willingness or ability to extend credit, regulatory actions, and changes in customer behavior, some

of which are beyond management’s control.

In light of ongoing economic uncertainty, including inflationary pressures and geopolitical

conflicts, management continues to actively monitor the Bank’s liquidity position to ensure sufficient funding is available to

meet customer demands and operational needs.

In addition, the Bank’s contingency funding plan is reviewed quarterly by the Asset

Liability Committee.

Instruments with Off-Balance Sheet Risk

Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its

These financial instruments include commitments to extend credit and standby letters of credit.

Those instruments involve,

to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The contract or

notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event

of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented

by the contractual amount of those instruments.

The Bank uses the same credit policies in making commitments and conditional obligations

as it does for on-balance-sheet instruments.

A summary and discussion of the contract amount of

the Bank’s exposure to off-balance-sheet risk as of December 31, 2024 and 2023 is presented in Note 20 to the consolidated financial

statements in Item 8 of this Form 10-K.

As of December 31, 2024 and 2023 the allowance for credit losses on unfunded commitments totaled

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

Interest Sensitivity

As of December 31, 2024, we had a negative cumulative

gap rate sensitivity ratio of 25.11% for the one-year re-pricing period, compared to 21.59% as of December 31, 2023.

A negative cumulative

gap generally indicates that net interest income would decline in a rising interest rate environment as liabilities re-price more quickly

Conversely, net interest income would likely increase in periods during which interest rates are decreasing.

The below table

is based on contractual maturities and next repricing date and does not take into consideration prepayment speeds of investment securities

and loans, nor does it consider decay rates for non-maturity deposits.

When considering these prepayment speed and decay rate assumptions,

along with our ability to control the repricing of a significant portion of the deposit portfolio, we are in a position to increase interest

income in a rising interest rate environment;

however, the ability to control the repricing of the deposit portfolio can be significantly

impacted by competitive pressures, liquidity needs and access to and availability of other funding sources.

With indications that the

period of rate increases has tapered and consensus is that at least some modest rate decreases can be anticipated in the near- to mid-term,

we are implementing strategies to moderate any potential adverse impact to our current interest rate risk profile, from what could be

a period of flat to decreasing interest rates.

Sensitivity Analysis

Uses of funds:

Federal funds sold

Deposits with banks

Bank owned life insurance

Total earning assets

Sources of funds:

Int Bearing DDA

Savings & MMDA

Time Deposits

Trust Preferred Securities

Other Borrowings

Total interest bearing

Cumulative Gap

Cumulative Gap as % of Total Earning Assets

and Qualitative Disclosures About Market Risk

The Bank is a party

to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

financial instruments include commitments to extend credit and standby letters of credit.

Those instruments involve, to varying degrees,

elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The contractual or notional amounts

of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit

and standby letters of credit is represented by the contractual amount of those instruments.

The Bank uses the same credit policies in

making commitments and conditional obligations as it does for on-balance sheet instruments.

A summary and discussion

of the contract amount of the Bank’s exposure to off-balance sheet risk as of December 31, 2025 and 2024 is presented in Note 20

to the consolidated financial statements in Item 8 of this Form 10-K.

As of December 31, 2025 and 2024 the allowance for credit losses

on unfunded commitments totaled approximately $471,000 and $404,000, respectively.

Interest Rate

Risk and Sensitivity

Interest rate risk

represents the risk that changes in market interest rates may adversely affect the Company’s net interest income and the economic

value of equity.

The Company manages interest rate risk as part of its overall asset and liability management process, with the objective

of supporting stable earnings and preserving capital across a range of interest rate environments.

Management evaluates

interest rate risk using simulation analyses that estimate the potential impact of immediate and sustained changes in market interest

rates on net interest income and the economic value of equity.

These analyses are performed using a model provided and supported by an

independent third-party service provider and incorporate assumptions regarding balance sheet composition, interest rate behavior,

loan prepayments, deposit pricing, and other relevant factors.

The results of these analyses are reviewed regularly by management and

the Board of Directors as part of the Company’s asset-liability management oversight.

As of December 31,

2025, the Company’s interest rate risk profile reflected a balance sheet that is modestly sensitive to changes in market interest

In rising rate environments, results are influenced primarily by the timing and extent of deposit repricing relative to changes

in asset yields.

In declining rate environments, interest rate sensitivity is affected by contractual loan repricing characteristics,

the presence of interest rate floors on certain assets and deposits, and expected customer behavior.

Based on management’s

analyses, the estimated impacts of changes in interest rates on both net interest income and the economic value of equity were within

board-approved policy limits at December 31, 2025.

Management believes the Company is appropriately positioned to manage interest

rate risk given its current balance sheet structure, capital levels, and liquidity profile.

The Company will continue to monitor interest

rate risk and may adjust asset mix, deposit pricing strategies, and funding sources as market conditions evolve.

Quantitative and Qualitative Disclosures About Market Risk

Not required.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis