PEOPLES BANCORP OF NORTH CAROLINA INC 10-Q

Item 1. Financial Statements PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Balance Sheets March 31, 2025 and December 31, 2024 (Dollars in thousands) March 31, December 31, Assets 2025 2024 (Unaudited) (Audited) Cash and due from banks $ 32,372 30,919 Interest-bearing deposits 70,148 28,347 Cash and cash equivalents 102,520 59,266 Investment securities available for sale 374,350 388,003 Other investments 2,674 2,728 Total securities 377,024 390,731 Mortgage loans held for sale 544 1,367 Loans 1,152,080 1,138,404 Less allowance for credit losses ( 10,047 ) ( 9,995 ) Net loans 1,142,033 1,128,409 Premises and equipment, net 15,074 14,847 Cash surrender value of life insurance 17,796 17,675 Other real estate 125 369 Right of use lease asset 3,831 4,013 Accrued interest receivable and other assets 34,038 35,285 Total assets $ 1,692,985 1,651,962 Liabilities and Shareholders' Equity Deposits: Noninterest-bearing demand $ 412,761 402,254 Interest-bearing demand, MMDA & savings 756,241 741,363 Time, over $250,000 148,352 145,939 Other time 200,215 195,175 Total deposits 1,517,569 1,484,731 Junior subordinated debentures 15,464 15,464 Lease liability 3,958 4,136 Accrued interest payable and other liabilities 17,486 17,068 Total liabilities 1,554,477 1,521,399 Commitments and Contingencies Shareholders' equity: Preferred stock, no par value; authorized 5,000,000 shares; no shares issued and outstanding - - Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,459,441 shares at March 31, 2025 and 5,457,646 shares at December 31, 2024 48,708 48,658 Common stock held by deferred compensation trust, at cost; 161,680 shares at March 31, 2025 and 158,580 shares at December 31, 2024 ( 1,842 ) ( 1,757 ) Deferred compensation 1,842 1,757 Retained earnings 123,439 121,062 Accumulated other comprehensive loss ( 33,639 ) ( 39,157 ) Total shareholders' equity 138,508 130,563 Total liabilities and shareholders' equity $ 1,692,985 1,651,962 See accompanying Notes to Consolidated Financial Statements. 4 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Earnings Three Months Ended March 31, 2025 and 2024 (Dollars in thousands, except per share amounts) 2025 2024 (Unaudited) (Unaudited) Interest income: Interest and fees on loans $ 16,016 15,138 Interest on due from banks 350 907 Interest on investment securities: U.S. Government sponsored enterprises 2,261 2,591 State and political subdivisions 694 695 Other 649 479 Total interest income 19,970 19,810 Interest expense: Interest-bearing demand, MMDA & savings deposits 2,652 2,060 Time deposits 3,133 3,681 Junior subordinated debentures 241 284 Other - 481 Total interest expense 6,026 6,506 Net interest income 13,944 13,304 Provision for credit losses 268 91 Net interest income after provision for credit losses 13,676 13,213 Non-interest income: Service charges 1,412 1,340 Other service charges and fees 186 184 Loss on sale of securities, net ( 4 ) - Mortgage banking income 27 51 Insurance and brokerage commissions 237 246 Appraisal management fee income 3,042 2,414 Miscellaneous 1,629 1,803 Total non-interest income 6,529 6,038 Non-interest expense: Salaries and employee benefits 6,788 6,980 Occupancy 2,028 2,111 Professional fees 507 392 Advertising 253 199 Debit card expense 236 312 FDIC insurance 189 191 Appraisal management fee expense 2,419 1,904 Other 2,153 2,427 Total non-interest expense 14,573 14,516 Earnings before income taxes 5,632 4,735 Income tax expense 1,287 787 Net earnings $ 4,345 3,948 Basic net earnings per share $ 0.82 0.74 Diluted net earnings per share $ 0.79 0.72 Cash dividends declared per share $ 0.36 0.35 See accompanying Notes to Consolidated Financial Statements. 5 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2025 and 2024 (Dollars in thousands) 2025 2024 (Unaudited) (Unaudited) Net earnings $ 4,345 3,948 Other comprehensive income : Unrealized holding gains on securities available for sale 7,171 71 Reclassification adjustment for losses on securities available for sale included in net earnings 4 - Total other comprehensive income , before income taxes 7,175 71 Income tax benefit related to other comprehensive income : Unrealized holding gains on securities available for sale ( 1,656 ) ( 16 ) Reclassification adjustment for losses on sales of securities available for sale included in net earnings ( 1 ) - Total income tax expense related to other comprehensive income ( 1,657 ) ( 16 ) Total other comprehensive income, net of tax 5,518 55 Total comprehensive income $ 9,863 4,003 See accompanying Notes to Consolidated Financial Statements. 6 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 2025 and 2024 (Dollars in thousands) Held By Accumulated Deferred Other Common Stock Retained Deferred Compensation Comprehensive Shares Amount Earnings Compensation Trust (Loss) Total (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Balance, December 31, 2024 5,457,646 $ 48,658 121,062 1,757 ( 1,757 ) ( 39,157 ) 130,563 Restricted stock units vested 1,795 50 - - - - 50 Cash dividends declared on common stock - - ( 1,968 ) - - - ( 1,968 ) Equity incentive plan, net - - - 85 ( 85 ) - - Net earnings - - 4,345 - - - 4,345 State tax rate reduction ( 99 ) ( 99 ) Other comprehensive income - - - - - 5,617 5,617 Balance, March 31, 2025 5,459,441 $ 48,708 123,439 1,842 ( 1,842 ) ( 33,639 ) 138,508 Balance, December 31, 2023 5,534,499 $ 50,625 109,756 1,910 ( 1,910 ) ( 39,365 ) 121,016 Common stock repurchase ( 78,500 ) ( 1,998 ) - - - - ( 1,998 ) Cash dividends declared on common stock - - ( 1,929 ) - - - ( 1,929 ) Equity incentive plan, net - - - 33 ( 33 ) - - Net earnings - - 3,948 - - - 3,948 Other comprehensive income - - - - - 55 55 Balance, March 31, 2024 5,455,999 $ 48,627 111,775 1,943 ( 1,943 ) ( 39,310 ) 121,092 See accompanying Notes to Consolidated Financial Statements. 7 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Cash Flows Three Months Ended March 31, 2025 and 2024 (Dollars in thousands) 2025 2024 (Unaudited) (Unaudited) Cash flows from operating activities: Net earnings $ 4,345 3,948 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, amortization and accretion 678 671 Provision for credit losses 268 91 Deferred income taxes 786 ( 208 ) Gain on sale of held for mortgage loans ( 32 ) ( 40 ) Loss on sale of investment securities net 4 - Write-down of premises and equipment 31 - Gain on sale of other real estate ( 17 ) - Restricted stock expense ( 27 ) 6 Proceeds from sales of mortgage loans held for sale 1,564 3,137 Origination of mortgage loans held for sale ( 709 ) ( 3,703 ) Cash surrender value of life insurance ( 121 ) ( 116 ) Change in: Right of use lease asset 182 178 Other assets ( 1,295 ) ( 1,043 ) Lease liability ( 178 ) ( 172 ) Other liabilities 445 920 Net cash provided by operating activities 5,924 3,669 Cash flows from investing activities: Purchases of investment securities available for sale - ( 9,710 ) Proceeds from calls and maturities of investment securities available for sale 12,733 3,000 Proceeds from sales of investment securities available for sale 3,000 Proceeds from paydowns of investment securities available for sale 4,959 3,859 Proceeds from paydowns of other investment securities 123 37 Purchase of FHLB stock ( 11 ) ( 10 ) Net change in loans ( 13,892 ) ( 13,889 ) Purchases of premises and equipment ( 763 ) ( 128 ) Proceeds from sale of other real estate and repossessions 261 - Net cash provided (used) by investing activities 6,410 ( 16,841 ) Cash flows from financing activities: Net change in deposits 32,838 60,319 Net change in securities sold under agreement to repurchase - ( 27,499 ) Restricted stock units vested 50 - Common stock repurchased - ( 1,998 ) Cash dividends paid on common stock ( 1,968 ) ( 1,929 ) Net cash provided by financing activities 30,920 28,893 Net change in cash and cash equivalents 43,254 15,721 Cash and cash equivalents at beginning of period 59,266 82,375 Cash and cash equivalents at end of period $ 102,520 98,096 8 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Cash Flows, continued Three Months Ended March 31, 2025 and 2024 (Dollars in thousands) 2025 2024 (Unaudited) (Unaudited) Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 6,025 6,515 Income taxes $ 352 236 Noncash investing and financing activities: Change in unrealized loss on investment securities available for sale, net $ 5,518 55 See accompanying Notes to Consolidated Financial Statements. 9 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Notes to Consolidated Financial Statements ( Unaudited ) (1) Summary of Significant Accounting Policies The Consolidated Financial Statements include the financial statements of Peoples Bancorp of North Carolina, Inc. (the “Company”) and its wholly owned subsidiary, Peoples Bank (the “Bank”), along with the Bank’s wholly owned subsidiaries, Peoples Investment Services, Inc. (“PIS”), Real Estate Advisory Services, Inc. (“REAS”), Community Bank Real Estate Solutions, LLC (“CBRES”) and PB Real Estate Holdings, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. In June 2006, the Company formed a wholly owned Delaware statutory trust, PEBK Capital Trust II (“PEBK Trust II”), to facilitate the issuance of $ 20.6 million of trust preferred securities. PEBK Trust II is not included in the Consolidated Financial Statements. The Consolidated Financial Statements in this report (other than the Consolidated Balance Sheet at December 31, 2024) are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States (“GAAP”). Actual results could differ from those estimates. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management has determined that the Company has two significant operating segment: Banking Operations and CBRES, as discussed more fully in Note 9. In determining the appropriateness of segment definition, the Company considers the criteria of Accounting Standards Codification (“ASC”) 280, Segment Reporting. The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. Many of the Company’s accounting policies require significant judgment regarding valuation of assets and liabilities and/or significant interpretation of the specific accounting guidance. A description of the Company’s significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements in the Company’s 2024 Annual Report to Shareholders which is Appendix A to the Proxy Statement for the 2025 Annual Meeting of Shareholders. There have been no significant changes to the application of significant accounting policies since December 31, 2024. ASU Description Effective Date Effect on Financial Statements or Other Significant Matters ASU 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) The ASU requires disaggregated disclosure of income statement expenses for public business entities (PBEs). Annual reporting periods after 12/15/26 The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position. The adoption of this guidance is expected to have an immaterial impact on disclosures. ASU 2025-01, Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures (Subtopic 220- 40) The ASU clarifies that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position. The adoption of this guidance is expected to have an immaterial impact on disclosures. Other accounting standards that have been issued or proposed by FASB or other standards-setting bodies are not expected to have a material impact on the Company’s results of operations, financial position or disclosures. Reclassification Certain amounts in the 2024 consolidated financial statements have been reclassified to conform to the 2025 presentation. These reclassifications did not have any impact on shareholders’ equity or net earnings. 10 Table of Contents (2) Comprehensive Income The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale. The following table presents the changes in accumulated other comprehensive loss for the three months ended March 31, 2025 and 2024: For the three months ended (dollars in thousands) March 31, 2025 March 31, 2024 Beginning balance $ ( 39,157 ) $ ( 39,365 ) Other comprehensive loss before reclassifications, net 5,614 55 Amounts reclassified from accumulated other comprehensive loss, net 3 - Reduction in state tax rate adjustment, net ( 99 ) - Net current period other comprehensive loss 5,518 55 Ending balance $ ( 33,639 ) $ ( 39,310 ) (3) Net Earnings Per Share Net earnings per share is based on the weighted average number of shares outstanding during the period while the effects of potential shares outstanding during the period are included in diluted earnings per share. The average market price during the applicable period is used to compute equivalent shares. Shares held in the deferred compensation plan by the deferred compensation trust are excluded for purposes of calculating the weighted average number of shares outstanding and basic earnings per share in accordance with ASC 260-10-45-40 and ASC 260-10-45-45 through ASC 260-26010-45-46. The reconciliation of the amounts used in the computation of both basic earnings per share and diluted earnings per share for the three months ended March 31, 2025 and 2024 is as follows: For the three months ended March 31, 2025 Net Earnings (Dollars in thousands) Weighted Average Number of Shares Per Share Amount Basic earnings per share $ 4,345 5,299,155 $ 0.82 Effect of dilutive securities: Restricted stock units - unvested 10,354 Shares held in deferred comp plan by deferred compensation trust 160,130 Diluted earnings per share $ 4,345 5,469,639 $ 0.79 For the three months ended March 31, 2024 Net Earnings (Dollars in thousands) Weighted Average Number of Shares Per Share Amount Basic earnings per share $ 3,948 5,318,671 $ 0.74 Effect of dilutive securities: Restricted stock units - unvested 18,143 Shares held in deferred comp plan by deferred compensation trust 164,336 Diluted earnings per share $ 3,948 5,501,150 $ 0.72 11 Table of Contents (4) Investment Securities Investment securities available for sale at March 31, 2025 and December 31, 2024 are as follows: (Dollars in thousands) March 31, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasuries $ 7,983 - 585 7,398 U.S. Government sponsored enterprises 6,129 - 425 5,704 GSE - Mortgage-backed securities 232,114 161 19,422 212,853 Private label mortgage-backed securities 42,091 99 1,117 41,073 State and political subdivisions 129,594 - 22,272 107,322 Total $ 417,911 260 43,821 374,350 (Dollars in thousands) December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasuries $ 7,981 - 724 7,257 U.S. Government sponsored enterprises 9,243 - 511 8,732 GSE - Mortgage-backed securities 248,837 162 23,207 225,792 Private label mortgage-backed securities 43,118 74 1,425 41,767 State and political subdivisions 129,659 - 25,204 104,455 Total $ 438,838 236 51,071 388,003 The current fair value and associated unrealized losses on investments in securities with unrealized losses at March 31, 2025 and December 31, 2024 are summarized in the tables below, with the length of time the individual securities have been in a continuous loss position. (Dollars in thousands) March 31, 2025 Less than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasuries $ - - 7,398 585 7,398 585 U.S. government sponsored enterprises - - 5,704 425 5,704 425 GSE -Mortgage-backed securities 16,064 284 191,926 19,138 207,990 19,422 Private label mortgage-backed securities 8,932 81 25,595 1,036 34,527 1,117 State and political subdivisions - - 107,322 22,272 107,322 22,272 Total $ 24,996 365 337,945 43,456 362,941 43,821 (Dollars in thousands) December 31, 2024 Less than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasuries $ - - 7,257 724 7,257 724 U.S. government sponsored enterprises - - 8,732 511 8,732 511 GSE -Mortgage-backed securities 20,458 669 197,497 22,538 217,955 23,207 Private label mortgage-backed securities 4,010 9 21,727 1,416 25,737 1,425 State and political subdivisions - - 104,455 25,204 104,455 25,204 Total $ 24,468 678 339,668 50,393 364,136 51,071 12 Table of Contents At March 31, 2025, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 43.8 million. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the March 31, 2025 table above, both of the U.S. Treasury securities, all 108 of the securities issued by state and political subdivisions contained unrealized losses, all six of the securities issued by U.S. Government sponsored enterprises (“GSE”), 110 of the 115 GSE mortgage-backed securities, and 13 of the 17 private label mortgage-backed securities contained unrealized losses. The Company did not have any reserves on securities at March 31, 2025, as no credit related losses were identified in the Company’s March 31, 2025 analysis. At December 31, 2024, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 51.1 million. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the December 31, 2024 table above, both of the U.S. Treasury securities, all 108 of the securities issued by state and political subdivisions contained unrealized losses, all seven of the securities issued by GSEs, 114 of the 119 GSE mortgage-backed securities, and 11 of the 16 private label mortgage-backed securities contained unrealized losses. The Company did not have any reserves on securities at December 31, 2024, as no credit related losses were identified in the Company’s December 31, 2024 analysis. The amortized cost and estimated fair value of investment securities available for sale, other than GSE mortgage-backed securities, at March 31, 2025, are shown below by contractual maturity. Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. March 31, 2025 (Dollars in thousands) Amortized Cost Fair Value Due within one year $ 4,995 4,982 Due from one to five years 35,616 32,632 Due from five to ten years 74,710 61,835 Due after ten years 70,476 62,048 Mortgage-backed securities 232,114 212,853 Total $ 417,911 374,350 During the three months ended March 31, 2025, proceeds from sales of securities available for sale were $ 12.7 million and resulted in gross losses of $ 47,000 and gross gains of $ 43,000 . No securities available for sale were sold during the three months ended March 31, 2024. Securities with a fair value of approximately $ 36.7 million and $ 40.0 million at March 31, 2025 and December 31, 2024, respectively, were pledged to secure public deposits and for other purposes as required by law. 13 Table of Contents (5) Loans Major classifications of loans at March 31, 2025 and December 31, 2024 are summarized as follows: (Dollars in thousands) March 31, 2025 December 31, 2024 Real estate loans: Construction and land development $ 126,645 122,328 Single-family residential 387,901 384,509 Commercial 479,194 471,444 Multifamily and farmland 69,470 69,671 Total real estate loans 1,063,210 1,047,952 Loans not secured by real estate: Commercial 63,222 63,837 Farm 481 401 Consumer 6,338 6,475 All other 18,829 19,739 Total loans 1,152,080 1,138,404 Less allowance for credit losses ( 10,047 ) ( 9,995 ) Total net loans $ 1,142,033 1,128,409 The Bank makes loans and extensions of credit primarily within the Catawba Valley region of North Carolina, which encompasses Catawba, Alexander, Iredell and Lincoln counties and also in Mecklenburg, Wake, Rowan and Forsyth counties of North Carolina. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate, the value of which is dependent upon the real estate market. Risk characteristics of the major components of the Bank’s loan portfolio are discussed below: · Construction and land development loans – The risk of loss is largely dependent on the initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. · Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans. · Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property. · Commercial loans – Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business. · Multifamily and farmland loans – Decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans. Loans are considered past due if the required principal and interest payments have not been received within 30 days of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Generally, a loan is placed on non-accrual status when it is over 90 days past due and there is reasonable doubt that all principal will be collected. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. 14 Table of Contents The following tables present an age analysis of past due loans, by loan type, as of March 31, 2025 and December 31, 2024: March 31, 2025 (Dollars in thousands) Loans 30-89 Days Past Due Nonaccrual Loans Total Past Due Loans Total Current Loans Total Loans Accruing Loans 90 or More Days Past Due Real estate loans: Construction and land development $ 333 35 368 126,277 126,645 - Single-family residential 3,676 4,235 7,911 379,990 387,901 - Commercial 360 416 776 478,418 479,194 - Multifamily and farmland - - - 69,470 69,470 - Total real estate loans 4,369 4,686 9,055 1,054,155 1,063,210 - Loans not secured by real estate: Commercial - 290 290 62,932 63,222 - Farm - - - 481 481 - Consumer 20 7 27 6,311 6,338 - All other - - - 18,829 18,829 - Total loans $ 4,389 4,983 9,372 1,142,708 1,152,080 - December 31, 2024 (Dollars in thousands) Loans 30-89 Days Past Due Nonaccrual Loans Total Past Due Loans Total Current Loans Total Loans Accruing Loans 90 or More Days Past Due Real estate loans: Construction and land development $ 131 37 168 122,160 122,328 - Single-family residential 5,434 3,720 9,154 375,355 384,509 - Commercial 87 426 513 470,931 471,444 - Multifamily and farmland - - - 69,671 69,671 - Total real estate loans 5,652 4,183 9,835 1,038,117 1,047,952 - Loans not secured by real estate: Commercial 360 248 608 63,229 63,837 - Farm - - - 401 401 - Consumer 33 9 42 6,433 6,475 - All other - - - 19,739 19,739 - Total loans $ 6,045 4,440 10,485 1,127,919 1,138,404 - The following table presents non-accrual loans as of March 31, 2025 and December 31, 2024: March 31, 2025 Nonaccrual Loans Nonaccrual Loans Total With No With Nonaccrual (Dollars in thousands) Allowance Allowance Loans Real estate loans: Construction and land development $ - 35 35 Single-family residential 1,345 2,890 4,235 Commercial 416 - 416 Multifamily and farmland - - - Total real estate loans 1,761 2,925 4,686 Loans not secured by real estate: Commercial 223 67 290 Consumer - 7 7 Total $ 1,984 2,999 4,983 15 Table of Contents December 31, 2024 Nonaccrual Loans Nonaccrual Loans Total With No With Nonaccrual (Dollars in thousands) Allowance Allowance Loans Real estate loans: Construction and land development $ 37 - 37 Single-family residential 3,720 - 3,720 Commercial 426 - 426 Multifamily and farmland - - - Total real estate loans 4,183 - 4,183 Loans not secured by real estate: Commercial 248 - 248 Consumer 9 - 9 Total $ 4,440 - 4,440 No interest income was recognized on non-accrual loans for the three months ended March 31, 2025 and 2024. A loan may be individually evaluated for determining the allowance for credit losses when it is determined that it does not share similar risk characteristics with other assets. Non-accrual loans with an outstanding balance of $ 250,000 or greater are individually evaluated and totaled $ 2.0 million and $ 1.6 million at March 31, 2025 and December 31, 2024, respectively. Non-accrual loans evaluated collectively as a pool totaled $ 3.0 million and $ 2.8 million at March 31, 2025 and December 31, 2024, respectively. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans require an analysis of the collateral. The fair value of the collateral is discounted by estimated liquidation costs. If the discounted fair value of the collateral is greater than the amortized loan balance, no allowance is required. Otherwise the difference between the balance and the collateral is charged off if deemed uncollectible. 16 Table of Contents The following table details the amortized cost of collateral dependent loans and any related allowance at March 31, 2025 and December 31, 2024. March 31, 2025 December 31, 2024 Allowance for Allowance for (Dollars in thousands) Amortized Cost Credit Losses Amortized Cost Credit Losses Real estate loans: Construction and land development $ 34 1 37 - Single-family residential 4,235 26 3,720 - Commercial 416 - 426 - Multifamily and farmland - - - - Total real estate loans 4,685 27 4,183 - Loans not secured by real estate: Commercial 261 - 248 - Consumer - - - - Total $ 4,946 27 4,431 - 17 Table of Contents The following tables provide a breakdown of collateral dependent loans by collateral type and collateral coverage at March 31, 2025 and 2024. These tables also show non-accrual loans not considered to be collateral dependent at March 31, 2025 and December 31, 2024. March 31, 2025 Financial Assets Not Considered (Dollars in thousands) Residential Property Developed Land Commercial Property Business Assets Collateral Dependent Total Real estate loans: Construction and land development $ - 34 - - - 34 Single-family residential 4,235 - - - - 4,235 Commercial - - 416 - - 416 Multifamily and farmland - - - - - - Total real estate loans 4,235 34 416 - - 4,685 Loans not secured by real estate: Commercial - - - 261 - 261 Consumer - - - - 37 37 Total $ 4,235 34 416 261 37 4,983 Collateral Value $ 12,234 88 655 273 December 31, 2024 Financial Assets Not Considered (Dollars in thousands) Residential Property Developed Land Commercial Property Business Assets Collateral Dependent Total Real estate loans: Construction and land development $ - 37 - - - 37 Single-family residential 3,720 - - - - 3,720 Commercial - - 426 - - 426 Multifamily and farmland - - - - - - Total real estate loans 3,720 37 426 - - 4,183 Loans not secured by real estate: Commercial - - - 248 - 248 Consumer - - - - 9 9 Total $ 3,720 37 426 248 9 4,440 Collateral Value $ 9,648 88 944 272 The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. A change to the allowance for credit losses is evaluated based on the nature of the modification. Occasionally, the Bank modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Bank may 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. No loans to borrowers experiencing financial difficulty were modified during the three months ended March 31, 2025. The following table shows the amortized cost basis at March 31, 2024 of the loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2024, disaggregated by loan class and type of concession granted. (Dollars in thousands) Amortized Cost Basis at March 31, 2024 % of Loan Class Modification Type Financial Effect Loan class: Commercial not secured by real estate 73 0.11 % Term Extension Line of credit converted to amortizing term loan . Total $ 73 18 Table of Contents The Bank closely monitors the performance of those loans that are modified because borrowers are experiencing financial difficulty so as to understand the effectiveness of its modification efforts. The following tables show the performance of loans that were modified in the three months ended March 31, 2024. March 31, 2024 (Dollars in thousands) Payment Status (Amortized Cost Basis) Current 30 - 89 Days Past Due 90 + Days Past Due Loan type: Commercial real estate 73 - - Total $ 73 - - Management uses several measures to assess and monitor the credit risks in the loan portfolio, including a loan grading system that begins upon loan origination and continues until the loan is collected or collectability becomes doubtful. Upon loan origination, the Bank’s originating loan officer evaluates the quality of the loan and assigns one of eight risk grades. The loan officer monitors the loan’s performance and credit quality and makes changes to the credit grade as conditions warrant. When originated or renewed, all loans over a certain dollar amount receive in-depth reviews and risk assessments by the Bank’s Credit Administration. Before making any changes in these risk grades, management considers assessments as determined by an independent third-party credit review firm (as described below), regulatory examiners and the Bank’s Credit Administration. Any issues regarding the risk assessments are addressed by the Bank’s senior credit administrators and factored into management’s decision to originate or renew the loan. The Bank Board reviews, on a monthly basis, an analysis of the Bank’s reserves relative to the range of reserves estimated by the Bank’s Credit Administration. As an additional measure, the Bank engages an independent third party to review the underwriting, documentation and risk grading analyses. This independent third party reviews and evaluates loan relationships greater than or equal to $1.5 million as well as a periodic sample of commercial relationships with exposures below $1.5 million, excluding loans in default and loans in process of litigation or liquidation . The third party’s evaluation and report is shared with management and the Bank Board. Management considers certain commercial loans with weak credit risk grades to be individually impaired and measures such impairment based upon available cash flows and the value of the collateral. Allowance or reserve levels are estimated for all other graded loans in the portfolio based on their assigned credit risk grade, type of loan and other matters related to credit risk. Management uses the information developed from the procedures described above in evaluating and grading the loan portfolio. This continual grading process is used to monitor the credit quality of the loan portfolio and to assist management in estimating the allowance. The provision for credit losses charged or credited to earnings is based upon management’s judgment of the amount necessary to maintain the allowance at a level appropriate to absorb probable incurred losses in the loan portfolio at the balance sheet date. The amount of the allowance, and any provision, is dependent upon many factors, including growth and changes in the composition of the loan portfolio, net charge-offs, delinquencies, management’s assessment of loan portfolio quality, the value of collateral, and other macro-economic factors and trends. An evaluation of these factors is performed quarterly by management through an analysis of the appropriateness of the allowance. 19 Table of Contents The following tables present changes in the allowance for credit losses for the three months ended March 31, 2025 and 2024. (Dollars in thousands) Real Estate Loans Construction and Land Development Single-Family Residential Commercial Multifamily and Farmland Commercial Farm Consumer and All Other Total Three months ended March 31, 2025 Allowance for credit losses: Beginning balance $ 3,385 3,386 2,322 246 446 1 209 9,995 Charge-offs - ( 5 ) - - - - ( 107 ) ( 112 ) Recoveries - 5 - - 5 - 71 81 Provision (recovery) for loan losses (1) 78 ( 24 ) 15 ( 4 ) ( 12 ) - 30 83 Ending balance $ 3,463 3,362 2,337 242 439 1 203 10,047 Allowance for credit loss-loans $ 3,463 3,362 2,337 242 439 1 203 10,047 Allowance for credit losses loan commitments 1,274 3 7 1 - - 1 1,286 Total allowance for credit losses $ 4,737 3,365 2,344 243 439 1 204 11,333 (1) Excludes provision for credit losses related to unfunded commitments. Note 7,"Commitments and Contingencies" in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments. (Dollars in thousands) Real Estate Loans Construction and Land Development Single-Family Residential Commercial Multifamily and Farmland Commercial Farm Consumer and All Other Total Three months ended March 31, 2024 Allowance for credit losses: Beginning balance $ 3,913 3,484 2,317 268 812 2 245 11,041 Charge-offs - - - - ( 446 ) - ( 210 ) ( 656 ) Recoveries - 56 201 - 6 - 36 299 Provision (recovery) for loan losses (1) ( 233 ) 57 ( 173 ) 45 300 - 167 163 Ending balance $ 3,680 3,597 2,345 313 672 2 238 10,847 Allowance for credit loss-loans $ 3,680 3,597 2,345 313 672 2 238 10,847 Allowance for credit losses loan commitments 1,692 5 - - - - 1 1,698 Total allowance for credit losses $ 5,372 3,602 2,345 313 672 2 239 12,545 (1) Excludes provision for credit losses related to unfunded commitments. Note 7,"Commitments and Contingencies" in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments. The Bank utilizes several credit quality indicators to manage credit risk in an ongoing manner. The Bank uses an internal risk grade system that categorizes loans into pass, watch or substandard categories. The Bank uses the following credit quality indicators: · Pass – Includes loans ranging from excellent quality with a minimal amount of credit risk to loans with higher risk and servicing needs but still are considered to be acceptable. The higher risk loans in this category are not problem credits presently, but may be in the future if the borrower is unable to change its present course. · Watch – These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date. · Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any). There is a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. · Doubtful – Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. · Loss – Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future. 20 Table of Contents The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of March 31, 2025. Term Loans by Origination Year Revolving Loans Converted to (dollars in thousands) 2025 2024 2023 2022 2021 Prior Revolving Loans Term Loans Total Loans March 31, 2025 Real Estate Loans Construction and land development Pass $ 11,959 43,989 28,700 26,681 4,916 9,824 - 72 126,141 Watch - - - - 441 - - - 441 Substandard - - - - - 63 - - 63 Total Construction and land development $ 11,959 43,989 28,700 26,681 5,357 9,887 - 72 126,645 Single family Pass $ 8,864 22,893 34,893 72,155 43,050 85,136 114,182 - 381,173 Watch - - - - - 1,322 - - 1,322 Substandard - - 31 1,345 96 3,617 317 - 5,406 Total single family $ 8,864 22,893 34,924 73,500 43,146 90,075 114,499 - 387,901 Commercial Pass $ 14,052 57,648 45,650 137,429 69,605 148,915 2,377 - 475,676 Watch - - - 453 - 2,253 - - 2,706 Substandard - - - - - 812 - - 812 Total commercial $ 14,052 57,648 45,650 137,882 69,605 151,980 2,377 - 479,194 Multifamily and farmland Pass $ 991 990 8,279 20,616 20,455 17,788 310 - 69,429 Watch - - - - - 41 - - 41 Substandard - - - - - - - - - Total multifamily and farmland $ 991 990 8,279 20,616 20,455 17,829 310 - 69,470 Total real estate loans $ 35,866 125,520 117,553 258,679 138,563 269,771 117,186 72 1,063,210 Loans not secured by real estate Commercial Pass $ 2,239 8,400 12,023 5,105 2,598 12,860 19,386 - 62,611 Watch - - - 136 18 166 1 - 321 Substandard - 13 25 223 - 29 - - 290 Total Commercial $ 2,239 8,413 12,048 5,464 2,616 13,055 19,387 - 63,222 Farm Pass $ 51 49 190 29 - - 162 - 481 Watch - - - - - - - - - Substandard - - - - - - - - - Total farm $ 51 49 190 29 - - 162 - 481 Consumer Pass $ 532 1,496 1,079 574 142 137 2,348 - 6,308 Watch - - - 20 - - - - 20 Substandard - - - - - 8 2 - 10 Total consumer $ 532 1,496 1,079 594 142 145 2,350 - 6,338 All other Pass $ 130 468 - 9,680 351 2,969 5,231 - 18,829 Watch - - - - - - - - - Substandard - - - - - - - - - Total all other $ 130 468 - 9,680 351 2,969 5,231 - 18,829 Total loans not secured by real estate $ 2,952 10,426 13,317 15,767 3,109 16,169 27,130 - 88,870 Total loans $ 38,818 135,946 130,870 274,446 141,672 285,940 144,316 72 1,152,080 21 Table of Contents The following table presents by credit quality indicator, loan class and year of origination, gross loan charge-offs for the three months ended March 31, 2025. March 31, 2025 Gross Loan Charge-offs by Origination Year Revolving Loans (dollars in thousands) Revolving Converted to Total 2025 2024 2023 2022 2021 Prior Loans Term Loans Loans Real estate loans: Construction and land development $ - - - - - - - - - Single-family residential - - - - - 5 - - 5 Commercial - - - - - - - - - Multifamily and farmland - - - - - - - - - Total real estate loans - - - - - 5 - - 5 Loans not secured by real estate: Commercial - - - - - - - - - Consumer - 5 - - - 102 - - 107 All other - - - - - - - - - Total gross charge-offs $ - 5 - - - 107 - - 112 The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of December 31, 2024. Term Loans by Origination Year Revolving Loans (dollars in thousands) Revolving Converted to Total 2024 2023 2022 2021 2020 Prior Loans Term Loans Loans December 31, 2024 Real Estate Loans Construction and land development Pass $ 41,171 29,503 34,495 6,836 5,792 4,020 - - 121,817 Watch - - - 443 - - - - 443 Substandard - - - - - 68 - - 68 Total Construction and land development $ 41,171 29,503 34,495 7,279 5,792 4,088 - - 122,328 Single family Pass $ 22,169 35,865 73,663 43,900 22,363 66,074 113,067 - 377,101 Watch - - - - - 1,469 993 - 2,462 Substandard - 31 1,000 - 124 3,467 324 - 4,946 Total single family $ 22,169 35,896 74,663 43,900 22,487 71,010 114,384 - 384,509 Commercial Pass $ 56,411 46,589 135,881 71,066 58,223 97,122 2,296 - 467,588 Watch - - - - 87 2,943 - - 3,030 Substandard - - - - 400 426 - - 826 Total commercial $ 56,411 46,589 135,881 71,066 58,710 100,491 2,296 - 471,444 Multifamily and farmland Pass $ 998 8,455 20,786 20,638 6,055 12,186 443 - 69,561 Watch - - - - - 43 - - 43 Substandard - - - - - 67 - - 67 Total multifamily and farmland $ 998 8,455 20,786 20,638 6,055 12,296 443 - 69,671 Total real estate loans $ 120,749 120,443 265,825 142,883 93,044 187,885 117,123 - 1,047,952 Loans not secured by real estate Commercial Pass $ 9,153 11,335 6,045 3,107 1,707 11,864 20,032 - 63,243 Watch - - 136 19 23 167 1 - 346 Substandard - 25 223 - - - - - 248 Total Commercial $ 9,153 11,360 6,404 3,126 1,730 12,031 20,033 - 63,837 Farm Pass $ 53 195 17 50 - - 86 - 401 Watch - - - - - - - - - Substandard - - - - - - - - - Total farm $ 53 195 17 50 - - 86 - 401 Consumer Pass $ 1,777 1,232 666 176 99 64 2,397 - 6,411 Watch - - 53 - - - - - 53 Substandard - - - - - 8 3 - 11 Total consumer $ 1,777 1,232 719 176 99 72 2,400 - 6,475 All other Pass $ 972 - 10,002 376 217 2,878 5,164 - 19,609 Watch - - - - - 130 - - 130 Substandard - - - - - - - - - Total all other $ 972 - 10,002 376 217 3,008 5,164 - 19,739 Total loans not secured by real estate $ 11,955 12,787 17,142 3,728 2,046 15,111 27,683 - 90,452 Total loans $ 132,704 133,230 282,967 146,611 95,090 202,996 144,806 - 1,138,404 22 Table of Contents The following table presents by credit quality indicator, loan class and year of origination, gross loan charge-offs during the year ended December 31, 2024. December 31, 2024 Gross Loan Charge-offs by Origination Year Revolving Loans (dollars in thousands) Revolving Converted to Total 2024 2023 2022 2021 2020 Prior Loans Term Loans Loans Real estate loans: Construction and land development $ - - - - - - - - - Single-family residential - - 126 - - 5 - - 131 Commercial - - - - - - - - - Multifamily and farmland - - - - - - - - - Total real estate loans - - 126 - - 5 - - 131 Loans not secured by real estate: Commercial - 447 397 74 179 37 - - 1,134 Consumer 5 37 9 - 1 557 - - 609 All other - - - - - 107 - - 107 Total gross charge-offs $ 5 484 532 74 180 706 - - 1,981 (6) Leases As of March 31, 2025, the Bank had operating right of use assets of $ 3.8 million and operating lease liabilities of $ 4.0 million. As of December 31, 2024, the Bank had operating right of use assets of $ 4.0 million and operating lease liabilities of $ 4.1 million. The Bank maintains operating leases on land and buildings for some of the Bank’s branch facilities and loan production offices. Most leases include one option to renew, with renewal terms extending up to 15 years. The exercise of renewal options is based on the judgment of management as to whether or not the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rates compared to market rates, and the presence of factors that would cause a significant economic penalty to the Bank if the option is not exercised. Leases with a term of 12 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term. The following table presents lease cost and other lease information as of March 31, 2025 and 2024. (Dollars in thousands) March 31, 2025 March 31, 2024 Operating lease cost $ 192 $ 815 Other information: Cash paid for amounts included in the measurement of lease liabilities 206 787 Operating cash flows from operating leases - - Right-of-use assets obtained in exchange for new lease liabilities - operating leases - - Weighted-average remaining lease term - operating leases 7.80 8.30 Weighted-average discount rate - operating leases 2.82 % 2.74 % 23 Table of Contents The following table presents lease maturities as of March 31, 2025. (Dollars in thousands) Maturity Analysis of Operating Lease Liabilities: March 31, 2025 2025 $ 567 2026 650 2027 612 2028 510 2029 422 Thereafter 1,694 Total 4,455 Less: Imputed Interest ( 497 ) Operating Lease Liability $ 3,958 (7) Commitments and Contingencies The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The 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 to extend credit and standby letters of credit as it does for on-balance-sheet instruments. In most cases, the Bank requires collateral or other security to support financial instruments with credit risk. (Dollars in thousands) Contractual Amount 3/31/25 12/31/24 Financial instruments whose contract amount represent credit risk: Commitments to extend credit $ 347,461 $ 348,876 Standby letters of credit $ 1,607 $ 1,675 Commitments to extend credit are conditional agreements to lend to a customer. Commitments generally have fixed expiration dates and because they may expire without being drawn upon, the total commitment amount of $ 349.1 million does not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by the Bank to pay a third party on behalf of a customer. Those letters of credit are primarily issued to businesses in the Bank’s delineated market area. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds real estate, equipment, automobiles and customer deposits as collateral supporting those commitments for which collateral is deemed necessary. The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, when this extension of credit is not unconditionally cancelable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding activity and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $ 1.3 million and $ 1.1 million at March 31, 2025 and December 31, 2024, respectively, is separately classified on the balance sheet within Other Liabilities. 24 Table of Contents The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2025 and 2024. (dollars in thousands) March 31, 2025 March 31, 2024 Beginning Balance $ 1,101 $ 1,770 Provision for (recovery of) credit losses 185 ( 72 ) Ending balance $ 1,286 $ 1,698 (8) Fair Value The Company is required to disclose fair value information about financial instruments, whether or not recognized at fair value on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company’s financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance. The Company groups assets and liabilities 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. These levels are: · Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. · Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. · Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. Investment Securities Available for Sale Fair values of investment securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges when available. If quoted prices are not available, fair value is determined using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Fair values for investment securities with quoted market prices are reported in the Level 1 fair value category. Fair value measurements obtained from independent pricing services are reported in the Level 2 fair value category. All other fair value measurements are reported in the Level 3 fair value category. Mortgage Loans Held for Sale Mortgage loans held for sale are carried at lower of aggregate cost or market value. The cost of mortgage loans held for sale approximates the market value. Mortgage loans held for sale are reported in the Level 2 fair value category. Management determined that the valuation technique used at current period end and prior period end are more appropriately classified as Level 2 and has updated in the current period and prior period year end classifications to Level 2. Loans The fair value of loans, excluding previously presented individually evaluated loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are reported in the Level 3 fair value category, as the pricing of loans is more subjective than the pricing of other financial instruments. 25 Table of Contents Mutual Funds Mutual funds held in the deferred compensation trust are carried at fair value. Mutual funds held in the deferred compensation trust are included in other assets on the balance sheet and reported in the Level 1 fair value category. FHLB Borrowings The fair value of FHLB borrowings is estimated based upon discounted future cash flows using a discount rate comparable to the current market rate for such borrowings. FHLB borrowings are reported in the Level 2 fair value category. Management determined that the valuation technique used at current period end and prior period end are more appropriately classified as Level 2 and has updated in the current period and prior period year end classifications to Level 2. Commitments to Extend Credit and Standby Letters of Credit Commitments to extend credit and standby letters of credit are generally short-term in duration and made at variable interest rates. Therefore, both the carrying value and estimated fair value associated with these instruments are immaterial. Limitations 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 many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The tables below present all financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy, as of March 31, 2025 and December 31, 2024. (Dollars in thousands) March 31, 2025 Fair Value Measurements Level 1 Valuation Level 2 Valuation Level 3 Valuation U.S. Treasuries $ 7,398 - 7,398 - U.S. Government sponsored enterprises 5,704 - 5,704 - GSE - Mortgage-backed securities 212,853 - 212,853 - Private label mortgage-backed securities 41,073 - 41,073 - State and political subdivisions 107,322 - 107,322 - Mutual funds held in deferred compensation trust 2,740 2,740 - - (Dollars in thousands) December 31, 2024 Fair Value Measurements Level 1 Valuation Level 2 Valuation Level 3 Valuation U.S. Treasuries $ 7,257 - 7,257 - U.S. Government sponsored enterprises 8,732 - 8,732 - GSE - Mortgage-backed securities 225,792 - 225,792 - Private label mortgage-backed securities 41,767 - 41,767 - State and political subdivisions 104,455 - 104,455 - Mutual funds held in deferred compensation trust 2,726 2,726 - - 26 Table of Contents The fair value measurements for individually evaluated loans and other real estate on a non-recurring basis at March 31, 2025 and December 31, 2024 are presented below. The fair value measurement process uses certified appraisals and other market-based information; however, in many cases, it also requires significant input based on management’s knowledge of, and judgment about, current market conditions, specific issues relating to the collateral and other matters. As a result, all fair value measurements for individually evaluated loans and other real estate are considered Level 3. (Dollars in thousands) Fair Value March 31, 2025 Fair Value December 31, 2024 Valuation Technique Significant Unobservable Inputs General Range of Significant Unobservable Input Values Individually evaluated loans $ 1,984 $ 1,646 Appraised value Discounts to reflect current market conditions and ultimate collectability 0 - 50% Other real estate $ 125 $ 369 Appraised value Discounts to reflect current market conditions and estimated costs to sell 0 - 25% The carrying amount and estimated fair value of financial instruments at March 31, 2025 and December 31, 2024 are as follows: (Dollars in thousands) Fair Value Measurements at March 31, 2025 Carrying Amount Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 102,520 102,520 - - 102,520 Investment securities available for sale 374,350 - 374,350 - 374,350 Other investments 2,674 - - 2,674 2,674 Mortgage loans held for sale 544 - 544 - 544 Loans, net 1,142,033 - - 1,139,464 1,139,464 Mutual funds held in deferred compensation trust 2,740 2,740 - - 2,740 Liabilities: Deposits $ 1,517,569 - 1,519,747 - 1,519,747 Junior subordinated debentures 15,464 - 15,464 - 15,464 27 Table of Contents (Dollars in thousands) Fair Value Measurements at December 31, 2024 Carrying Amount Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 59,266 59,266 - - 59,266 Investment securities available for sale 388,003 - 388,003 - 388,003 Other investments 2,728 - - 2,728 2,728 Mortgage loans held for sale 1,367 - 1,367 - 1,367 Loans, net 1,128,409 - - 1,123,864 1,123,864 Mutual funds held in deferred compensation trust 2,726 2,726 - - 2,726 Liabilities: Deposits $ 1,484,731 - 1,487,475 - 1,487,475 Junior subordinated debentures 15,464 - 15,464 - 15,464 (9) Reportable Segments The Company has two reportable segments as described below: Banking Operations – This segment reflects the consolidated Bank, excluding CBRES. The primary source of revenue for this segment is net interest income. CBRES – A Bank subsidiary that provides appraisal management services to community banks. The primary source of revenue for this segment is appraisal management fee income. The Bank’s executive management team, which is comprised of the Bank’s Chief Executive Officer, Chief Financial Officer and executive vice presidents, is the chief operating decision maker for the Company. The Bank’s executive management team reviews actual net income versus budgeted net income on a quarterly basis to assess segment performance. The following table presents financial information for the reportable segments. Financial results by operating segment, including significant expense categories provided to the chief operating decision maker, are detailed below. Certain prior period amounts have been reclassified to conform to the current presentation. The information provided under the caption “Other” represents the parent company, which is not considered to be a reportable segment, is included to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP. 28 Table of Contents (Dollars in thousands) Banking Operations CBRES Other Consolidated As of and for the three months ended March 31, 2025 Interest income $ 19,963 - 7 19,970 Interest expense 5,785 - 241 6,026 Net interest income 14,178 - ( 234 ) 13,944 Provision for credit losses 268 - - 268 Noninterest income 3,487 - - 3,487 Appraisal management fee income - 3,042 - 3,042 Salaries and employee benefits 6,466 220 102 6,788 Occupancy 2,018 10 - 2,028 Appraisal management fee expense - 2,419 - 2,419 Noninterest expense 3,083 188 67 3,338 Income tax expense (benefit) 1,325 47 ( 85 ) 1,287 Net income (loss) $ 4,505 158 ( 318 ) 4,345 Total assets $ 1,687,711 4,545 729 1,692,985 As of and for the three months ended March 31, 2024 Interest income $ 19,801 - 9 19,810 Interest expense 6,222 - 284 6,506 Net interest income 13,579 - ( 275 ) 13,304 Provision for credit losses 91 - - 91 Noninterest income 3,624 - - 3,624 Appraisal management fee income - 2,414 - 2,414 Salaries and employee benefits 6,683 196 101 6,980 Occupancy 2,110 1 - 2,111 Appraisal management fee expense - 1,904 - 1,904 Noninterest expense 3,313 147 61 3,521 Income tax expense (benefit) 841 38 ( 92 ) 787 Net income (loss) $ 4,165 128 ( 345 ) 3,948 Total assets $ 1,647,611 3,847 504 1,651,962 29 Table of Contents