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Item 1. Financial Statements

2026-05-13 compared with 2025-11-14 · 532 added, 661 removed, 276 unchanged (81% of the section changed)

Item 1 Financial

NEW PEOPLES BANKSHARES,

Item 1 Financial Statements

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE

SEPTEMBER 30, 2025

AND DECEMBER 31, 2024

THOUSANDS EXCEPT PER SHARE AND SHARE DATA)

September 30,

MARCH 31, 2026 AND DECEMBER 31, 2025

(IN THOUSANDS EXCEPT PER SHARE AND SHARE

Cash and due from banks

2 unchanged sentences

Total cash and cash equivalents

Investment securities available-for-sale, at fair value

Investment securities available-for-sale, at fair

Restricted stock, at cost

Loans receivable

4 unchanged sentences

Deferred taxes, net

Insurance benefit receivable

Right-of-use assets – operating leases

5 unchanged sentences

Accrued interest payable

Accrued expenses and other liabilities

Accrued expenses and other

Total liabilities

SHAREHBOLDERS’ EQUITY

SHAREHOLDERS’ EQUITY

Common stock - $ 2.00 par value;

50,000,000 shares authorized;

23,577,193 and

23,636,724 shares issued and outstanding at

September 30, 2025 and December 31, 2024, respectively

50,000,000 shares

23,555,517 and 23,567,013 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively

Additional paid-in-capital

Retained earnings

Accumulated other comprehensive loss

Total shareholders’ equity

Total liabilities and shareholders’ equity

The accompanying notes

are an integral part of these consolidated financial statements.

NEW PEOPLES BANKSHARES,

STATEMENTS OF INCOME

FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

For the Three Months Ended September 30,

For the Nine Months Ended

September 30,

INTEREST AND DIVIDEND INCOME

Accumulated other comprehensive

Total shareholders’

Total liabilities and shareholders’

The accompanying notes are an integral

part of these consolidated financial statements.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31,

2026 AND 2025

(IN THOUSANDS EXCEPT SHARE AND PER SHARE

For the Three Months Ended

AND DIVIDEND INCOME

Loans including fees

1 unchanged sentence

Interest-earning deposits with banks

Dividends on equity securities (restricted)

Total interest and dividend income

Dividends on equity securities

Total interest and dividend

INTEREST EXPENSE

2 unchanged sentences

NET INTEREST INCOME

PROVISION FOR CREDIT LOSSES

NET INTEREST INCOME AFTER PROVISION FOR

CREDIT LOSSES

FOR CREDIT LOSSES

INCOME AFTER PROVISION FOR CREDIT LOSSES

NONINTEREST INCOME

2 unchanged sentences

Financial services fees

Net gain on sales of available for sale securities

Net gain on sale and disposal of premises and equipment

Other noninterest income

7 unchanged sentences

INCOME BEFORE INCOME TAXES

INCOME TAX EXPENSE

Earnings per share

Basic and diluted

Average Weighted Shares of Common Stock

Average Weighted Shares of Common

Basic and diluted

The accompanying

notes are an integral part of these consolidated financial statements.

NEW PEOPLES BANKSHARES,

The accompanying notes are an integral

part of these consolidated financial statements.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

FOR THE THREE MONTHS ENDED MARCH 31,

2026 AND 2025

(IN THOUSANDS)

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Other comprehensive income:

Other comprehensive income (loss):

Investment securities activity

Unrealized gains arising during the period

Reclassification adjustment for net gains included in net income

Other comprehensive gains on investment securities

Related tax expense

TOTAL OTHER COMPREHENSIVE INCOME

Unrealized gains (losses) arising during the period

Related tax (expense) benefit

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

TOTAL COMPREHENSIVE INCOME

The accompanying notes

are an integral part of these consolidated financial statements.

NEW PEOPLES BANKSHARES,

The accompanying notes are an integral

part of these consolidated financial statements.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

(IN THOUSANDS INCLUDING

Shares of Common Stock

Additional Paid-in- Capital

Accumulated Other

Comprehensive Loss

Total Shareholders’ Equity

Balance, June 30, 2024

Other comprehensive income, net of tax

Repurchase of common stock

Balance, September 30, 2024

FOR THE THREE MONTHS ENDED MARCH 31,

2026 AND 2025

(IN THOUSANDS EXCEPT PER SHARE DATA)

Comprehensive

Shareholders’

Balance, December 31, 2024

2 unchanged sentences

Repurchase of common stock

Balance, September 30, 2024

Balance, June 30, 2025

Other comprehensive income, net of tax

Repurchase of common stock

Balance, September 30, 2025

Balance, March 31, 2025

Balance, December 31, 2025

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Cash dividend declared ($0.09 per share)

Repurchase of common stock

Balance, September 30, 2025

The accompanying notes

are an integral part of these consolidated financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

OF CASH FLOWS

FOR THE NINE MONTHS

ENDED SEPTEMBER 30, 2025 AND 2024

Balance, March 31, 2026

The accompanying notes are an integral

part of these consolidated financial statements.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2026

(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by

operating activities:

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization

Provision for credit losses

Income on bank owned life insurance

Gain on sale of mortgage loans

Net gain on sale of securities available-for-sale

Gain on sale or disposal of premises and equipment

Gain on sale of other real estate owned

Loans originated for sale

6 unchanged sentences

Accrued expenses and other liabilities

Net cash provided by operating activities

Net cash provided by operating

CASH FLOWS FROM INVESTING ACTIVITIES

1 unchanged sentence

Purchase of securities available-for-sale

Proceeds from repayments and maturities of securities available-for-sale

Proceeds from sales of securities available-for-sale

Proceeds from repayments and maturities of securities

available-for-sale

Net purchase of equity securities (restricted)

Payments for the purchase of premises and equipment and software

Payments for the purchase of premises and equipment

Proceeds from sale of premises and equipment

Proceeds from sale of other real estate owned

Proceeds from bank owned life insurance benefit

Net cash used in investing activities

Proceeds from bank owned life

insurance benefit

Net cash used in investing

CASH FLOWS FROM FINANCING ACTIVITIES

4 unchanged sentences

Repurchase of common stock

Net cash provided by financing activities

Net cash provided by financing

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of the period

Cash and cash equivalents, end of the period

Supplemental disclosure of cash paid during the period for:

Cash and cash equivalents,

beginning of the period

Cash and cash equivalents,

end of the period

Supplemental disclosure of cash paid during the

Supplemental disclosure of non-cash transactions:

Transfer of loans to other real estate owned

Change in unrealized losses on securities available-for-sale

The accompanying notes

are an integral part of these consolidated financial statements.

Transfer of loans to other real estate owned

The accompanying

notes are an integral part of these consolidated financial statements.

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL

NOTE 1 NATURE OF OPERATIONS

Nature of Operations

– New Peoples Bankshares, Inc.

(New Peoples or the Company) is a financial holding company whose principal activity is the

ownership and management of a community bank, New Peoples Bank, Inc.

Nature of Operations – New

Peoples Bankshares, Inc.

(New Peoples or the Company) is a financial holding company whose principal activity is the ownership

and management of a community bank, New Peoples Bank, Inc.

New Peoples and the Bank are organized and incorporated

under the laws of the Commonwealth of Virginia.

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

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

The Bank provides general banking services to individuals, small and medium size businesses and the professional community

of southwest Virginia, southern West Virginia, western North Carolina and northeastern Tennessee.

These services include commercial and

consumer loans along with traditional deposit products such as checking and savings accounts.

NOTE 2 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated

financial statements conform to U.

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

Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve

System (the Federal Reserve).

The Bank provides general banking services to individuals, small and medium size businesses and

the professional community of southwest Virginia, southern West Virginia, western North Carolina and northeastern Tennessee.

services include commercial and consumer loans along with traditional deposit products such as checking and savings accounts.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING

These consolidated financial statements

conform to U.

generally accepted accounting principles (GAAP) and to general industry practices.

In the opinion

of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals)

necessary to present fairly the Company’s financial position as of September 30, 2025 and December 31, 2024, and the results of

operations for the three- and nine-month periods ended September 30, 2025 and 2024.

The Notes included herein should be read in conjunction

with the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2024.

The results of operations for interim periods are not necessarily indicative of the results of operations that may

be expected for a full year or any future period.

The consolidated

financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc.

(hereinafter, collectively

referred to as the Company, we, us or our).

In the opinion of management,

the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary

to present fairly the Company’s financial position as of March 31, 2026 and December 31, 2025, and the results of operations

for the three-month periods ended March 31, 2026 and 2025.

The Notes included herein should be read in conjunction with the notes

to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December

The results of operations for interim periods are not necessarily indicative of the results of operations that may be

expected for a full year or any future period.

The consolidated financial statements

include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc.

(hereinafter, collectively referred to

as the Company, we, us or our).

All significant intercompany balances and transactions have been eliminated.

In accordance

with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not

included in the consolidated financial statements.

The preparation of

financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of

assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts

of revenues and expenses during the reporting period.

In accordance with

Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are

not included in the consolidated financial statements.

The preparation of financial statements

in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,

disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

expenses during the reporting period.

Actual results could differ from those estimates.

The determination of the adequacy

of the allowance for credit losses is based on estimates that are particularly susceptible to significant changes in the economic environment

The determination of the adequacy of the

allowance for credit losses is based on estimates that are particularly susceptible to significant changes in the economic environment

and market conditions.

Certain reclassifications

have been made to prior period amounts to conform to current period presentation.

None of these reclassifications are considered material

and have no impact on net income or shareholders’ equity.

The Company’s

significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in the Company’s

Annual report on Form 10-K.

Certain reclassifications have been made

to prior period amounts to conform to current period presentation.

None of these reclassifications are considered material and

have no impact on net income or shareholders’ equity.

The Company’s significant accounting

policies followed in the preparation of the unaudited consolidated financial statements are disclosed in the Company’s Annual

report on Form 10-K.

There have been no significant changes to the application of significant accounting policies since December

31, 2024 except for the following:

Accounting Standards

Adopted in 2025 –

In December 2023,

the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.”

The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information

for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax

income by the entity’s applicable statutory rate, on an annual basis.

Additionally, the amendments in this ASU require an entity

to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount

of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent

of total income taxes paid (net of refunds received).

Lastly, the amendments in this ASU require an entity to disclose income (or loss)

from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or

benefit) from continuing operations disaggregated by federal, state, and foreign.

ASU 2023-09 was effective for the Company on January

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

NOTE 3 EARNINGS

Basic earnings per

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

Diluted earnings per share reflect

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

For the three- and

nine-month periods ended September 30, 2025 and 2024, there were no potential common shares.

Basic and diluted net income per common

share calculations follow:

NOTE 3 EARNINGS PER SHARE

Basic earnings per share computations

are based on the weighted average number of shares outstanding during each period.

Diluted earnings per share reflect the additional

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

For the three-month periods

ended March 31, 2026 and 2025, there were no potential common shares.

Basic and diluted net income per common share calculations

Schedule of basic and diluted net loss per common share calculations

2 unchanged sentences

For the three months

ended September 30,

For the nine months

ended September 30,

ended March 31,

Weighted average shares outstanding

2 unchanged sentences

NOTE 4 CAPITAL

Capital Requirements

Banks and bank

holding companies are subject to regulatory capital requirements administered by federal banking agencies.

Capital adequacy guidelines

and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain

off-balance sheet items calculated under regulatory accounting practices.

Capital amounts and classifications are also subject to qualitative

judgments by regulators.

Capital Requirements and Ratios

Banks and bank holding companies are subject

to regulatory capital requirements administered by federal banking agencies.

Capital adequacy guidelines and, additionally for

banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet

items calculated under regulatory accounting practices.

Capital amounts and classifications are also subject to qualitative judgments

by regulators.

Failure to meet capital requirements can initiate regulatory action.

as a "Small Bank Holding Company" under federal regulations, a bank must have consolidated assets of $3.0 billion or less.

The primary benefit of being deemed a "Small Bank Holding Company" is the exemption from the requirement to maintain consolidated

regulatory capital ratios;

instead, regulatory capital ratios only apply at the subsidiary bank level.

The final rules

implementing Basel Committee on Banking Supervision’s capital guidelines for U.S.

banks (BASEL III rules) became fully phased in

on January 1, 2019.

Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based

To qualify as a "Small Bank Holding

Company" under federal regulations, a bank must have consolidated assets of $3.0 billion or less.

The primary benefit of

being deemed a "Small Bank Holding Company" is the exemption from the requirement to maintain consolidated regulatory

capital ratios;

instead, regulatory capital ratios only apply at the subsidiary bank level.

The final rules implementing Basel Committee

on Banking Supervision’s capital guidelines for U.S.

banks (BASEL III rules) became fully phased in on January 1, 2019.

Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital

The capital conservation buffer required is 2.50%.

At September 30, 2025, the Bank had a capital conservation buffer

At March 31, 2026, the Bank had a capital conservation buffer of 8.38%.

Amounts recorded to accumulated other comprehensive income (loss) are not included in computing regulatory capital.

believes as of September 30, 2025, the Bank met all capital adequacy requirements to which it was subject.

Prompt corrective

action regulations provide five classifications:

well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized

and critically undercapitalized, although these terms are not used to represent overall financial condition.

If adequately capitalized,

regulatory approval is required to accept brokered deposits.

If undercapitalized, capital distributions are limited, as is asset growth

and expansion, and capital restoration plans are required.

At September 30, 2025, the most recent regulatory notifications categorized

believes as of March 31, 2026, the Bank met all capital adequacy requirements to which it was subject.

Prompt corrective action regulations provide

five classifications:

well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically

undercapitalized, although these terms are not used to represent overall financial condition.

If adequately capitalized, regulatory

approval is required to accept brokered deposits.

If undercapitalized, capital distributions are limited, as is asset growth and

expansion, and capital restoration plans are required.

At March 31, 2026, the most recent regulatory notifications categorized

the Bank as well capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since that

notification that management believes have changed the institution's category.

actual capital amounts and ratios are presented in the following table as of September 30, 2025 and December 31, 2024, respectively.

There are no conditions or events since

that notification that management believes have changed the institution's category.

The Bank’s actual capital amounts

and ratios are presented in the following table as of March 31, 2026 and December 31, 2025, respectively.

Schedule of bank’s

1 unchanged sentence

Minimum Capital Requirement

Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions

Minimum to Be Well

Capitalized Under

Prompt Corrective

Action Provisions

(Dollars in thousands)

September 30, 2025:

March 31, 2026:

Total capital to risk weighted assets

1 unchanged sentence

Tier 1 capital to average assets

Common equity Tier 1 capital

to risk weighted assets

Common equity Tier 1 capital to risk weighted assets

December 31, 2025:

2 unchanged sentences

Tier 1 capital to average assets

Common equity Tier 1 capital

to risk weighted assets

NOTE 5 INVESTMENT

The amortized cost and estimated fair

value of available-for-sale (“AFS”) securities as of September 30, 2025 and December 31, 2024 are as follows:

Common equity Tier 1 capital to risk weighted assets

NOTE 5 INVESTMENT SECURITIES

The amortized cost and estimated fair value of available-for-sale

(“AFS”) securities as of March 31, 2026 and December 31, 2025 are as follows:

Schedule of securities amortized cost and estimated fair value

in thousands)

(Dollars in thousands)

March 31, 2026

Government agencies

Mortgage-backed

securities available-for-sale

Municipal securities

Corporate bonds

Mortgage-backed securities

Collateralized mortgage obligations

Total securities available-for-sale

December 31, 2025

Government agencies

Mortgage-backed

securities available-for-sale

The following table

details unrealized losses and related fair values in the AFS portfolio.

This information is aggregated by the length of time that individual

securities have been in a continuous unrealized loss position as of September 30, 2025 and December 31, 2024.

Municipal securities

Corporate bonds

Mortgage-backed securities

Collateralized mortgage obligations

Total securities available-for-sale

The following table details unrealized

losses and related fair values in the AFS portfolio.

This information is aggregated by the length of time that individual securities

have been in a continuous unrealized loss position as of March 31, 2026 and December 31, 2025.

Schedule of fair value and gross unrealized losses on investment securities

1 unchanged sentence

12 Months or More

(Dollars in thousands)

September 30, 2025

in thousands)

March 31, 2026

Government agencies

Taxable municipals

Municipal securities

Corporate bonds

Mortgage-backed securities

Collateralized mortgage obligations

December 31, 2025

Government agencies

Taxable municipals

Municipal securities

Corporate bonds

Mortgage-backed securities

As of September 30,

2025, the available-for-sale portfolio included 165 investments for which the fair market value was less than amortized cost.

As of December

31, 2024, the available-for-sale portfolio included 195 investments for which the fair market value was less than amortized cost.

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

not a result of credit deterioration.

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

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

None of the individual securities have past

due principal or interest payments, and a number of these securities have explicit or implicit payment guarantees.

The remaining securities

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

Investment securities

with a carrying value of $ 35.8 million and $ 35.2 million as of September 30, 2025 and December 31, 2024, respectively, were pledged as

collateral to secure public deposits and for other purposes required or permitted by law.

There were no sales

of investment securities available-for-sale during the three or nine months ended September 30, 2025.

During the three and nine months

ended September 30, 2024, investment securities available-for-sale with a carrying value of $ 2.2 million were sold, realizing a net gain

The amortized cost

and fair value of investment securities as of September 30, 2025, by contractual maturity, are shown in the following schedule.

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

or prepayment penalties.

Collateralized mortgage obligations

As of March 31, 2026, the available-for-sale

portfolio included 172 investments for which the fair market value was less than amortized cost.

As of December 31, 2025, the

available-for-sale portfolio included 165 investments for which the fair market value was less than amortized cost.

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

are not a result of credit deterioration.

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

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

None of the individual securities

are past due as to principal or interest payments and a number of these securities have explicit or implicit payment guarantees.

The remaining securities have credit ratings at or above that necessary to be considered “bank qualified.”

Investment securities with a carrying

value of $ 31.8 million and $ 32.5 million as of March 31, 2026 and December 31, 2025, respectively, were pledged as collateral

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

There were no sales of available-for-sale

investment securities during the three months ended March 31, 2026 and 2025.

The amortized cost and fair value of investment

securities as of March 31, 2026, by contractual maturity, are shown in the following schedule.

Expected maturities will differ

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

Schedule of amortized cost and fair value of investment securities contractual maturity

in thousands)

Available-for-Sale

in one year or less

after one year through five years

after five years through ten years

after ten years

The Bank, as a member

bank of the Federal Reserve Bank of Richmond (“Federal Reserve Bank”) and the Federal Home Loan Bank of Atlanta (FHLB), is

required to hold stock in each.

(Dollars in thousands)

Securities Available-for-Sale

Due in one year or less

Due after one year through five years

Due after five years through ten years

Due after ten years

The Bank, as a member bank of the Federal

Reserve Bank of Richmond (“Federal Reserve Bank”) and the Federal Home Loan Bank of Atlanta (FHLB), is required to

hold stock in each.

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

These equity securities

which are included in other assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $ 2.7

million and $ 2.7 million as of September 30, 2025 and December 31, 2024, respectively.

The stock has no quoted market value and no ready

market exists.

When evaluating these securities for impairment, their value is determined based on the ultimate recoverability of the

par value rather than by recognizing temporary declines in value.

Equity securities are viewed as long-term investments and management

believes the Company has the ability and the intent to hold these securities until their value is recovered.

Loans receivable

outstanding as of September 30, 2025 and December 31, 2024, are summarized as follows:

are restricted from trading and are recorded at a cost of $ 2.6 million as of March 31, 2026 and December 31, 2025.

The stock has

no quoted market value and no ready market exists.

When evaluating these securities for impairment, their value is determined

based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

Equity securities

are viewed as long-term investments and management believes the Company has the ability and the intent to hold these securities

until their value is recovered.

Loans receivable outstanding as of March

31, 2026, and December 31, 2025, are summarized as follows:

Schedule of loans receivable outstanding

September 30,

(Dollars in thousands)

3 unchanged sentences

Total real estate loans

Consumer installment and all other loans

Also included in

total loans above are deferred loan fees of $ 2.2 million and $ 2.0 million as of September 30, 2025 and December 31, 2024, respectively.

Deferred loan costs were $ 2.1 million and $ 1.9 million, as of September 30, 2025 and December 31, 2024, respectively.

Income from net

deferred fees and costs is recognized over the lives of the respective loans as a yield adjustment.

If loans repay prior to scheduled

maturities any unamortized fees or costs are recognized at that time.

Loans receivable

on nonaccrual status as of September 30, 2025 and December 31, 2024, are summarized as follows:

of loans receivable nonaccrual status

in thousands)

estate secured:

and land development

real estate loans

installment loans and other loans

Consumer installment and all

Also included in total loans above are

deferred loan fees of $ 2.2 million as of March 31, 2026 and December 31, 2025.

Deferred loan costs were $ 1.9 million and $ 2.1

million, as of March 31, 2026 and December 31, 2025, respectively.

Income from net deferred fees and costs is recognized over

the lives of the respective loans as a yield adjustment.

If loans repay prior to scheduled maturities any unamortized fee or costs

is recognized at that time.

Loans receivable on nonaccrual status

Total interest income

not recognized (recognized) on nonaccrual loans for the three months ended September 30, 2025 and September 30, 2024 was $ 26,000 and

($ 18,000 ), respectively.

Interest recognized during the three months ended September 30, 2024, resulted, primarily, from the resolution

of a single loan secured by commercial real estate.

Total interest income not recognized on nonaccrual loans for the nine months ended

September 30, 2025 and September 30, 2024, was $ 88,000 and $ 51,000 , respectively.

The Company evaluates

loans that do not share risk characteristics on an individual basis utilizing the collateral or discounted cash flow methods.

The following

table presents the unpaid principal balance of collateral dependent loans, which are individually evaluated to determine expected credit

losses, and the related ACL allocated to those loans as of September 30, 2025 and December 31, 2024:

of summary of impaired loans

Principal Balance

in thousands)

estate secured:

and land development

real estate loans

installment loans and other loans

The following table

is an age analysis of past due loans receivable as of September 30, 2025, segregated by class:

Schedule of analysis of past due loans receivable

September 30, 2025

as of March 31, 2026, and December 31, 2025, are summarized as follows:

of loans receivable nonaccrual status

March 31, 2026

December 31, 2025

(Dollars in thousands)

Real estate secured:

Construction and land

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment and all other loans

The following

table is an age analysis of past due loans receivable as of December 31, 2024, segregated by class:

Consumer installment loans

and all other loans

Total loans receivable on

nonaccrual status

Total interest income not recognized on

nonaccrual loans for the three months ended March 31, 2026 and March 31, 2025, was $ 38,000 .

The Company evaluates loans that do not

share risk characteristics on an individual basis utilizing the collateral or discounted cash flow methods.

The following table

presents the unpaid principal balance of collateral dependent loans, which are individually evaluated to determine expected credit

losses, and the related ACL allocated to those loans as March 31, 2026 and December 31, 2025:

of summary of impaired loans

March 31, 2026

December 31, 2025

1 unchanged sentence

Real estate secured:

Construction and land

Residential 1-4 family

Total real estate loans

Consumer installment and all other loans

The Company categorizes

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

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

Consumer installment loans

and other loans

The following table is an age analysis

of past due loans receivable as of March 31, 2026, segregated by class:

Schedule of analysis of past due loans receivable

March 31, 2026

in thousands)

Real estate secured:

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment and all

The following table is an age analysis of past due loans receivable

as of December 31, 2025, segregated by class:

December 31, 2025

in thousands)

Real estate secured:

and land development

real estate loans

installment and all other loans

The Company categorizes loans receivable

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

current financial

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

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

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definitions for risk ratings:

in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers

to service their debt and other factors.

Special Mention

- Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit

quality or financial strength.

Pass - Loans in this category are

considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service

their debt and other factors.

Special Mention - Loans in this

category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality

or financial strength.

Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard

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credit position at some future date.

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

obligor or of the collateral pledged, if any.

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

the liquidation of the debt;

Substandard - A

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

pledged, if any.

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

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

are not corrected.

- Loans classified doubtful have all the weaknesses

inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full

on the basis of currently existing facts, conditions, and values highly questionable and improbable.

The following table presents the credit

risk grade of loans by origination year as of September 30, 2025:

- Loans classified doubtful have all the weaknesses inherent in loans classified as substandard, plus the added characteristic

that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly

questionable and improbable.

The following table presents the credit risk grade of loans by origination year as of March 31, 2026:

Schedule of credit risk grade of loans

As of December 31, 2024

(Dollars are in thousands)

As of March 31, 2026

(Dollars in thousands)

Commercial Real Estate

Special mention

Total commercial real estate

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Construction and Land Development

Special mention

Total construction and land development

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Current period gross charge-offs

Special mention

Total Multifamily

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Current period gross charge-offs

Consumer and All Other

Special mention

Total consumer and all other

Consumer Installment Loans

Total consumer installment loans

Current period gross charge-offs

Total current period gross charge-offs

The following table

presents the credit risk grade of loans by origination year as of December 31, 2024:

The following table presents the credit

risk grade of loans by origination year as of December 31, 2025:

As of December 31, 2025

are in thousands)

in thousands)

commercial real estate

period gross charge-offs

and Land Development

Construction and land development

construction and land development

period gross charge-offs

SpecialMention

residential 1-4 family

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period gross charge-offs

SpecialMention

period gross charge-offs

SpecialMention

period gross charge-offs

SpecialMention

period gross charge-offs

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current period gross charge-offs

NOTE 7 ALLOWANCE

FOR CREDIT LOSSES FOR LOANS (“ACLL”)

In determining the

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

economic conditions.

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

and we may experience significant increases to our provision.

The following

table presents a disaggregated analysis of activity in the allowance for credit losses for loans as of September 30, 2025 and December

Schedule of allowance for credit losses for loans

estate secured

are in thousands)

and Land Development

and All Other

Three months ended September

Beginning balance

for credit losses

Ending balance

7 ALLOWANCE FOR CREDIT LOSSES FOR LOANS (“ACLL”)

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

of general economic conditions.

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

loan losses and we may experience significant increases to our provision.

following table presents a disaggregated analysis of activity in the allowance for credit losses for loans as of March 31, 2026 and December

of allowance for credit losses for loans

estate secured

are in thousands)

and Land Development

and All Other

Nine months ended September

Beginning balance

months ended March 31, 2026

for credit losses

Ending balance

estate secured

are in thousands)

and Land Development

and All Other

Year ended December 30, 2024

Beginning balance

ended December 31, 2025

for credit losses

Ending balance

Allocation of a portion

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

NOTE 8 MODIFICATIONS MADE TO BORROWERS

EXPERIENCING FINANCIAL DIFFICULTY

An assessment of

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

Because the effect of most modifications

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

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

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

8 MODIFICATIONS MADE TO BORROWERS EXPERIENCING FINANCIAL DIFFICULTY

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

Because the effect of most

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

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

modification.

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

When principal forgiveness

is provided, the amount of the principal forgiveness is deemed to be uncollectible;

therefore, that portion of the loan is written off

against the allowance for credit losses, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance

for credit losses.

In some cases, the

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

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

is granted initially.

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

may be granted.

On February 15, 2025,

severe flash flooding occurred in Tazewell and Buchanan, Counties in Virgina.

On September 27, 2024, Hurricane Helene passed through

western North Carolina, southwest Virginia and northeast Tennessee, causing flood and

wind damage in its path.

To assist borrowers impacted by these natural disasters, we offered short-term payment deferrals of 3 months.

As of December 31, 2024, 36 loans totaling $ 9.2 million were participating in the deferral program.

One of these loans, a residential

mortgage loan totaling $ 178,000 , received an additional 3-month deferral due to the extent of damage to the property.

As of September

30, 2025, the deferral periods have ended and 48 loans totaling $ 7.4 million participating in the deferral program have commenced regular

The loan totaling $ 178,000 was in default, and $138,000 was charged off during the quarter ended September 30, 2025.

were no loans modified to borrowers experiencing financial difficulties in the three and nine months ended September 30, 2025, other

than those impacted by natural disasters.

NOTE 9 CREDIT

ALLOWANCE FOR UNFUNDED COMMITMENTS

The Company maintains

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

in other liabilities on the consolidated balance sheet.

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

through a provision for credit losses in the income statement.

The estimate includes consideration of the likelihood that funding will

occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives, utilizing the same models

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

as its loan portfolio segments.

The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable

credit exposures, meaning the Company can cancel the unfunded commitment at any time.

No credit loss estimate is reported for off-balance-sheet

credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn

prior to the cancellation of the arrangement.

As of September 30,

2025 and December 31, 2024, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities was $ 496,000

and $ 404,000 , respectively.

During the three and nine months ended September 30, 2025 and September 30, 2024, $ 0 and $ 92,000 and $ 22,000

and $ 25,000 , respectively, were included in the Provision for Credit Losses.

NOTE 10 OTHER

REAL ESTATE OWNED

The following table

summarizes the activity in other real estate owned for the nine months ended September 30, 2025 and the year ended December 31, 2024:

Schedule of activity in other real estate owned

September 30,

(Dollars in thousands)

Balance, beginning of period

Proceeds from sales

Adjustment of carrying value

Net gains from sales

Balance, end of period

As of September 30, 2025, there were no

loans secured by residential real estate in the process of foreclosure.

NOTE 11 FAIR VALUES

The Company uses

fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

accordance with the Fair Value Measurements and Disclosures topic of Financial Accounting Standards Board (the FASB) ASC, the fair value

of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the

principal or most advantageous market and in an orderly transaction between market participants at the measurement date.

Fair value is

best determined based upon quoted market prices.

However, in many instances, there are no quoted market prices for the Company's various

financial instruments.

In cases where quoted market prices are not available, fair values are based on estimates using present value

or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates

of future cash flows.

When principal

forgiveness is provided, the amount of the principal forgiveness is deemed to be uncollectible;

therefore, that portion of the loan is

written off, against the allowance for credit losses, resulting in a reduction of the amortized cost basis and a corresponding adjustment

to the allowance for credit losses.

some cases, the Company will modify a certain loan by providing multiple types of concessions.

Typically, one type of concession, such

as a term extension, is granted initially.

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

principal forgiveness, may be granted.

February 15, 2025, severe flash flooding occurred in Tazewell and Buchanan, Counties Virgina.

On September 27, 2024, Hurricane Helene

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

borrowers impacted by these natural disasters, we offered short-term payment deferrals of 3 to 6 months.

As of March 31, 2026, 43 loans

totaling $ 6.3 million

are participating in the deferral program.

One loan totaling $ 13,000

was in default, and another loan totaling $ 178,000

was extended beyond the terms of the short-term deferral program.

As of December 31, 2025, 48 loans totaling $ 6.6

million were participating in the deferral program.

these loans, a residential mortgage loan totaling $ 178,000 ,

received an additional 3-month deferral, due to the extent of damage to the property.

There were no loans modified to borrowers experiencing

financial difficulties in the three-month period ended March 31, 2026, other than those impacted by the natural disasters.

9 CREDIT ALLOWANCE FOR UNFUNDED COMMITMENTS

Company maintains a separate allowance for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments,

which is included in other liabilities on the consolidated balance sheet.

The allowance for credit losses for off-balance-sheet credit

exposures is adjusted through a provision for credit losses in the income statement.

The estimate includes consideration of the likelihood

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

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

similar risk characteristics as its loan portfolio segments.

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

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

are excluded from the credit loss estimate.

of March 31, 2026 and December 31, 2025, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities

was $ 460,000 and

respectively.

During the three months ended March 31, 2026, a negative provision of $ 11,000

was included in the Provision for Credit Losses.

10 OTHER REAL ESTATE OWNED

following table summarizes the activity in other real estate owned for the three months ended March 31, 2026, and the year ended December

of activity in other real estate owned

in thousands)

Balance, beginning

gains from sales

end of period

of March 31, 2026 one loan secured by residential real estate, totaling $95,000 was in the process of foreclosure.

11 FAIR VALUES

Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

In accordance with the Fair Value Measurements and Disclosures topic of Financial Accounting Standards Board (the FASB) ASC, the fair

value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (an exit price)

in the principal or most advantageous market and in an orderly transaction between market participants at the measurement date.

value is best determined based upon quoted market prices.

However, in many instances, there are no quoted market prices for the Company’s

various financial instruments.

In cases where quoted market prices are not available, fair values are based on estimates using present

value or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate

and estimates of future cash flows.

Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance

provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market and in an orderly

transaction (that is, not a forced liquidation or distressed sale) between market participants

at the measurement date under current market conditions.

If there has been a significant decrease in the volume and level of activity

for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate.

In such instances,

determining the price at which willing market participants would transact at the measurement date under current market conditions depends

on the facts and circumstances and requires the use of significant judgment.

The fair value is a reasonable point within the range that

is most representative of fair value under current market conditions.

In accordance with

this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based

on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous

market and in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement

date under current market conditions.

If there has been a significant decrease in the volume and level of activity for the asset or liability,

a change in valuation technique or the use of multiple valuation techniques may be appropriate.

In such instances, determining the price

at which willing market participants would transact at the measurement date under current market conditions depends on the facts and

circumstances and requires the use of significant judgment.

The fair value is a reasonable point within the range that is most representative

of fair value under current market conditions.

accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in

three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine

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

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significant management judgment or estimation.

A description of

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

to the valuation hierarchy are as follows:

Investment Securities

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

Fair value measurement is based upon

quoted prices.

The Company’s AFS securities, totaling $96.2 million and $96.0 million as of September 30, 2025 and December 31,

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

instruments pursuant to the valuation hierarchy are as follows:

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

Fair value measurement is

based upon quoted prices.

The Company’s AFS securities, totaling $96.9 million and $96.4 million as of March 31, 2026 and December

31, 2025, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent

pricing service.

Collateral Dependent

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

it from other loans within our loan pools.

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

excluded from the collective evaluation.

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

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

industry, among other things.

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

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

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

costs if satisfaction of the loan depends on the sale of the collateral.

We reevaluate the fair value of collateral supporting collateral

dependent loans on a quarterly basis.

The fair value of real estate collateral supporting collateral dependent loans is evaluated by

appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.

Other Real Estate

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

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

which differentiate it from other loans within our loan pools.

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

individual basis and excluded from the collective evaluation.

Specific allocations of the allowance for credit losses are determined

by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic

conditions affecting the borrower’s industry, among other things.

A loan is considered to be collateral dependent when, based upon

management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially

through the operation or sale of the collateral.

In such cases, expected credit losses are based on the fair value of the collateral

at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral.

We reevaluate

the fair value of collateral supporting collateral dependent loans on a quarterly basis.

The fair value of real estate collateral supporting

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

Appraisal Practice.

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

real estate owned.

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

Fair value is based upon observable market prices,

when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs.

Fair value is based upon observable market

prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs.

When observable

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The Company records foreclosed assets as nonrecurring Level 3.

Assets and liabilities

measured at fair value are as follows as of September 30, 2025 and December 31, 2024:

Schedule of summary of assets and liabilities measured at fair value

September 30, 2025

and liabilities measured at fair value are as follows as of March 31, 2026 and December 31, 2025:

Schedule of summary of assets

and liabilities measured at fair value

(Dollars in thousands)

Quoted market price in active markets

Significant other observable inputs

Significant unobservable inputs

price in active

observable inputs

(On a recurring basis)

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Government agencies

Taxable municipals

Corporate bonds

Mortgage-backed securities

(On a non-recurring basis)

Mortgage-backed

Collateralized

mortgage obligations -guaranteed

non-recurring basis)

Other real estate owned

Collateral dependent loans with ACL:

December 31, 2024

(Dollars in thousands)

Quoted market price in active markets

Significant other observable inputs

Significant unobservable inputs

price in active

observable inputs

(On a recurring basis)

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Government agencies

Taxable municipals

Corporate bonds

Mortgage-backed securities

Mortgage-backed

Collateralized

mortgage obligations - guaranteed

(On a non-recurring basis)

Other real estate owned

Collateral dependent loans with ACL:

Consumer installment and all other loans

Not included in the

tables above as of September 30, 2025 and December 31, 2024 is a residential 1-4 family mortgage loan totaling $ 178,000 .

$ 138,000 was

charged off during the quarter ended September 30, 2025, and the loan has a specific allowance for credit loss allocation on the recorded

investment of $ 40,000 and $ 178,000 as of September 30, 2025 and December 31, 2024, respectively.

For Level 3 assets

measured at fair value on a recurring or non-recurring basis as of September 30, 2025 and December 31, 2024, the significant unobservable

inputs used in the fair value measurements were as follows:

Schedule of significant unobservable inputs In level 3 assets

(Dollars in thousands)

Fair Value at

September 30, 2025

Fair Value at

Valuation Technique

Significant Unobservable

Range of Significant Unobservable Input Values

Collateral dependent loans

included in the tables above as of March 31, 2026 and December 31, 2025 is a residential 1-4 family mortgage loan totaling approximately

that has a specific allowance for credit loss allocation of

100% due to the destruction of the collateral.

Level 3 assets measured at fair value on a recurring or non-recurring basis as of March 31, 2026 and December 31, 2025, the significant

unobservable inputs used in the fair value measurements were as follows:

Schedule of significant unobservable

inputs In level 3 assets

in thousands)

Unobservable Inputs

of Significant

dependent loans with ACL:

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

installment and all other

Commercial Real Estate

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

Consumer and all other

Value/Other estimates from Independent Sources

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

Real Estate Owned

Other Real Estate Owned

Value/Comparable Sales/Other Estimates from Independent Sources

to reflect current market conditions and estimated costs to sell

of Financial Instruments

Fair value information

about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based

upon the characteristics of the instruments and relevant market information.

Financial instruments include cash, evidence of ownership

in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash

for another financial instrument.

Value of Financial Instruments

value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate

the value is based upon the characteristics of the instruments and relevant market information.

Financial instruments include cash, evidence

of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or

deliver cash for another financial instrument.

following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments

6 unchanged sentences

will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

The carrying amount

and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring

basis as of September 30, 2025 and December 31, 2024, are as follows:

Schedule of estimated fair value of financial instruments

Fair Value Measurements

(Dollars in thousands)

Quoted market price in active markets

Significant other observable inputs

Significant unobservable inputs

September 30, 2025

Financial instruments – assets

Financial instruments – liabilities

Time deposits

Borrowed funds

December 31, 2024

Financial instruments – assets

Financial instruments – liabilities

Time deposits

Borrowed funds

Fair value estimates

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

These estimates

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

particular financial instrument.

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

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

various financial instruments and other factors.

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

judgment and therefore cannot be determined with precision.

carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair

value on a recurring basis as of March 31, 2026, and December 31, 2025, are as follows:

of estimated fair value of financial instruments

Value Measurements

in thousands)

Financial instruments –

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

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

holdings of a particular financial instrument.

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

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

of various financial instruments and other factors.

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

significant judgment and therefore cannot be determined with precision.

Changes in assumptions can significantly affect the estimates.

Estimated fair values

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

methodology suitable for each category of financial instruments.

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

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

The carrying values

of cash and due from banks, federal funds sold, deposits with no stated maturities, and accrued interest approximates fair value and

are excluded from the table above.

NOTE 12 LEASING

of September 30, 2025, the Bank leases four branch offices, one administrative office, one loan production office and sublets a lot adjacent

fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports,

and an estimation methodology suitable for each category of financial instruments.

The Company’s fair value estimates, methods

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

carrying values of cash and due from banks, federal funds sold, deposits with no stated maturities, and accrued interest approximates

fair value and are excluded from the table above.

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

however, an actual exit

price may differ.

12 LEASING ACTIVITIES

of March 31, 2026, the Bank leases four branch offices, one administrative office, one loan production office and sublets a lot adjacent

to another branch office.

3 unchanged sentences

The weighted average remaining life of the lease terms

as of September 30, 2025 was 6.52 years.

as of March 31, 2026 was 6.07

discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to

1 unchanged sentence

This methodology is expected to be used for any other subsequent lease agreements.

average discount rate for the leases as of September 30, 2025 was 3.36 %.

For the three and

nine months ended September 30, 2025 and 2024, operating lease expenses were $ 145,000 and $ 435,000 ;

and $ 139,000 and $ 428,000 , respectively.

average discount rate for the leases as of March 31, 2026 was 3.35 %.

the three months ended March 31, 2026 and 2025, operating lease expenses were $ 147,000

and $ 142,000 ,

respectively.

Company’s other operating leases were evaluated and determined to be immaterial to the financial statements.

As of September 30,

As of March 31, 2026,

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

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

lease payments

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

Total lease payments

imputed interest

13 BORROWED FUNDS

funds totaled $ 21,986 and $ 24,986 as of September 30, 2025 and December 31, 2024, respectively.

For additional information on borrowed

funds, refer to Note 18 in Item 8 of Form 10-K for the year ended December 31, 2024.

On January 7, 2025, a voluntary principal payment

of $ 3 .0 million was made on an outstanding trust preferred security.

On June 30, 2025, a short-term advance of $ 5 .0 million was drawn

from FHLB and repaid in July 2025.

funds totaled $ 18,986,000 as

of March 31, 2026 and December 31, 2025.

For additional information on borrowed funds, refer to Note 19 in Item 8 of Form 10-K for the

year ended December 31, 2025.

14 REVENUE FROM CONTRACTS WITH CUSTOMERS

2 unchanged sentences

Report on Form 10-K for the year ended December 31, 2025 for a description of how each revenue stream is accounted for under ASC 606.

The following table presents noninterest income by revenue stream for the three and nine months ended September 30, 2025 and 2024:

Schedule of revenue from contracts with customers

The following table presents noninterest income by revenue stream for the three months ended March 31, 2026 and 2025:

of revenue from contracts with customers

the three months ended

the nine months ended

in thousands)

charges and fees

processing and interchange income

services fees

Service charges

Card processing and interchange

Financial services fees

noninterest income

NOTE 15 NONINTEREST EXPENSES

Other operating expenses,

included as part of noninterest expenses, consisted of the following for the periods presented:

Schedule of noninterest expenses

For the three months ended

September 30,

For the nine months ended

September 30,

(Dollars in thousands)

Other operating expenses

15 NONINTEREST EXPENSES

operating expenses, included as part of noninterest expenses, consisted of the following for the periods presented:

of noninterest expenses

the three months ended

in thousands)

Other operating

ATM network expense

Legal, accounting, and professional

Loan related expenses

Core system conversion related costs

Legal, accounting, and

professional fees

FDIC insurance premiums

Loan related expenses

Consulting fees

Printing and supplies

Other real estate owned expenses, net

Total other operating expenses

NOTE 16 RECENT

ACCOUNTING DEVELOPMENTS

The following is

a summary of recent authoritative announcements:

In November 2024,

the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense

Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies

to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual

reporting period.

This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization.

In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that

are not separately disaggregated quantitatively.

The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive

real estate owned expenses, net

other operating expenses

16 RECENT ACCOUNTING DEVELOPMENTS

following is a summary of recent authoritative announcements:

November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive

Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date”, which amends the effective date

of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods

beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption

of ASU 2024-03 is permitted.

Disaggregation of Income Statement Expenses.” ASU 2024-03 requires

public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each

interim and annual reporting period.

This includes disclosing amounts related to employee compensation, depreciation, and intangible

asset amortization.

In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense

captions that are not separately disaggregated quantitatively.

The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting

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

Clarifying the Effective Date”, which amends the

effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual

reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15,

Early adoption of ASU 2024-03 is permitted.

Implementation of ASU 2024-03 may be applied prospectively or retrospectively.

The Company does not expect

the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.

In September 2025, the Financial Accounting

Standards Board (FASB) issued ASU 2025-06, “Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software.” The amendments in this ASU are intended to improve the operability

of the guidance by removing all references to software development project stages so that the guidance is neutral to different software

development methods, including methods that entities may use to develop software in the future.

Therefore, the amendments require that

an entity capitalize software costs when both:

Management has authorized and committed to funding the software project;

and it is probable

that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete

recognition threshold”).

In evaluating the probable-to-complete recognition threshold, an entity is required to consider whether

there is significant uncertainty associated with the development activities of the software.

This ASU is effective for annual reporting

periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods.

Early adoption of ASU

2025-06 is permitted as of the beginning of an annual reporting period.

The Company does not expect the adoption of ASU 2025-06 to have

a material impact on its consolidated financial statements.

Other accounting

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

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

Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.

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

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

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-Q

Item 1. Financial Statements