United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31 2020, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 000-33411

New Peoples Bankshares, Inc.

(Exact name of registrant as specified in its charter)

Virginia

31-1804543

(State or other jurisdiction of
incorporation or organization) 

(I.R.S. Employer
Identification No.)

67 Commerce Drive

24260

HonakerVA

(Zip Code)

(Address of principal executive offices)

Registrant’s telephone number, including area code: (276)873-7000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock - $2$2.00 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes [ ] No [ X ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]   Accelerated filer [ ]
Non-accelerated filer [X]Smaller reporting company [X]
Emerging growth company [ ]

Large accelerated filer ☐                                                                                                     Accelerated filer ☐

Non-accelerated filer ☒                                                                                        Smaller reporting company ☒

                                                                                                                               Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [ ]

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. [ ]

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]

The aggregate market value of the common stock held by non-affiliates, based on the last reported sales price of $1.40$2.35 per share on the last business day of the second quarter of 2020,2022, was $14,465,501.$23,568,051.

The number of shares outstanding of the registrant’s common stock was 23,922,08623,831,046 as of March 31, 2021.24, 2023.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the 20212023 Annual Meeting of Shareholders – Part III

 

 

TABLE OF CONTENTS

Page 

 

 

 

PART I

 

 

Item 1.

Business

4

Item 1A.

Risk Factors

1614

Item 1B.

Unresolved Staff Comments

1614

Item 2.

Properties

1614

Item 3.

Legal Proceedings

1715

Item 4.

Mine Safety Disclosures

1715

PART II

17

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

1715

Item 6.

Selected Financial Data[Reserved]

1716

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1816

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

3734

Item 8.

Financial Statements and Supplementary Data

3835

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

7371

Item 9A.

Controls and Procedures

7371

Item 9B.

Other Information

7471

              Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

71

PART III

PART IIIItem 10.

Item 10.

Directors, Executive Officers and Corporate Governance

7471

Item 11.

Executive Compensation

7472

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

7472

Item 13.

Certain Relationships and Related Transactions, and Director Independence

7472

Item 14.

Principal Accounting Fees and Services

7472

PART IV

Item 15.

Exhibits, Financial Statement Schedules

7572

Item 16.

Form 10-K Summary

7573

SIGNATURES

76

74

 

 

PART I

Item 1.Business

Item 1.       Business

 

General

New Peoples Bankshares, Inc. (New Peoples, the Company, we, us or our) is a Virginia financial holding company headquartered in Honaker, Virginia. Our business is conducted primarily through New Peoples Bank, Inc., a Virginia banking corporation (the Bank)“Bank”). The Bank has a division doing business as New Peoples Financial Services which offers investment services through its broker-dealer relationship with Infinex Investments, Inc. NPB Insurance Services, Inc. (NPB Insurance)(“NPB Insurance”) is a subsidiary of the Bank and generates revenue through the referral of insurance services.

The Bank, headquartered in Honaker, Virginia, offers a range of banking and related financial services focused primarily on serving individuals, small to medium size businesses, and the professional community. We strive to serve the banking needs of our customers while developing personal, hometown relationships with them. Our board of directors believes that marketing customized banking services enables us to establish a niche in the financial services marketplace where we do business.

We provide professionals and small andto medium size businesses in our market area with responsive and technologically enabled banking services. These services include loans that are priced on a deposit relationship basis, easy access to our decision makers, and quick and innovative action necessary to meet a customer’s banking needs. Our capitalization and lending limit enable us to satisfy the credit needs of a large portion of the targeted market segment. When a customer needs a loan that exceeds our lending limit, we try to find other financial institutions to participate in the loan with us.

Our History

The Bank was incorporated under the laws of the Commonwealth of Virginia on December 9, 1997 and began operations on October 28, 1998. On September 27, 2001, the shareholders of the Bank approved a plan of reorganization under which they exchanged their shares of Bank common stock for shares of New Peoples common stock. On November 30, 2001, the reorganization was completed and the Bank became New Peoples’ wholly-owned subsidiary.

In June 2003, New Peoples formed two new wholly-owned subsidiaries, NPB Financial Services, Inc. (renamed NPB Insurance Services, Inc. in June 2012) and NPB Web Services, Inc., an inactive web design and hosting company.

The Bank, through its division New Peoples Financial Services, offers fixed and variable annuities, fee basedfee-based asset management and other investment products through a broker/dealer relationship with Infinex Investments, Inc.

In July 2004, NPB Capital Trust I was formed by New Peoples to issue $11.3 million in trust preferred securities.

In September 2006, NPB Capital Trust 2 was formed by New Peoples to issue $5.2 million in trust preferred securities.

On June 7, 2017, NPB Insurance Services, Inc. purchased a 39% membership interest in Lonesome Pine Title Agency, LLC, which provides title insurance. Another member of the agency is a related party to the Company.

Branch Locations

After a period of significant branch expansion between 2000 and 2008, weWe have since consolidated some of our branch operations to improve efficiency. Currently, in addition to our headquarters in Honaker, Virginia we have 1817 full-service branches located in three states: Virginia - Abingdon, Big Stone Gap, Bluefield, Bristol (2), Castlewood, Chilhowie, Clintwood, Gate City, Grundy, Haysi, Honaker, Lebanon, Pounding Mill, Tazewell Weber City and Wise; West Virginia - Princeton (2); and Tennessee – Kingsport. Additionally, we have one limited services branch in Pound, Virginia; a loan production office in Boone, North Carolina; and a former loan production office in Jonesborough, Tennessee which is currently being used as a hub to meet prospective loan customers.Carolina.

On September 14, 2020, we opened the branch office in Kingsport, Tennessee, which is located in a building we purchased in February 2020. On October 30, 2020, we closed a nearby office and transferred accounts to the newly opened branch. We have also moved our loan production office to this location and terminated the lease on the former loan production office when it expired in the fourth quarter of 2020.


Renovations to a building we purchased in Bristol, Virginia in 2019, resumed in January 2021 and we anticipate opening this office during the third quarter of 2021. The impact of COVID-19 had caused us to delay those renovations. Regulatory approval to operate this office as a full-service branch was initially received in October 2019 and has been extended to October 2021. We believe this expansion, along with the newly opened Kingsport, TN location, fits our stated objective of expanding our presence in the Tri-Cities market area. The Bristol location is within the business district and will allow us to provide retail consumer, commercial banking and financial services within Bristol and the surrounding area.

Our Market Areas

Our primary market area consists of southwestern Virginia, southern West Virginia, northeastern Tennessee, and western North Carolina. Specifically, we operate in the southwestern Virginia counties of Russell, Scott, Washington, Tazewell, Buchanan, Dickenson, Wise, and Smyth; Mercer countyWise; in the southern West Virginia county of Mercer and the northeastern Tennessee countiescounty of Sullivan and Washington (collectively, the “Tri-State Area”). In North Carolina, our loan production office is in the county of Watauga. The close proximity and mobile nature of individuals and businesses in adjoining counties and nearby cities in Virginia, West Virginia, Tennessee and North Carolina place these markets within our Bank’s targeted trade area, as well.

4

 

Accessibility to Interstates I-77, I-81, I-26, I-64, I40 and I-75, as well as major state and U.S. highways including US 19, US 23, US 58, US 460 and US 421, make the area an ideal location for businesses to serve markets in the Mid-Atlantic, Southeast and Midwest. The area is strategically located midway between Atlanta-Pittsburgh, Charlotte-Cincinnati, and Richmond-Louisville, and is within a day’s drive of more than half of the U.S. population. A regional airport located in Bristol, Tennessee serves the area with commercial flights to and from major cities in the United States. Commercial rail service providers include CSX Transportation and Norfolk Southern Railways.

The Tri-State Area has a diversified economy supported by natural resources, which include coal, natural gas, limestone, and timber; agriculture; healthcare; education; technology; manufacturing and services industries. Predominantly, the market is comprised of locally owned and operated small businesses. Considerable investments in high-technology communications, high-speed broadband network and infrastructure have been made which has opened the area to large technology companies and future business development potential for new and existing businesses. IndustriesBusinesses are taking advantage of the low cost of doing business, training opportunities, available workforce and an exceptional quality of life experience for employers and employees alike.

Internet Site

Our internet banking site can be accessed at www.newpeoples.bank. The site includes a customer service area that contains branch and Interactive Teller Machine (ITM) locations, product descriptions and current interest rates offered on deposit accounts. Customers with internet access can apply for loans and credit cards, open deposit accounts online, access account balances, make transfers between accounts, enter stop payment orders, order checks, and use an optional bill paying service.

Available Information

We file annual, quarterly, and current reports, proxy statements and other information with the Securities and Exchange Commission (the SEC). The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC. Our SEC filings are filed electronically and are available to the public online at the SEC’s web site at www.sec.gov. We also provide a link to our filings on the SEC website, free of charge, through our internet website www.npbankshares.comhttps://newpeoples.bank/Bankshares-About-Us under “Investor"Investor Relations." Information on the websites of the Company and the Bank is not a part of, and is not incorporated into, this report or any other filings the Company makes with the SEC.

5

COVID-19 Pandemic

The coronavirus (COVID-19) pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. Although the temporary closure of many businesses and shelter-in-place policies have eased, restrictions and social distancing continue to impact many of the Company’s customers. While the full effects of the pandemic still remain unknown, the Company is committed to supporting its customers, employees and communities during this difficult time. The Company has given hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encourages customers to reach out for assistance to support their individual circumstances. The pandemic could result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions, we may be required to recognize impairments on securities, goodwill or other significant estimates. The extent to which the pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Effective March 16, 2020, the Federal Reserve lowered the federal funds target rate to a range of between zero and 0.25%. This action followed a prior reduction of the federal funds target rate to a range of 1.00% to 1.25% effective on March 4, 2020. These actions were taken in an emergency response to stem the economic impact of the pandemic. The Federal Reserve has indicated that it expects to maintain the targeted federal funds rate at current levels until such time that the economic environment has stabilized for a period of time. The Company’s earnings and related cash flows are largely dependent upon net interest income, representing the difference between interest income received on interest-earnings assets, primarily loans and securities, and the interest paid on interest-bearing liabilities, primarily customer deposits and borrowed funds. Since the Company’s balance sheet is asset sensitive, earnings are more adversely affected by falling rates since rate sensitive assets reprice more quickly than rate sensitive liabilities. Should the Federal Reserve take any further action regarding rates in relation to the pandemic, the Company’s margins could be compressed even further, perpetuating the negative effect on net income.

The U.S. government also enacted certain fiscal stimulus measures in several phases to assist in counteracting the economic disruptions caused by the pandemic. On March 6, 2020, the Coronavirus Preparedness and Response Supplemental Appropriations Act was enacted to authorize funding for research and development of vaccines and to allocate money to state and local governments for response and containment measures. On March 18, 2020, the Families First Coronavirus Response Act was put in place to provide for paid sick/medical leave, no-cost coverage for testing, expanded unemployment benefits and additional funding to states for the ongoing economic consequences of the pandemic. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. Among other measures, the CARES Act provided $349 billion for the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA) to assist qualified small businesses with certain operational expenses, certain credits for individuals and their dependents against their 2020 personal income tax and expanded eligibility for unemployment benefits. This legislation was later amended on April 24, 2020, by the Paycheck Protection Program and Healthcare Enhancement Act which provided an additional $310 billion of funding for PPP loans.

Certain provisions within the CARES Act encourage financial institutions to practice prudent efforts to work with borrowers impacted by the pandemic. Under these provisions, loan modifications deemed to be COVID-19 related would not be considered a troubled debt restructuring (TDR) if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of the termination of the COVID-19 national emergency or December 31, 2020. The banking regulators issued a similar guidance, which also clarified that a COVID-19 related modification should not be considered a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification is considered to be short-term. The Company implemented a short-term modification program to provide relief to consumer and commercial customers following the guidelines of these provisions. Most modifications fall into the 90 to 180-day range with deferred principal and interest due and payable on the maturity date of the existing loans. Specific detail describing these modifications made in relation to the CARES Act can be found in the Loans and Troubled Debt Restructurings discussions in Notes 6 and 8 to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.

Following the enactment of these provisions, in December 2020, the Consolidated Appropriations Act, 2021 was enacted to provide additional economic stimulus to individuals and businesses in response to the extended economic distress caused by the pandemic. This included additional stimulus payments to individuals and their dependents, and extension of enhanced unemployment benefits, $284 billion of additional funds for a second round of PPP loans and a new simplified forgiveness procedure for PPP loans of $150,000 or less. The Bank was a lender for the initial SBA program and closed 665 PPP loans totaling $44.5 million. As of March 31, 2021, 407 loans totaling $24.7 million were fully repaid through forgiveness by the SBA. The Bank is also participating in the second round of the program and through March 31, 2021 has closed 322 loans totaling $18.8 million.


The Company has responded to the circumstances surrounding the pandemic to support the safety and well-being of the employees, customers and shareholders by enacting the following measures:

A pandemic response team was formed of key employees. This team meets weekly to address the various aspects of the pandemic and how the bank will respond to the issues that impact customers, employees and the communities we serve.

The 2020 annual shareholder meeting was held virtually, as will the 2021 meeting.

Non-essential travel and large external gatherings were restricted and mandatory quarantine periods and testing were instituted for anyone that has known exposure to COVID-19.

Remote-access availability was expanded to enable, where possible, work at home or alternate locations, in order to segregate employees in operational areas to mitigate possible spread of illness to an entire department.

Lobby services were discontinued. However, appointments can be made as necessary to complete paperwork or complex transactions, or to access safe deposit boxes.

Drive-thru services remain open where available, and the use of ITMs, internet banking and mobile banking services are encouraged.

We initiated a call program to check on the welfare of customers and to inform them of the various service options available to them in lieu of face-to-face transactions.

The capability to electronically sign important documents has been expanded.

Social distancing policies were implemented and employees are required to wear masks, and customers are encouraged to do the same.

Given the dynamic nature of the circumstances surrounding the pandemic, it is difficult to ascertain the full impact the ongoing economic disruption will have on the Company. While this impact cannot be predicted or measured, we expect that our income could be impacted in various ways. It is anticipated that the provision for loan loss expense will remain elevated in expectation of a deterioration in a portion of the loan portfolio. As a result of the significant decline in interest rates, the Company may continue to experience a decline in net income and resulting net interest margin; however, there will be a benefit from the fees arising from the PPP loan program. Also, it is possible that noninterest income could be reduced as customers may use fewer fee-based services due to continuing COVID-19 mitigation efforts, such as stay-at-home orders. The Company will continue to closely monitor situations arising from the pandemic and adjust operations accordingly.

Banking Services

General. We accept deposits, make consumer and commercial loans, issue drafts, and provide other services customarily offered by a commercial bank, such as business and personal checking and savings accounts, walk-up tellers, drive-in windows, and 24-hour interactive teller machines.ITMs. The Bank is a member of the Federal Reserve System and its deposits are insured under the Federal Deposit Insurance Act (the FDIA) to the maximum limit.

Loans.Generally, we offer a full range of short-to-medium termshort-, medium- and longer-term commercial, 1-4 family residential mortgages and personal loans. Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements) and purchase of equipment and machinery. Consumer loans may include secured and unsecured loans for financing automobiles, home improvements, education, personal investments and other purposes.

Our lending activities are subject to a variety of lending limits imposed by state law. While differing limits may apply in certain circumstances based on the type of loan or the nature of the borrower (including the borrower’s relationship to the Bank), the Bank generally is subject to a loans-to-one-borrower limit of an amount equal to 15% of its capital and surplus plus the allowance for loan losses. The Bank voluntarily may choose to impose a policy limit on loans to a single borrower that is less than the legal lending limit.

We obtain short-to-medium termshort-, medium- and longer-term commercial and personal loans through direct solicitation of business owners and continued business from existing customers. Completed loan applications are reviewed by our loan officers. As part of the application process, information is obtained concerning the income, financial condition, employment and credit history of the applicant. If commercial real estate is involved, information is also obtained concerning cash flow after debt service. Loan quality is analyzed based on the Bank’s experience and its credit underwriting guidelines.


5

Loans by type as a percentage of total loans are as follows:

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Commercial, financial and agricultural

 

 

19.28%

 

 

 

14.45%

 

 

 

15.20%

 

 

 

13.35%

 

 

 

11.75%

 

Real estate – construction

 

 

4.35%

 

 

 

5.53%

 

 

 

6.42%

 

 

 

5.80%

 

 

 

5.50%

 

Real estate – commercial

 

 

31.17%

 

 

 

30.30%

 

 

 

25.74%

 

 

 

24.89%

 

 

 

22.05%

 

Real estate – residential

 

 

41.62%

 

 

 

45.61%

 

 

 

48.15%

 

 

 

51.59%

 

 

 

55.97%

 

Installment loans to individuals

 

 

3.58%

 

 

 

4.11%

 

 

 

4.49%

 

 

 

4.37%

 

 

 

4.73%

 

Total

 

 

100.00%

 

 

 

100.00%

 

 

 

100.00%

 

 

 

100.00%

 

 

 

100.00%

 

Commercial Loans. We make commercial loans to qualified businesses in our market area. Our commercial lending consists primarily of commercial and industrial loans to finance accounts receivable, inventory, property, plant and equipment. Commercial business loans generally have a higher degree of risk than residential mortgage loans, but have commensurately higher yields. Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be easily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself.

In 2020, commercial loans also include PPP loans that were made to assist small businesses and non-profit organizations during the pandemic to cover payroll costs and other permitted expenses. These loans are fully guaranteed by the Small Business Administration.

Further, the collateral for commercial business loans may depreciate over time and cannot be appraised with as much precision as residential real estate. To manage these risks, our underwriting guidelines generally require us to secure commercial loans with both the assets of the borrowing business and other additional collateral and guarantees that may be available. In addition, we actively monitor certain measures of the borrower, including advance rate, cash flow, collateral value and other appropriate credit factors.

Residential Mortgage Loans. Our residential mortgage loans consist of residential first and second mortgage loans, residential construction loans, home equity lines of credit and term loans secured by first and second mortgages on the residences of borrowers for home improvements, education and other personal expenditures. We make mortgage loans with a variety of terms, including fixed and floating or variable rates and a variety of maturities.

Under our underwriting guidelines, residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be easily ascertainable. These loans are made consistent with our appraisal policies and real estate lending policies, which detail maximum loan-to-value ratios and maturities.

Construction Loans. Construction lending entails significant additional risks compared to residential mortgage lending. Construction loans often involve larger loan balances concentrated with single borrowers or groups of related borrowers. Construction loans also involve additional risks attributable to the fact that loan funds are advanced upon the security of property under construction, which is of uncertain value prior to the completion of construction. Thus, it is more difficult to evaluate the total loan funds required to complete a project and related loan-to-value ratios accurately. To minimize the risks associated with construction lending, loan-to-value limitations for residential, multi-family and non-residential construction loans are in place. These are in addition to the usual credit analyses of borrowers. Management feels that the loan-to-value ratios help to minimize the risk of loss and to compensate for normal fluctuations in the real estate market. Maturities for construction loans generally range from 4 to 12 months for residential property and from 6 to 18 months for non-residential and multi-family properties.

 

Consumer Loans. Our consumer loans consist primarily of installment loans to individuals for personal, family and household purposes. The specific types of consumer loans that we make include home improvement loans, debt consolidation loans and general consumer lending. Consumer loans entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured, such as lines of credit, or secured by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance due to the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. A borrower may also be able to assert against the Bank as an assignee any claims and defenses that it has against the seller of the underlying collateral.


Our underwriting policy for consumer loans seeks to limit risk and minimize losses, primarily through a careful analysis of the borrower’s creditworthiness. In evaluating consumer loans, we require our lending officers to review the borrower’s level and stability of income, past credit history and the impact of these factors on the ability of the borrower to repay the loan in a timely manner. In addition, we maintain an appropriate margin between the loan amount and collateral value.

Deposits.We offer a variety of deposit products for both individual and business customers. These include demand deposit, interest-bearing demand deposit, savings deposit, money market, health savings and individual retirement (IRA) deposit accounts. In addition, we offer certificates of deposit with terms ranging from 7 days to 60 months, including IRAs with terms ranging from 12 months to 60 months.

6

 

Investment Services. We offer a variety of investment services for both individual and business customers. These services include fixed income products, variable annuities, mutual funds, indexed certificates of deposit, individual retirement accounts, long term care insurance, employee group benefit plans, college savings plans, financial planning, managed money accounts, and estate planning. We offer these services through our broker-dealer relationship with Infinex Investments, Inc.

 

Other Bank Services. Other bank services include safe deposit boxes, cashier’s checks, certain cash management services, direct deposit of payroll and social security checks and automatic drafts for various accounts. We offer ITM and debit card services that can be used by our customers throughout our service area and other regions. We also offer consumer and commercial VISA credit card services. Electronic banking services include debit cards, internet banking, telephone banking, mobile banking, remote deposit capture; merchant transaction processing and wire transfers.

We do not presently anticipate obtaining trust powers, but we are able to provide similar services through our affiliation with Infinex Investments, Inc. Additionally, we have initiated programs of differentiator presentations focusing on such issues as financial literacy and elder abuse. We believe that these types of programs assist our local communities and highlight the skills of our financial service providers.

Competition

The financial services business is highly competitive. We compete as a financial intermediary with other commercial banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the southwestern Virginia, southern West Virginia, eastern Tennessee, and western North Carolina market areas and elsewhere, including online financial services providers. Our market area is a highly competitive, highly branched banking market.

Competition in the market area for loans to small businesses and professionals, the Bank’s target market, is intense, and pricing is important. Many of our larger competitors have substantially greater resources and lending limits than we have. They offer certain services, such as extensive and established branch networks and trust services, that we do not provide or do not expect to provide in the near future. Moreover, larger institutions operating in the market area have access to borrowed funds at lower costs than are available to us. Deposit competition among institutions in theour market area also is strong. As a result, it is possible that we may have to paystrong, resulting in the possibility of our paying above-market rates to attract or retain deposits. As the pandemic waned, funds received into our customers’ deposit accounts from PPP loans and stimulus payments were drawn down. This decreased customer liquidity, combined with increased interest rates, has resulted in increased competition for deposits.

While pricing is important, our principal method of countering the competition is service. As a community banking organization, we strive to serve the banking needs of our customers while developing personal, hometown relationships with them. Additionally, we workedcontinue to implementadd and enhance digital banking services prior to the onset of the pandemic.services. As a result, we provide a significant amount of service and a range of products through multiple channels at reasonable fees.


According to a market share report prepared by the Federal Deposit Insurance Corporation (the FDIC)“FDIC”), as of June 30, 2020,2022, the most recent date for which market share information is available, the Bank’s deposits as a percentage of total deposits in its major market areas were as follows:

7

County or City

% of Market

Dickenson County, VA

33.95%
Scott County, VA

38.60

%

31.75%

Dickenson County, VA

29.13

%

Russell County, VA

25.15

%

23.62%

Buchanan County, VA

10.92%
Tazewell County, VA8.59%
Wise County, VA

10.59

%

6.13%

TazewellWashington County, VA

9.14

%

6.13%

Buchanan County, VA

9.56

%

Mercer County, WV

6.23

%

5.51%

Smyth County, VA

4.66

%

Washington County, VA

4.34

%

City of Bristol, VA

3.12

%

5.31%

Smyth County, VA*

3.77%
City of Kingsport, TN

1.98

%

2.17%


Employees* - In August 2022, we closed our branch operation in Smyth County, Virginia, and transferred those deposits to our office in Washington County, Virginia

Employees

As of December 31, 2020,2022, we had 201 total employees, of which 193 were194 full-time equivalent employees. None of our employees is covered by a collective bargaining agreement, and we consider relations with employees to be excellent.

Supervision and Regulation

General. As a financial holding company, we are subject to regulation under the Bank Holding Company Act of 1956, as amended (BHCA), and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (the Federal Reserve).Reserve. We are also subject to the provisions of the Code of Virginia governing bank holding companies. As a state-chartered commercial bank, the Bank is subject to regulation, supervision and examination by the Virginia State Corporation Commission’s Bureau of Financial Institutions (BFI). As a member of the Federal Reserve System, the Bank is also subject to regulation, supervision and examination by the Federal Reserve. Other federal and state laws, including various consumer protection and compliance laws, also govern the activities of the Bank, such as the investments that it makes and the aggregate amount of loans that it may grant to one borrower.Bank.

The following description summarizes the most significant federal and state laws applicable to New Peoples and its subsidiaries. To the extent that statutory or regulatory provisions are described, the description is qualified in its entirety by reference to that particular statutory or regulatory provision.

The Bank Holding Company Act. Under the BHCA, the Federal Reserve examines New Peoples periodically. New Peoples is also required to file periodic reports and provide any additional information that the Federal Reserve may require. Activities at the bank holding company level are generally limited to:

banking, managing or controlling banks;

furnishing services to or performing services for its subsidiaries; and

engaging in other activities that the Federal Reserve has determined by regulation or order to be so closely related to banking as to be a proper incident to these activities.

•       banking, managing or controlling banks;

•       furnishing services to or performing services for its subsidiaries; and

•       engaging in other activities that the Federal Reserve has determined by

regulation or order to be so closely related to banking as to be a proper

incident to these activities.

Thus, the activities we can engage in are restricted as a matter of law.

With some limited exceptions, the BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before:

•       acquiring substantially all the assets of any bank;

•       acquiring direct or indirect ownership or control of any voting shares of any bank if after such acquisition it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares); or

8

 

acquiring substantially all the assets of any bank;

acquiring direct or indirect ownership or control of any voting shares of any bank if after such acquisition it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares); or

merging or consolidating with another bank holding company.


•       merging or consolidating with another bank holding company.

As a result, our ability to engage in certain strategic activities is conditioned on regulatory approval.

In addition, and subject to some exceptions, the BHCA and the Change in Bank Control Act require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company as defined in the statutes and regulations. These requirements make it more difficult for control of our company to change or for us to acquire substantial investments.

Financial Holding Company. As of March 4, 2016, the Company elected to become qualified as a financial holding company (FHC). The Gramm-Leach-Bliley Act (GLBA) created this category of bank holding companies. FHC’s may directly or indirectly through subsidiaries engage in financial activities and activities “incidental” or “complementary” to financial activities. Generally, aan FHC need not give prior notice of such activities, but must notify the Federal Reserve within 30 days after thean event.

The BHCA provides a long list of “financial” activities that may be engaged in by FHCs such as underwriting, brokering or selling insurance; providing financial or investment advice or underwriting, dealing in or making a market in securities.

There are other potential “financial” activities in which the Federal Reserve is permitted to designate as permitted financial or incidental to financial activities.

We do not currently undertake activities specifically permitted to us as aan FHC that are not otherwise permissible for bank holding companies not qualified as FHCs.

Bureau of Financial Institutions (BFI).Institutions. As a bank holding company registered with the BFI, we must provide the BFI with information concerning our financial condition, operations and management, among other reports required by the BFI. New Peoples is also examined by the BFI in addition to its Federal Reserve examinations. Similar to the BHCA, the Code of Virginia requires that the BFI approve the acquisition of direct or indirect ownership or control of more than 5% of the voting shares of any Virginia bank or bank holding company like us.

Payment of Dividends. New Peoples is a separate legal entity that derives the majority of its revenues from dividends paid to it by its subsidiaries. The Bank is subject to laws and regulations that limit the amount of dividends it can pay. In addition, both New Peoples and the Bank are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums. Banking regulators have indicated that banking organizations should generally pay dividends only if the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. The FDIC has the general authority to limit the dividends paid by FDIC insured banks if the FDIC deems the payment to be an unsafe and unsound practice. The FDIC has indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice.

Capital Adequacy. The federal banking regulators have issued substantially similar capital requirements applicable to all banks and bank holding companies. In addition, those regulators may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth.


The Company meets the eligibility criteria to be considered a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement issued in February, 2015 and does not report consolidated regulatory capital. With respect to the Bank, the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act (FDIA) were revised, effective as of January 1, 2015, to incorporate a new Common Equity Tier 1 (CET1) risk-based capital measure. The risk-based capital and leverage capital requirements under the final prompt corrective action regulationsFDIA are set forth in the following table:

9

Total Risk

Tier 1 Risk

CET1 Risk

Based Capital

Based Capital

Based Capital

Leverage

Ratio

Ratio

Ratio

Ratio

Well Capitalized

≥10%

≥ 8%

≥ 6.5%

≥ 5%

Adequately Capitalized

≥ 8%

≥6%

≥4.5%

≥ 4%

Undercapitalized

< 8%

< 6%

< 4.5%

< 4%

Significantly Undercapitalized

< 6%

< 4%

< 3%

< 3%

Critically Undercapitalized

Tangible equity to total assets ≤ 2%

The FDIA requires the federal banking regulators to take “prompt corrective action” if a depository institution does not meet minimum capital requirements as set forth above. Generally, a receiver or conservator for a bank that is “critically undercapitalized” must be appointed within specific time frames. The regulations also provide that a capital restoration plan must be filed within 45 days of the date a bank is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Any holding company for a bank required to submit a capital restoration plan must guarantee the lesser of (i) an amount equal to 5% of the bank’s assets at the time it was notified or deemed to be undercapitalized by a regulator, or (ii) the amount necessary to restore the bank to adequately capitalized status. This guarantee remains in place until the bank is notified that it has maintained adequately capitalized status for specified time periods. Additional measures with respect to undercapitalized institutions include a prohibition on capital distributions, growth limits and restrictions on activities.

The Bank is also subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act). The final rules established minimum capital ratios plus a “capital conservation buffer” designed to absorb losses during periods of economic stress. The phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The final provisions for banks with $250 billion or less in total assets, such as the Bank, are set forth in the following table:

Minimum Leverage Ratio

4.00

%

4.00%

Minimum CET1 Risk Based Capital Ratio

4.50

%

4.50%

Capital Conservation Buffer (1)

2.50

%

2.50%

Minimum Tier CET1 Risk Based Capital Ratio with Capital Conservation Buffer

7.00

%

7.00%

Minimum Tier 1 Risk Based Capital Ratio

6.00

%

6.00%

Minimum Tier 1 Risk Based Capital Ratio with Capital Conservation Buffer

8.50

%

8.50%

Minimum Total Risk Based Capital Ratio

8.00

%

8.00%

Minimum Total Risk Based Capital Ratio with Capital Conservation Buffer

10.50

%

10.50%

(1)The capital conservation buffer must be maintained in order for a banking organization to avoid being subject to limitations on capital distributions, including dividend payments, and discretionary bonus payments to executive officers.

(1)    The capital conservation buffer must be maintained in order for a banking organization to avoid being subject to limitations on capital distributions, including dividend payments, and discretionary bonus payments to executive officers.

The final rules include comprehensive guidance with respect to the measurement of risk-weighted assets.  For residential mortgages, Basel III retains the risk-weights contained in the prior capital rules, which assign a risk-weight of 50% to most first-lien exposures and 100% to other residential mortgage exposures.  The final rule increased the risk-weights associated with certain on-balance sheet assets, such as high volatility commercial real estate loans, and loans that are more than 90 days past due or in nonaccrual status. Capital requirements also increased for certain off-balance sheet exposures including, for example, loan commitments with an original maturity of one year or less.

Under the final rules, certain banking organizations, including the Company and the Bank, were permitted to make a one-time election to continue the prior treatment of excluding from regulatory capital most accumulated other comprehensive income (AOCI) components, including amounts relating to unrealized gains and losses on available-for-sale debt securities and amounts attributable to defined benefit post-retirement plans.  Institutions that elected to exclude most AOCI components from regulatory capital under Basel III will be able to avoid volatility that would otherwise be caused by things such as the impact of fluctuations in interest rates on the fair value of available-for-sale debt securities.  The Company and the Bank elected to exclude AOCI components from regulatory capital under Basel III.

Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on taking brokered deposits and certain other restrictions on its business. As described below, the FDIC can impose substantial additional restrictions upon FDIC-insured depository institutions that fail to meet applicable capital requirements as set forth above.


On September 17, 2019, the federal banking regulators jointly issued a final rule required by the Economic Growth, Regulatory Reform and Consumer Protection Act (EGRRCPA) that permits qualifying banks and bank holding companies that have less than $10 billion in consolidated assets, such as New Peoples and the Bank, to elect to be subject to a 9% leverage ratio that would be applied using less complex leverage calculations (commonly referred to as the community bank leverage ratio or CBLR). Under the rule, which became effective on January 1, 2020, banks and bank holding companies that opt into the CBLR framework and maintain a CBLR of greater than 9% are not subject to other risk-based and leverage capital requirements under the Basel III rules and would be deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. The CARES Act directed federal banking agencies to adopt interim final rules to lower the threshold under the CBLR from 9% to 8% and to provide a reasonable grace period for a community bank that falls below the threshold to regain compliance, in each case until the earlier of the termination date of the national emergency or December 31, 2020. In April 2020, the federal bank regulatory agencies issued two interim final rules implementing this directive. One interim final rule provides that, as of the second quarter 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also establishes a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement. We have not adopted the CBLR framework.

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For further detail on capital and capital ratios, see discussion undercontained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” sections “Capital Resources” and “Liquidity,” containedand in Item 7,8, “Financial Statements and inSupplementary Data,” “Consolidated Financial Statements and Notes,” Note 21, “Capital,“Capital. to the accompanying Consolidated Financial Statements contained in Item 8.

Other Safety and Soundness Regulations. There are a number of obligations and restrictions imposed on banks and financial or bank holding companies and their bank subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event that the depository institution is insolvent or is in danger of becoming insolvent. For example, the Federal Reserve requires a bank or financial or bank holding company to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so otherwise. These requirements can restrict the ability of bank holding companies to deploy their capital as they otherwise might.

Interstate Banking and Branching. Banks in Virginia may branch without geographic restriction. Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Bank holding companies may acquire banks in any state without regard to state law except for state laws requiring a minimum time a bank must be in existence to be acquired. The Code of Virginia generally permits out of state bank holding companies or banks to acquire Virginia banks or bank holding companies subject to regulatory approval. These laws have the effect of increasing competition in banking markets.

Monetary Policy. The commercial banking business is affected not only by general economic conditions but also by the monetary policies of the Federal Reserve. The Federal Reserve’s monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. In view of unsettled conditions in the national and international political environment, economy and money markets, as well as governmental fiscal and monetary policies, their impact on interest rates, deposit levels, loan demand or the business and earnings of the Bank is unpredictable.

Federal Reserve System. Depository institutions that maintain transaction accounts or nonpersonal time deposits are subject to reserve requirements. These reserve requirements are subject to adjustment by the Federal Reserve. Because required reserves must be maintained in the form of vault cash or in a non-interest-bearing account at, or on behalf of, a Federal Reserve Bank, the effect of the reserve requirement is to reduce the amount of the institution’s interest-earning assets.

Transactions with Affiliates. Transactions between banks and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. These provisions restrict the amount of, and provide conditions with respect to, loans, investments, transfers of assets and other transactions between New Peoples and the Bank.

Loans to Insiders. The Bank is subject to rules on the amount, terms and risks associated with loans to executive officers, directors, principal shareholders and their related interests.


Community Reinvestment Act. Under the Community Reinvestment Act, depository institutions have an affirmative obligation to assist in meeting the credit needs of their market areas, including low and moderate-income areas, consistent with safe and sound banking practices. The Community Reinvestment Act emphasizes the delivery of bank products and services through branch locations in a bank’s market areas and requires banks to keep data reflecting their efforts to assist in its community’s credit needs. Depository institutions are periodically examined for compliance with the Community Reinvestment Act and are assigned ratings in this regard. Banking regulators consider a depository institution’s Community Reinvestment Act rating when reviewing applications to establish new branches, undertake new lines of business, and/or acquire part or all of another depository institution. An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its depository institution subsidiaries. A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the GLBA (see below) may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a “Satisfactory” rating in its latest Community Reinvestment Act examination. The Bank received a rating of “Satisfactory” at its last Community Reinvestment Act performance evaluation, as of July 22, 2019.August 1, 2022.

11

 

In September 2020,May 2022, the Federal Reservefederal bank regulatory agencies jointly issued a proposed rule thatintended to strengthen and modernize the CRA regulatory framework. If implemented, the rule would, significantly change existing Community Reinvestment Act regulations. The proposed rule is intended to:among other things, (i) strengthen Community Reinvestment Act’s core purpose of meeting the wide range ofexpand access to credit, investment and basic banking services in low- toand moderate-income banking needs and addressing inequities in financial services and credit access;communities, (ii) update standardsadapt to reflect changes in the banking over time,industry, including the increased use ofinternet and mobile and internet delivery channels,banking, (iii) promote financial inclusion by including special provisions for activities in underserved areas, and for investments in minority-owned institutions, (iv) bringprovide greater clarity, consistency and transparency to performance evaluations that are tailored to local conditions, (v)in the application of the regulations and (iv) tailor performance tests and assessmentsstandards to account for differences in bank sizessize, business model, and business models, (vi) clarify and expand eligible Community Reinvestment Act activities focused on low- to moderate-income communities, (vii) minimize data burden and tailor data collection and reporting requirements, and (vii) recognize the special circumstances of small banks in rural areas. We are evaluating what impact this proposed rule, if implemented, may have on the Company.local conditions.

Gramm-Leach-Bliley Act of 1999. The GLBA covers a broad range of issues, including a repeal of most of the restrictions on affiliations among depository institutions, securities firms and insurance companies. For example, the GLBA permits unrestricted affiliations between banks and securities firms. It also permits bank holding companies to elect to become FHCs, which can engage in a broad range of financial services as described above. In order to become aan FHC, a bank holding company and all of its affiliated depository institutions must be well-capitalized, well-managed and have at least a satisfactory Community Reinvestment Act rating. On March 4, 2016 the Federal Reserve Bank of Richmond approved New Peoples’ election to become aan FHC.

The GLBA also provides that the states continue to have the authority to regulate insurance activities, but prohibits the states, in most instances, from preventing or significantly interfering with the ability of a bank, directly or through an affiliate, to engage in insurance sales, solicitations or cross-marketing activities.

Anti-Money Laundering Legislation. New Peoples is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the Money Laundering Control Act of 1986, the USA PATRIOT Act of 2001, and the Anti-Money Laundering Act of 2020. Among other things, these laws and regulations require New Peoples to take steps to prevent the use of New Peoples for facilitating the flow of illegal or illicit money, to report large currency transactions, and to file suspicious activity reports. The Company is also required to carry out a comprehensive anti-money laundering compliance program. Violations can result in substantial civil and criminal sanctions. In addition, provisions of the USA Patriot Act require the federal bank regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.

Privacy and Fair Credit Reporting. Financial institutions, such as the Bank, are required to disclose their privacy policies to customers and consumers and require that such customers or consumers be given a choice (through an opt-out notice) to forbid the sharing of nonpublic personal information about them with nonaffiliated third persons. The Bank also requires business partners with whom it shares such information to assure the Bank that they have adequate security safeguards and to abide by the redisclosure and reuse provisions of applicable law. In addition to adopting federal requirements regarding privacy, individual states are authorized to enact more stringent laws relating to the use of customer information. To date,The Virginia has not done so.Consumer Data Protection Act, passed in 2021, became effective January 1, 2023 These privacy laws create compliance obligations and potential liability for the Bank.

Mortgage Banking Regulation. The Bank is subject to rules and regulations related to mortgage loans that, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers, in some cases restrict certain loan features and fix maximum interest rates and fees, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level. The Bank is also subject to rules and regulations that require the collection and reporting of significant amounts of information with respect to mortgage loans and borrowers. The Bank’s mortgage origination activities are subject to the Federal Reserve’s Regulation Z, which implements the Truth in Lending Act. Certain provisions of Regulation Z require creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. To the extent that we make mortgage loans, we are required to comply with these rules, subject to available exceptions.

Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) is intended to increase corporate responsibility, provide enhanced penalties for accounting and auditing improprieties by publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law. The changes required by the Sarbanes-Oxley Act and its implementing regulations are intended to allow shareholders to monitor the performance of companies and their directors more easily and effectively.


The Sarbanes-Oxley Act generally applies to all domestic companies, such as New Peoples, that file periodic reports with the Securities and Exchange Commission (SEC)SEC under the Securities Exchange Act of 1934, as amended. The Sarbanes-Oxley Act includes significant additional disclosure requirements and expanded corporate governance rules and the SEC has adopted extensive additional disclosures, corporate governance provisions and other related rules pursuant to it. New Peoples has expended, and will continue to expend, considerable time and money in complying with the Sarbanes-Oxley Act.

12

 

Federal Deposit Insurance Corporation. The Bank’s deposits are insured by the Deposit insuranceInsurance Fund, as administered by the FDIC, to the maximum amount permitted by law, which is $250,000 per depositor. The FDIC uses a “financial ratios method” based on “CAMELS” composite ratings to determine deposit insurance assessment rates for small established institutions with less than $10 billion in assets, such as the Bank. The CAMELS rating system is a supervisory rating system designed to take into account and reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk (CAMELS). CAMELS composite ratings set a maximum assessment for banks rated CAMELS 1 and 2, rated banks, and set minimum assessments for lower rated institutions. In 2022 and 2021, the Company recorded expense of $216 thousand and $266 thousand, respectively, for FDIC insurance premiums.

Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act was signed into law on July 21, 2010. Its wide rangingwide-ranging provisions affect all federal financial regulatory agencies and nearly every aspect of the American financial services industry. Among the provisions of the Dodd-Frank Act that directly impactimpacted the Company iswas the creation of an independent Consumer Financial Protection Bureau (CFPB), which has the ability to write rules for consumer protections governing all financial institutions. All consumer protection responsibility formerly handled by other banking regulators is consolidated in the CFPB. It also oversees the enforcement of all federal laws intended to ensure fair access to credit. For smallerSmaller financial institutions, such as the Company and the Bank, the CFPB coordinates its examination activities throughcontinued to be examined primarily by their primary regulators.

The Dodd-Frank Act contains provisions designed to reform mortgage lending, which includes the requirement of additional disclosures for consumer mortgages. The EGRRCPA modified a number of these requirements, including, for smaller institutions (under $10 billion in total assets) that qualify, a safe harbor for compliance with the “ability to pay” requirements for consumer mortgage loans. The CFPB has implemented mortgage lending regulations to carry out its mandate. In addition, the Federal Reserve has issued rules limiting the fees charged to merchants by credit card companies for debit card transactions. The result of these rules is to limit the amount of interchange fee income available explicitly to larger banks and indirectly to us. The Dodd-Frank Act also contains provisions that affect corporate governance and executive compensation.

The Dodd-Frank Act has had, and may in the future have, a material impact on New Peoples’ operations, particularly through increased compliance costs resulting from new and possible future consumer and fair lending regulations. TheAny future changes resulting from the Dodd-Frank Act may affect the profitability of business activities, require changes to certain business practices, impose more stringent regulatory requirements or otherwise adversely affect the business and financial condition of New Peoples and the Bank. These changes may also require New Peoples to invest significant management attention and resources to evaluate and make necessary changes to comply with new statutory and regulatory requirements.

The Economic Growth, Regulatory Reform and Consumer Protection Act of 2018. The EGRRCPA, which became effective in May 2018, amended provisions of the Dodd-Frank Act and other statutes administered by banking regulators. Among these amendments are provisions exempting insured depository institutions (and their parent companies) with less than $10 billion in consolidated assets and meeting certain other asset and liabilities trading tests from the Volker Rule, which prohibits banks from conducting certain investment activities with their own accounts. The EGRRCPA required the regulators to promulgate rules establishing the new CBLR, as described above. The ActEGRRCPA increased the asset threshold from $1 billion to $3 billion for financial institutions to qualify for a less burdensome 18 month on site18-month on-site examination schedule. The EGRRCPA made numerous other changes in regulatory requirements based on the size and complexity of financial institutions, particularly benefiting smaller institutions like the Company.

Cyber Security. In March 2015, federal Federal regulators issued two related statements regarding cyber security. One statement indicatesexpect that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates thatAdditionally, a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to developmaintain appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or any of its critical service providers fall victim to this type of cyber-attack. If the Company fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

1513

 

Federal bank regulators issued a joint rule, effective in 2022, establishing computer-security incident notification requirements for banking organizations and their bank service providers. The rule requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cyber incident has occurred. In addition, the final rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. The rule defines computer-security incident as an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits.

Limitations on Incentive Compensation. The federal bank regulatory agencies have issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging excessive risk-taking. The Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company and the Bank, that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a financial institution if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the institution’s safety and soundness, and the financial institution is not taking prompt and effective measures to correct the deficiencies. As of December 31, 2022, the Company and the Bank have not been made aware of any instances of noncompliance with this guidance.

Other Laws. Banks and other depository institutions also are subject to other numerous consumer-oriented laws and regulations. These laws, which include the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Fair and Accurate Credit Transactions Act of 2003 and the Fair Housing Act, require compliance by depository institutions with various disclosure and consumer information handling requirements. These and other similar laws result in significant costs to financial institutions and create potential liability for financial institutions, including the imposition of regulatory penalties for inadequate compliance.

Future Regulatory Uncertainty. Because federal and state regulation of financial institutions changes regularly and is the subject of constant legislative debate, New Peoples cannot forecast how regulation of financial institutions may change in the future and impact its operations. New Peoples fully expects that the financial institution industry will remain heavily regulated notwithstanding the regulatory relief that has been recently adopted.

Item 1A.Risk Factors

Not required.

   

Item 1A.    Risk Factors

Not required.

Item 1B.Unresolved Staff Comments

Item 1B.    Unresolved Staff Comments

Not applicable.

Item 2. Properties

AtAs of December 31, 2020,2022, the Company’sCompany's net investment in premises and equipment was $22.2 million, which includes construction $1.0 million in progress related to a Bristol, Virginia location.$19.3 million. Our main office and operations center isare in Honaker, Virginia, which includes a full-service branch, and a separate administration and operations center.

14

 

The Bank owns 1413 of its 17 full-service branches,branch offices, including its headquarters office. In addition to the headquarters in Honaker, Virginia we own or lease branch offices located in Virginia, West Virginia, Tennessee, and a loan production office plus its one limited-service branch. The locations of these branches are described in Item 1. In 2017,North Carolina. Additionally, the Bank soldowns an operations building housing its Abingdon, Bristol, Gate Citynetwork and Castlewood, Virginia properties and in connection with the sale of these four properties, entered into commercial lease agreements for the properties, which allowed the Bank to continue to service customers from these locations. During the third quarter of 2019, the Bank sold its Lebanon, Virginia property, and in connection with this sale, entered into a commercial lease agreement which allows the Bank to continue to service customers from this location. For additional discussion of these leases see Note 17, Leasing Activities, in Notes to the Consolidated Financial Statements contained in Item 8 of this form 10-K. Aside from the retail branch offices, we own a building in Bristol, Virginia that is being renovated as a full-service branch with a planned opening in the third quarter of 2021. Additionally, theother support operations. The bank owns two operations buildings, one housing itsformer branch offices that were closed in 2022, and the facility that formerly housed ITM network operations and another that serves as our call center andoperations, that was closed in 2021. The former ITM network operations center. In November 2020, we entered intoand call center facility was sold in March, 2023. We also own a short-term lease onwarehouse facility in Honaker, Virginia. Our loan production office operates from a building in Boone, North Carolina that serves asunder a loan production office.short-term lease renewed in June 2022.

During 2018, we limited activity at theA former branch office located in Jonesborough, Tennessee loan production office and in 2019 it was closed and the ITM at this site was relocated. Currently, this location is being used as a hub for meeting with prospective loan customers.

The Bank owns a location in Dungannon, Virginia that is currently being leased out, but was formerly used as aDuring 2022, two branch until its closure during 2010. Two otherlocations were closed, branches (Bluewell, WestBig Stone Gap, Virginia and Jonesville, Virginia) that are vacant may be used for future banking offices again. A third vacantChilhowie, Virginia, with customer accounts transferred to nearby offices. ITM services remain available at these two locations. Three former branch office in Bristol, Virginia had been under consideration as a future banking office, but this is likely to change due to its proximity to the office we are renovating. A fourth former branch office in Norton, Virginia wasoffices that were transferred to other real estate owned in 2019 and is being marketed for sale. With the opening of an office2021, were sold in Kingsport, Tennessee in the third quarter of 2020, we closed a nearby location and transferred customer accounts2022.

We continue to the new Kingsport office. As a result of assessingassess our branch network as partwe look to improve the efficiency of the overall efficiency project undertaken in 2019 and 2020, offices in Pound and Weber City, Virginia are scheduledour branch operations while seeking to close in the second quarter of 2021, with those accounts being transferred to nearby offices.increase market share.


We believe that all of our properties are maintained in good operating condition and are suitable and adequate for our operational needs.

Item 3. Legal Proceedings

In the normal course of operations, we may become a party to legal proceedings, as discussed in Note 20 Legal Contingencies to the consolidated financial statements contained in Item 8 of this form 10-K10-K.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)       Market Information

Computershare Investor Services is the stock transfer agent for New Peoples Bankshares, Inc. The common stock of New Peoples is quoted on the OTC Market’s Pink Open Market under the symbol “NWPP”. The volume of trading of shares of common stock is very limited. Trades in our common stock occur sporadically on a local basis and typically in small volumes. Over-the-Counter market quotations reflect inter-dealer prices without retail mark up, mark down or commissions and may not necessarily represent actual transactions.

The most recent sales price of which management is aware was $2.00$2.25 per share on March 24, 2021.20, 2023.

(b)       Holders

On March 24, 2021,22, 2023, there were approximately 4,3214,060 shareholders of record.

(c)       Dividends

In order to preserve capital we have not paid cash dividends to our shareholders. Any declaration of dividends in the future will depend on our earnings, capital requirements, growth strategies, and compliance with regulatory mandates, principally at the Bank level, since the Company’s primary source of income is dividends which it would receive frompaid by the Bank. During the first quarter of 2022, the Company paid its first cash dividend of $0.05 per common share to our shareholders. On February 27, 2023, the Company declared a dividend of $0.06 per share, payable March 31, 2023 to shareholders of record as of March 15, 2023.

15

We are subject to certain dividend restrictions and capital requirements imposed by the Federal Reserve Bank as well as Virginia banking statutes and regulations. We do not anticipate paying a dividend on our common stock in the near future as the Company continues to have a retained deficit. We expect to retain earnings to build capital and position the Company to pay a dividend to its shareholders as soon as practicable. See Note 16, Dividend LimitationLimitations on Subsidiary Bank, and Note 21, Capital, to the consolidated financial statements contained in Item 8 of this formForm 10-K.

The Company has an approved one-year stock repurchase program that authorizes the repurchase of up to 500,000 of the Company’s common shares through March 31, 2023. Repurchases may be made through open market purchases or in privately negotiated transactions. Shares repurchased will be returned to the status of authorized and unissued shares of common stock. The actual means and timing of any purchases, number of shares and prices or range of prices will be determined by the Company.

Shares of the Company’s common stock were repurchased during the three months ended December 31, 2022, as detailed below. Under the terms of the stock repurchase program, the Company has the remaining authority to repurchase up to 426,405 shares of common stock. On February 27, 2023, the board of directors approved an extension of the repurchase program through March 31, 2024.

Period Beginning on First Day of Month Ended  Total Number of Shares Purchased   Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs
October 31, 2022                  5,290 $ 2.30                 5,290             450,225
November 30, 2022                  7,436 $ 2.31                 7,436             442,789
December 31, 2022                16,384 $ 2.40               16,384             426,405
 Total               29,110 $ 2.36               29,110  

Item 6. Selected Financial Data[Reserved]

Not required.applicable.


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Caution About Forward Looking Statements

We make forward looking statements in this annual report on Form 10-K that are subject to risks and uncertainties. These forward lookingforward-looking statements include statements regarding expectations, intentions, projections and beliefs concerning our profitability, liquidity, and allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. TheThese forward-looking information isstatements are based on various factors and waswere derived using numerous assumptions.  assumptions as of the date of this Form 10-K, and are subject to significant risks.

16

Important factors that may cause actual results to differ from projections include:

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

any required increase in our regulatory capital ratios;

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

deterioration of asset quality;

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

fluctuations of real estate values in our markets;

our ability to attract and retain talent;

demographical changes in our markets which negatively impact the local economy;

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

the successful management of interest rate risk;

the successful management of liquidity;

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

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

competition with other banks and financial institutions, and companies outside of the banking industry, including online lenders and those companies that have substantially greater access to capital and other resources;

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

the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rate, market and monetary fluctuations;

the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues (including the ongoing novel coronavirus (COVID-19) outbreak and the associated efforts to limit the spread of the disease), and other catastrophic events;

technology utilized by us;

our ability to successfully manage cyber security;

our reliance on third-party vendors and correspondent banks;

changes in generally accepted accounting principles;

changes in governmental regulations, tax rates and similar matters; and,

other risks, which may be described in our future filings with the SEC.

Because of these uncertainties, our actual future results may be materially different from the results indicated by these forward lookingforward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


General

General

The following commentary discusses major components of our business and presents an overview of our consolidated financial position atas of December 31, 20202022 and 20192021, as well as results of operations for the years ended December 31, 20202022 and 2019.2021. This discussion should be reviewed in conjunction with the consolidated financial statements and accompanying notes and other statistical information presented elsewhere in this Form 10-K.

New Peoples generates a significant amount of its income from the net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense. Interest income depends on the volume of interest-earning assets outstanding during the period and the interest rates earned thereon. The Bank’sBank's interest expense is a function of the average amount of interest-bearing deposits and borrowed money outstanding during the period and the interest rates paid thereon. The quality of the assets further influences the amount of interest income lost on nonaccrualnonaccruing loans and the amount of provision expense added to the allowance for loan losses. The Bank also generates noninterest income from service charges and fees on deposit accounts, debit and credit card interchange income, and commissions on insurance and investment products sold.

17

 

Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. Our most critical accounting policiesestimates relate to our provision for loan losses and the calculation of our deferred tax asset and any related valuation allowance.

The provision for loan losses reflects the estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our borrowers were to further deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated, and additional provisions could be required. For further discussion of the estimates used in determining the allowance for loan losses, we refer you to the section on “Provision“Allowance for Loan Losses” in this discussion.

Deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. In the past, the Company provided a valuation allowance on its net deferred tax assets where it was deemed more likely than not such assets would not be realized. At December 31, 2020 and 2019, the Company had no valuation allowance on its net deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. For further discussion of the deferred tax asset and valuation allowance, we refer you to the section on “Income Taxes and Deferred Tax Assets” in this discussion.

For further discussion of our other critical accounting policies, see Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements, foundconsolidated financial statements, contained in Item 8 toof this annual report on Form 10-K.

Cyber Security

The Company, primarily through the Bank, depends on its ability to continuously process, record and monitor a large number of customer transactions, and customer, public and regulatory expectations regarding operational and information security have increased over time. Accordingly, the Company’s and its subsidiaries’ operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns. Although the Company has business continuity plans and other safeguards in place, disruptions or failures in the physical infrastructure or operating systems that support its businesses and customers, or cyber-attacks or security breaches of the networks, systems or devices on which customers’ personal information is stored and that customers use to access the Company’s and its subsidiaries’ products and services could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect the Company’s results of operations or financial condition.

Although to date the Company has not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that it or its subsidiaries will not suffer such losses in the future. On June 15, 2022, we experienced a cybersecurity incident that temporarily interrupted the operability of our computer systems. Limited operations were restored June 17, 2022, and full operations were restored June 21, 2022. Since that date, restoration efforts have been completed and normal operations have resumed. The Company’s risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, our plans to continue to implement our e-banking and mobile banking channel strategies and develop additional remote connectivity solutions to serve our customers when and how they want to be served. As a result, cyber security and the continued development and enhancement of the Company’s controls, processes and practices, designed to protect its and its subsidiaries’ systems, computers, software, data and networks from attack, damage or unauthorized access, remain a priority for the Company. As cyber threats continue to evolve, the Company has expended resources and may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities.

19

In December 2020,As discussed under the heading “Supervision and Regulation” in Item 1 of this Form 10-K, the federal banking agencies have issued a notice of proposed rulemakingjoint rule that would requirerequires banking organizations to notify their primary regulator withinas soon as possible and no later than 36 hours of becoming aware of a “computer-security incident” or a “notification incident.” after any cyber-security incident has occurred.

Overview

The proposed rule also would require specific and immediate notifications by bank service providers that become aware of similar incidents.

To date, we have not experienced aCompany made significant compromise, significant data loss or any material financial losses related to cyber-attacks, but our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant eventprogress during 2022 resulting in the future.

Recent Events

Sincehighest annual consolidated net income in the history of the Company. For the year ended December 31, 2019 COVID-19 has adversely affected,2022, net income was $8.1 million, or basic and will continuediluted net income per share of $0.34, compared to adversely affect, economic activity globally, nationallya net income of $7.0 million, or basic and locally. Market interest rates have declined significantly. In early 2020, the Federal Open Market Committee reduced the target federal funds rate twice by a totaldiluted net income per share of 150 basis points (bps). As a result of these actions the target federal funds rate now stands at 0.00% - 0.25% and the prime interest rate stands at 3.25%.

State and local governments have issued executive orders and businesses have implemented rules as simple as wearing a mask in public and social distancing to limiting attendance at public and household gatherings. This has had, and will continue to have, a significant adverse impact on the economy as certain industries have been seriously impaired or have been forced to close.

Financial services are considered essential services, and we have continued to meet the needs of our customers. We supplemented our existing procedures$0.29, for the adoptionyear ended December 31, 2021, an improvement of workplace safety standards outlined by the Virginia Department of Labor and Industry. Since the first quarter of 2020, we have maintained a committee dedicated$1.1 million, or 15.3%. Retained earnings increased to managing our response to the pandemic. This has included marshalling supplies and personal protective equipment, coordinating employee and customer communications, evaluating staffing and maintaining compliance with various mandates and regulations. We have restricted access to our lobbies since the first quarter of 2020. Based on our continuing assessment of the intensity of the pandemic in our market areas, we continue to limit lobby access and expect this limitation to be discontinued in the second quarter of 2021$8.9 million as local cases decrease and vaccinations increase in our region. Meanwhile, our offices continue to provide customer services principally via drive-thru facilities and ITMs.

As part of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the Small Business Administration (SBA) was authorized to guarantee Paycheck Protection Program (PPP) loans used by borrowers for payroll and other permitted purposes. The SBA has provided a 100% guarantee and paid originators a processing fee ranging from 1% to 5%, based on the loan amount. We funded a total of $44.5 million of these loans for our customers through August 2020, when the funding period closed, and received $1.6 million in net fees from the SBA, which is being recognized as income over the terms of these loans. As of December 31, 2020, $994 thousand of these fees had been recognized in income. At December 31, 2020, $34.82022 from $2.0 million of PPP loans remain. It is anticipated the SBA will forgive the majority of these loans. Through March 31, 2021, 407 loans have received forgiveness payments from the SBA totaling $24.7 million.

In January 2021, the United States Congress passed additional legislation providing economic relief related to the COVID-19 pandemic. This legislation included a second round of Paycheck Protection Loans. We are participating in this program and have funded 322 loans totaling $18.8 million through March 31, 2021

In response to the economic impact brought on by the COVID-19 pandemic, banking and financial regulators provided guidance to financial institutions regarding borrower requests for forbearance. In general, short-term deferrals or other minor modifications extended to borrowers who were current in their loan obligations at December 31, 2019, were not considered troubled debt restructurings (TDRs) or impairments. These accommodations have been provided in the form of payment deferrals or conversion to interest only for a period of time, generally, three to six months. Asas of December 31, 2020, 688 loans which have received some form of forbearance in accordance within the applicable legislative and regulatory guidelines totaled $112.0 million, and virtually all of them have progressed through their forbearance period, with 15 accounts totaling $836 thousand in forbearance at year-end. In addition to loans receiving forbearance under the CARES Act, 36 accounts totaling $2.4 million at December 31, 2020, were existing or newly classified as TDRs, that received temporary forbearance. Of all accounts receiving forbearance, 82 accounts totaling $5.6 million were past due 30 days or more, including six loans totaling $332 thousand that were past due 90 days or more at December 31, 2020. No accounts past due 90 days or more are accruing interest.


The majority of the loans which obtained forbearance are within our general market area, with $73.3 million, $16.7 million and $26.9 million in Virginia, Tennessee and West Virginia, respectively. At December 31, 2020, these loans cover a number of industries, such as residential property rental of $21.4 million, commercial and other real estate rental of $16.0 million, hotels and motels of $11.0 million; coal mining and natural gas extraction $6.0 million and amusement and entertainment of $5.0 million. Consumer loans represent $40.5 million, with $39.5 million secured by real estate. Most of these loans have reached the end of their forbearance period and the vast majority of these borrowers have resumed their payments. While we believe that the majority of these borrowers will be able to repay their obligations, we cannot reasonably estimate the risk of loss should the adverse economic impact of the pandemic continue for an extended period of time.

In summary, the adverse economic impact of the COVID-19 pandemic has been extensive and wide ranging, resulting in a steep decline in interest rates,2021, an increase in unemployment and a resulting decline in economic output. At this time, we cannot reasonably estimate the termof $6.9 million or intensity of any possible adverse impact on our financial position, operations or liquidity. Given the continuation in COVID-19 cases and hospitalizations, economic recovery may be slow and uneven. However, we are encouraged by the recent vaccination programs and therapeutic treatments that have been developed and are becoming more available to the mass population.339.0%.

18

 

Overview

The Company’s consolidated netNet interest income for the year ended December 31, 20202022 was $2.9$28.3 million or basic income per share of $0.12 as compared to a net income of $2.1$27.2 million or basic income per share of $0.09, for the year ended December 31, 2019. This is an increase2021. The improvement of $831 thousand, or $0.03 per share. This increase was driven primarily by a reduction of $2.0$1.1 million in non-interest expense and an increase of $167 thousand in net interest income was primarily attributable to a $33.8 million increase in average earning assets and rising market interest rates during the year, partially offset by a reduction of $505 thousanddecrease in non-interest incomeloan origination fees compared to 2021 as PPP loans were forgiven and an increase in costs of $250 thousandour variable rate trust preferred securities in provision2022. Net interest margin was 3.62% compared to 3.64% for the year ended December 31, 2022, and 2021, respectively.

Noninterest income was $9.2 million for the year ended December 31, 2022 compared to $10.0 million for the year ended December 31, 2021. The $740,000 decrease was attributable to $322,000 of gains on the sales of investment securities during the year ended December 31, 2021, $190,000 of gains on the sales of three former branch locations during the year December 31, 2021, as well as a write-down of bank owned life insurance (BOLI) of $158,000 during the year ended December 31, 2022, and a decrease in gains and commissions on mortgage loan losses.originations and sales of approximately $162,000 due to the impact of rising interest rates on mortgage demand.

Noninterest expense was $26.5 million for the year ended December 31, 2022 compared to $27.9 million for the year ended December 31, 2021. The $2.0$1.3 million reductiondecrease was primarily due to valuation adjustments of other real estate owned during the year ended December 31, 2021, which consisted of $1.1 million related to former branch locations and approximately $390,000 in non-interest expense is a 6.9% decreasenet losses and write-downs on the sales of other real estate owned. This was drivenoffset by an $878 thousand decreaseincrease of approximately $703,000 in salaries and benefits during the year ended December 31, 2022, which is attributed to higher bonus accruals based on the Company’s performance, annual wage adjustments, and a $1.1adjustments to the minimum starting salaries of employees to reflect rising costs to attract and retain talent.

During the year ended December 31, 2022, total assets decreased $19.3 million, decreaseor 2.4%, to $775.4 million. Loans receivable decreased $9.1 million, or 1.5%, during 2022, which is partly attributable to several large borrowers selling their businesses or collateral and paying off the related loans. Additionally, loan pricing remains very competitive in other operating expenses. The salariesthe Company’s market and benefits reductionhas impacted loan originations. Investment securities decreased $11.0 million in 2022, which is a resultprimarily due to the decline in the market value of the restructure announced in May of 2020. The other operating expenses reduction is a result of renegotiated contracts and reductions in expenses relatedinvestment portfolio due to loan collections and foreclosed assets. A moratorium on foreclosuresrising interest rates.

Total deposits declined $14.8 million, or 2.1%, during 2022, with most of 2020 drove the reductions in loan collections and foreclosed asset expenses. The increase in net interest income resulted from a $919 thousand decline in interest income which was more than mitigated by a $1.1 million reduction in interest expense. Economic conditionsoccurring during 2020 drove reductions in market interest rates which negatively affected our interest income and allowed usthe fourth quarter as competition for funding intensified.

New Peoples Bank remains well-capitalized. Leverage ratio improved to reduce our deposit rates.10.40%.

At December 31, 2020, total assets were $756.6 million, total loans were $575.6 million, and total deposits were $668.0 million. We closed $44.5 million in PPP loans in 2020, which, when combined with federal stimulus payments received by our deposit customers, drove increases in deposits.

The Company’s key performance indicators are as follows:

 

 

December 31,

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.39

%

 

 

0.29

%

 

 

0.14

%

 

Return on average equity

 

 

5.18

%

 

 

3.89

%

 

 

1.83

%

 

Average equity to average assets ratio

 

 

7.51

%

 

 

7.46

%

 

 

7.43

%

 

  Year ended December 31,
  2022 2021
     
Return on average assets  0.99%  0.88%
Return on average shareholders’ equity  13.89%  11.52%
Average shareholders’ equity to average assets ratio  7.10%  7.62%

Highlights from the year 2020 include:

Total assets increased $49.9 million, or 7.1%, to $756.3 million at December 31, 2020 compared to $706.4 million at December 31, 2019;

Book value per share was $2.43 as of December 31, 2020 and $2.28 as of December 31, 2019;

Net income improved 40.4% to $2.9 million, or $0.12 per share, in 2020 compared to $2.1 million, or $0.09 per share, in 2019;

In the last quarter of 2019 we hired a consulting firm to help us improve efficiency and increase revenues, and when combined with other management efforts, this has helped produce in the last two quarters of 2020 the most profitable core earnings in several years;

21

Net interest income was $25.1 million, an increase of $167,000 compared to 2019, as described above;

The net interest margin was 3.66%, a reduction of 16 basis points compared to 3.82% for the year ended December 31, 2019;

Total loans increased $13.0 million, or 2.3%, to $575.6 million during the year ended December 31, 2020;

Securities available for sale decreased $2.2 million, or 4.4%, to $48.4 million during the year ended December 31, 2020;

Total deposits increased $46.5 million, or 7.5%, to $668.0 million during the year ended December 31, 2020, primarily due to PPP loan funds and federal stimulus payments, as discussed earlier;

Time deposits decreased $23.0 million or 8.9% during the year, to $234.4 million at December 31, 2020, largely due to decreased interest rates;

Noninterest income was $8.1 million, a decrease of $505,000 compared to 2019, primarily due to the non-recurring gain of $803 thousand in the prior year on the sale and leaseback of the Lebanon office, offset by a $300,000 increase in card processing and interchange income, which resulted from renegotiated contracts, plus a $220,000 bonus from a service provider for renewing a contract to retain their services;

Salaries and employee benefits expense was $13.2 million, a reduction of $878,000 compared to 2019, which was due mainly to the restructuring announced in May of 2020 and the overall reduction in staff;

ATM network expense was $1.5 million, a reduction of $357,000 compared to 2019, resulting from a renewed and renegotiated contract;

Loan related expenses were $353,000, a reduction of $228,000, or 39.2%, compared to 2019, mainly due to the moratorium on foreclosures, which reduced loan collection expense;

Expenses associated with foreclosed assets were $307,000, a reduction of $328,000, or 51.6%, as compared to the year ended December 31, 2019, also due to the moratorium on foreclosures, and reduced levels of other real estate owned properties;

Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $8.9 million at December 31, 2020, an increase of $332,000, or 3.9% during the year ended December 31, 2020;

Nonperforming assets as a percentage of total assets was 1.17% at December 31, 2020;

No accruing loans were past due 90 days or more and loans on nonaccrual totaled $5.5 million, for a total of $5.5 million in nonperforming loans, or 1.0% of total loans outstanding, at December 31, 2020;

Annualized net charge offs as a percentage of average loans were 0.08% during 2020, compared to 0.36% during 2019; and

The allowance for loan losses as a percentage to total loans was 1.25% at December 31, 2020, as compared to 0.95% at December 31, 2019.

The $49.9 million growth in total assets was driven primarily by an increase of $40.2 million in interest bearing deposits in other banks, which in turn was driven by a $46.5 million increase in total deposits. The increase in deposits was primarily due to PPP loans, which were dispersed into each loan customer’s checking account. Deposits also increased through federal stimulus payments received by customers into their checking accounts.

Total equity increased to $58.2 million at December 31, 2020, an increase of $3.6 million, or 6.5%. The Bank’s capital ratios at December 31, 2020 as compared to December 31, 2019, respectively, were as follows: Tier 1 leverage ratio of 9.49% versus 9.43%; Tier 1 risk based capital ratio of 15.16% versus 13.72%; total risk based capital ratio of 16.41% versus 14.83%; and common equity Tier 1 capital ratio of 15.16% versus 13.72%. The Bank is considered well-capitalized under regulatory guidelines.

Expenses related to OREO properties were $307 thousand in 2020 compared to $635 thousand in 2019. During 2020, we recorded write-downs on other real estate owned properties of $132 thousand compared to $214 thousand in 2019. During 2020, we had a net gain on the sale of OREO of $60 thousand compared to a net loss of $123 thousand in 2019.

Total loans increased $13.0 million in 2020, or 2.3%, to $575.6 million at December 31, 2020, as compared to $562.5 million at December 31, 2019. The main driver of this increase in total loans is the $44.5 million of PPP loans originated during 2020. Since PPP loans are generally commercial loans, they have supported our strategy to grow and diversify the loan portfolio. Total loans also increased as result of loan demand in the Tri-Cities market along with our initial efforts in the western North Carolina market. As evidenced in 2020, loan growth in general is subject to economic conditions, customer demand, and competition in our markets.


Nonperforming assets, which include nonaccrual loans, loans past due 90 days or more and still accruing interest and OREO increased $332 thousand, or 3.88%, to $8.9 million at year-end 2020 from $8.5 million at year-end 2019. Other real estate owned declined by $59 thousand during 2020 to $3.3 million. Nonaccrual loans increased $391 thousand to $5.5 million during the year ended December 31, 2020. Total nonperforming assets represented 1.17% and 1.21% of total assets at December 31, 2020 and December 31, 2019, respectively. There were no loans past due 90 days or greater and still accruing interest at December 31, 2020 or 2019. The makeup of these assets is primarily related to commercial and residential real estate. During the fourth quarter of 2019, the largest foreclosed property, with a recorded balance of $1.6 million, was sold. We continue undertaking extensive and aggressive measures to work out problem credits and liquidate foreclosed properties. Our goal is to continue to reduce the nonperforming assets being mindful of the impact to earnings and capital; however, we may recognize some losses and reductions in the allowance for loan loss as we expedite the resolution of these problem assets.

Our allowance for loan losses at December 31, 2020 was $7.2 million, or 1.25%, of total loans, as compared to $5.4 million, or 0.95% of total loans at December 31, 2019. Impaired loans decreased $493 thousand, or 8.8%, to $5.4 million, with an estimated allowance of $1,052 thousand for potential losses, at December 31, 2020; as compared to $8.0 million in impaired loans, with an estimated allowance of $318 thousand, at the end of 2019. A provision for loan losses of $2.3 million was recorded in 2020, up from $2.1 million in 2019. Net loans charged off in 2020 were $477 thousand, or 0.08% of average loans, compared to $2.0 million, or 0.36% of average loans, in 2019. The losses recorded in 2019, were primarily related to some commercial loans extended to a few borrowers who ceased operations during that year. Two of these relationships accounted for $1.5 million of the losses recorded. The allowance for loan losses is being maintained at a level that management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio, whether or not the losses are actually ever realized. We continue to adjust the allowance for loan loss model to best reflect the risks in the portfolio and the improvements made in our internal policies and procedures; however, future provisions may be deemed necessary.

Net Interest Income and Net Interest Margin

The Company’s primary source of income is net interest income, which increased $167 thousand,$1.1 million, or 0.7%3.95%, in 20202022 compared to 2019. While we had increases in both loans and overnight balances in interest-bearing deposits in other banks, the growth was not sufficient to offset the impact of decreases in interest rates, resulting in a decrease in interest income of $919 thousand. However, total interest expense decreased by $1.1 million, more than mitigating the decrease in interest income,2021 due primarily to the reduction ofa $33.8 million increase in average earning assets and rising market interest rates paidduring the year. This was offset by an increase in interest expense on money market accounts, time deposits andborrowed funds of approximately $777,000, or 171.5%, related to the increase in variable rates on trust preferred securities.

securities as well as an increase in borrowings from the Federal Home Loan Bank (FHLB) during the year. The decrease in interest income on loans, including fees, was driven by a decrease in fees of $1.8 million resulting from PPP loan forgiveness in 2021 that did not reoccur during 2022.

The following table shows the rates paid on earning assets and deposit liabilities for the periods indicated.

19

Net Interest Margin Analysis

Average Balances, Income and Expense, and Yields and Rates

 

(Dollars in thousands)
    For the year ended For the year ended 
    December 31, 2022 December 31, 2021 
    Average Income/ Yields/ Average Income/ Yields/
    Balance Expense Rates Balance Expense Rates
ASSETS            
 Loans (1) (2)$591,179$27,739 4.69%$586,963$28,323 4.83%
 Federal funds sold 332 8 2.41% 212 - 0.10%
 Interest bearing deposits in other banks 76,560 1,514 1.98% 78,583 95 0.12%
 Taxable investment securities 113,141 2,129 1.88% 81,635 1,494 1.83%
 Total earning assets 781,212 31,390 4.02% 747,393 29,912 4.00%
 Less:  allowance for loans losses (6,790)     (7,034)    
 Non-earning assets 40,657     58,398    
  Total assets$815,079    $798,757    
               
LIABILITIES AND SHAREHOLDERS’ EQUITY 
 Interest-bearing demand deposits$74,786$98 0.13%$59,154$59 0.10%
 Savings and money market deposits 191,136 260 0.13% 181,736 148 0.08%
 Time deposits 188,010 1,517 0.81% 214,937 2,041 0.95%
 Short-term borrowings 20,370 501 2.46% 2,474 33 1.33%
 Trust preferred securities 16,496 729 4.42% 16,496 420 2.55%
    Total interest-bearing liabilities 490,798 3,105 0.63% 474,797 2,701 0.57%
 Non-interest-bearing deposits 261,834 - -% 254,911 - - %
    Total deposit liabilities and cost of funds 752,632 3,105 0.41% 729,708 2,701 0.37%
 Other liabilities 4,248     8,178    
  Total liabilities 756,880     737,886    
 Shareholders’ equity 58,199     60,871    
  Total liabilities and shareholders’ equity$815,079    $798,757    
 Net interest income  $28,285    $27,211  
 Net interest margin3.62% 3.64% 
 Net interest spread3.39% 3.43% 
      
(1)  Nonaccrual loans have been included in average loan balances. 
(2)  Tax exempt income is not significant and has been treated as fully taxable. 
                  

Net interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing liabilities. The following tables set forth the amounts of the total changes in interest income and interest expense which can be attributed to rates, volume and a combination of rates and volume, for the periods indicated.

20

Volume and Rate Analysis
Increase (decrease)
 
  Year 2022 Compared to 2021
(Dollars in thousands) Volume Effect Rate Effect Rate and Volume Effect Change in Interest Income/ Expense
Interest Income:        
 Loans$206$(784)$(6)$(584)
 Federal funds sold - 5 3 8
 Interest bearing deposits in other banks (2) 1,459 (38) 1,419
 Taxable investment securities 577 42 16 635
 Total Earning Assets 781 722 (25) 1,478
          
Interest Expense:        
 Interest-bearing demand deposits 16 19 4 39
 Savings and money market deposits 8 99 5 112
 Time deposits (282) (281) 39 (524)
 Short-term borrowings 239 28 201 468
 Trust preferred securities - 309 - 309
 Total Interest-bearing Liabilities (19) 174 249 404
 Change in Net Interest Income$800$548$(274)$1,074

Volume and Rate Analysis
Increase (decrease)
 
  Year 2021 Compared to 2020
(Dollars in thousands) Volume Effect Rate Effect Rate and Volume Effect Change in Interest Income/ Expense
Interest Income:        
 Loans$395$(700)$(10)$(315)
 Federal funds sold - (1) - (1)
 Interest bearing deposits in other banks 59 (134) (38) (113)
 Taxable investment securities 830 (309) (216) 305
 Total Earning Assets 1,284 (1,144) (264) (124)
          
Interest Expense:        
 Interest-bearing demand deposits 21 (25) (7) (11)
 Savings and money market deposits 81 (239) (54) (212)
 Time deposits (568) (1,460) 215 (1,813)
 Short-term borrowings (34) (1) - (35)
 Trust preferred securities - (121) - (121)
 Total Interest-bearing Liabilities (500) (1,846) 154 (2,192)
 Change in Net Interest Income$1,784$702$(418)$2.068

21

The increases in interest income and interest expense during 2022 were driven mainly by increased interest rates, as short-term assets and liabilities tied to short-term rates adjusted to market rate increases throughout the year, new production at higher rates, and asset yields outpacing increases in funding costs in the rising interest rate environment. Overall, our net interest margin decreased 2 basis points to 3.62% in 2022 compared to 3.64% in 2021.

The increase in interest income is primarily attributed to an increase in yields on overnight deposits with banks, which was mainly driven by higher market rates, as noted above, combined with a reinvesting of funds in investment securities at higher rates. This increased income offset a decrease in loan interest Overall, loan interest income, including fees, decreased $584,000 during the year ended December 31, 2022 compared to December 31, 2021, due to the impact of PPP loan fees recognized in 2021, that was not repeated in 2022.

Interest expense increased $404,000, due primarily to lower interestan increase in the average balance of FHLB advances of $20.4 million during the year, combined with increased market rates on loan accounts, which accounted for $896 thousand of the $919 thousand total decrease, even though average loan balances increased $23.2 million during 2020. Other contributing items to the decline in interest incometrust preferred securities. This was a $597 thousand decrease in interest income from deposits in other banks and a $355 thousand decrease in interest on investments. Although average balances of deposits in other banks grewoffset by $22.1 million, the decline in yield to 0.34% from 2.06% in 2020 compared to 2019 drove the reduction in interest income from these deposits. The decline in interest income received from investments was driven by reductions in both rates and balances. Partially mitigating these decreases was a $933 thousand increase in loan fees, driven primarily by fees earned on PPP loans.

The decrease in interest expense of $1.1 million was driven primarily byon time deposits due to a $598 thousand reduction in interest expense paidvolume and rate. While rates on money market deposit accounts, with both lower balances andtime deposits reset at lower rates contributingduring 2022, this trend is not expected to continue into 2023, due to the savings. Lower rates paid on trust preferred securities contributed $254 thousand toward reductions in interest expense, as lower market rates reduced the variable rates paid in these securities.

Overall, the net interest margin decreased 16 bps to 3.66% in 2020 compared to 3.82% in 2019. This reduction in interest rates was a direct result of actions taken by the Federal Reserve’s Federal Open Market Committee, in response to the economic impact of the pandemic, which reduced the target federal funds rate twice in March 2020, by 150 bps. As a result of these actions the target federal funds rate now stands at 0.00% - 0.25% and the prime interest rate stands at 3.25%. Although the reduction of the federal funds rate in the first quarter of 2020 was an instantaneous move, it was in line with activity during the latter half of 2019, when the prime interest rate dropped three times by 25 bps each based on actions by the Federal Open Market Committee. During 2019 the prime interest rate fell from 5.50% to 4.75%. This was essentially full circle from the cycle in 2018 when the prime interest rate increased from 4.50% to 5.50%. Additionally, the yield on PPP loans is 1.00% (excluding the impact of deferred fee income), which reduces the overall average yield on loans. Fee revenue from the SBA on PPP loans only partially mitigates the low rate on these loans. Our yield on loans was 4.95% in 2020 compared to 5.15% in 2019. We have responded by lowering rates paid on deposit accounts, as evidenced by our 0.72% cost of funds in 2020 compared to 0.92% in 2019.

Another factor impacting the decrease in interest expense and the cost of funds was a significant deposit by a related party to our tiered premium money market account. Of the approximately $30 million of funds received during the first quarter of 2019 and intended as a temporary deposit, only approximately $5 million remained at December 31, 2020.


Due to the increased deposit balances, additional borrowings from the FHLB were unnecessary during 2020. Hence, interest paid on FHLB advances declined by $10 thousand in 2020 compared to 2019, due to maturities in 2019.

Unless we are able to continue to increase the volume of our interest-earning assets going forward, while controlling our cost of funds, we may continue to experience compression on the net interest margin. New and renewed loans are often being repriced at lower interest rates while we anticipate nocontinuing increase in interest rates, incombined with the foreseeable future, duecompetitive pressures to the economic impact of the COVID-19 pandemic.acquire and retain deposits.

Our future interest rate structure also may behas been impacted by the pendingcommencement of the end of the use of LIBOR, as a benchmark interest ratewhich will completely phase-out in 2021.2023. We use LIBOR in pricing some of a limited number of our interest earning assets and liabilities, including our trust preferred securities. At this time it appears thatCertain loan and investment products ceased using LIBOR in 2021, for new contracts and commitments. Most of these contracts have been, or will be, replaced bywith the Secured Overnight Financing Ratesecured overnight funding rate (SOFR).

Loans

Our primary source of income is interest earned on loans. Total gross loans decreased $9.1 million during 2022, or 1.54%, which is a transparent measureto $584.6 million as of the cost of borrowing cash overnight collateralized by Treasury securities. Because no there is not yet a consensusDecember 31, 2022 as compared to what rate or rates may become acceptable alternatives to LIBOR, however, we cannot predict the effect of any such alternatives on the value of LIBOR-based variable-rate loans, as well as LIBOR-based securities, trust preferred securities, or other securities or financial arrangements. Regardless of whether SOFR or some other benchmark rate replaces LIBOR, we do not anticipate that the change will have a material impact on our ability to negotiate and price earning assets and liabilities. However, the transition to alternative reference rate for new contracts, or the implementation of a substitute index or indices for the calculation of interest rates under the Company’s existing loan agreements with borrowers or other financial arrangements, could change the Company’s market risk profile, interest margin, interest spread and pricing models, may cause the Company to incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept a substitute index or indices, and may result in disputes or litigation with customers or other counter-parties over the appropriateness or comparability to LIBOR of the substitute index or indices.

Nonaccrual loan balances increased $391 thousand during 2020 to $5.5$593.7 million at December 31, 2020, which2021. The primary drivers of this decrease in total loans were a reduction in commercial real estate loans, multifamily, and commercial loans of $9.1 million, $3.3 million, and $7.6 million, respectively. This was offset by an increase in construction and land development loans of $10.1 million in comparison to December 31, 2021. The decrease in commercial real estate and commercial loans was partly attributable to several large borrowers selling their businesses or collateral and paying off the related loans. For more detail on loan balances, refer to Note 6 of the consolidated financial statements contained in Item 8 of this Form 10-K.

Nonaccrual loans increased approximately $472,000 during 2022 from $2.9 million as of December 31, 2021 to $3.4 million as of December 31, 2022. Nonaccrual loans negatively affect interest income as these loans are nonearning assets. Interest income and cash receipts on impaired loans are handled differently depending on whether or not the loan is on nonaccrual status. If the impaired loan is not on nonaccrual status, the interest income on the loan is computed using the effective interest method. When doubt about the collectability of a loan exists, it is the Bank’s policy to stop accruing interest on that loan under the following circumstances: (a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when conditions indicate that payment of principal and interest can no longer be expected, or (c) when any such loan becomes delinquent for 90 days and is not both well secured and in the process of collection. All interest accrued but not collected on loans that are placed on nonaccrual is charged off and reversed against interest income in the current period. In the case of a nonaccrual loan that is well secured and in the process of collection, the interest accrued but not collected is not reversed. Interest received on these loans is accounted for on the cash basis or cost-recovery method until qualifying for return to accrual. Generally, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, six consecutive timely payments are made, and prospects for future contractual payments are reasonably assured. For more detail on nonaccrual loans, refer to Note 6 of the consolidated financial statements in Item 8 of this Form 10-K.

24

The following table showsImpaired loan balances decreased during 2022, to $2.7 million as of December 31, 2022, from $2.8 million as of December 31, 2021. Interest income and cash receipts on impaired loans are handled differently depending on whether or not the rates paidloan is on earning assets and deposit liabilities fornonaccrual status. If the periods indicated.

Net Interest Margin Analysis

Average Balances, Income and Expense, and Yields and Rates

(Dollars in thousands)

 

 

For the Year Ended

 

For the Year Ended

 

For the Year Ended

 

 

December 31, 2020

 

December 31, 2019

 

December 31, 2018

 

 

Average

 

 

Income/

 

 

Yields/

 

 

Average

 

 

Income/

 

 

Yields/

 

 

Average

 

 

Income/

 

 

Yields/

 

 

 

Balance

 

 

Expense

 

 

Rates

 

 

Balance

 

 

Expense

 

 

Rates

 

 

Balance

 

 

Expense

 

 

Rates

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1), (2), (3)

 

$

578,979

 

 

$

28,638

 

 

 

4.95

%

 

$

555,733

 

 

$

28,601

 

 

 

5.15

%

 

$

526,007

 

 

$

26,375

 

 

 

5.01

%

Federal funds sold

 

 

244

 

 

 

1

 

 

 

0.36

%

 

 

254

 

 

 

5

 

 

 

2.15

%

 

 

160

 

 

 

4

 

 

 

2.50

%

Interest bearing deposits

 

 

61,083

 

 

 

208

 

 

 

0.34

%

 

 

38,994

 

 

 

805

 

 

 

2.06

%

 

 

19,644

 

 

 

379

 

 

 

1.93

%

Other investments (3)

 

 

48,072

 

 

 

1,189

 

 

 

2.47

%

 

 

58,726

 

 

 

1,544

 

 

 

2.63

%

 

 

68,706

 

 

 

1,714

 

 

 

2.49

%

Total Earning Assets

 

 

688,378

 

 

 

30,036

 

 

 

4.37

%

 

 

653,707

 

 

 

30,955

 

 

 

4.74

%

 

 

614,517

 

 

 

28,472

 

 

 

4.63

%

Less: Allowance for loans losses

 

 

(6,512

)

 

 

 

 

 

 

 

 

 

 

(5,309

)

 

 

 

 

 

 

 

 

 

 

(5,551

)

 

 

 

 

 

 

 

 

Non-earning assets

 

 

61,411

 

 

 

 

 

 

 

 

 

 

 

60,673

 

 

 

 

 

 

 

 

 

 

 

66,648

 

 

 

 

 

 

 

 

 

Total Assets

 

$

743,277

 

 

 

 

 

 

 

 

 

 

 

709,071

 

 

 

 

 

 

 

 

 

 

 

675,614

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand – Interest bearing

 

$

45,302

 

 

$

70

 

 

 

0.16

%

 

$

35,364

 

 

$

65

 

 

 

0.18

%

 

$

37,896

 

 

$

55

 

 

 

0.15

%

Savings and money market

 

 

148,320

 

 

 

360

 

 

 

0.25

%

 

 

154,500

 

 

 

980

 

 

 

0.63

%

 

 

131,292

 

 

 

368

 

 

 

0.28

%

Time deposits

 

 

252,074

 

 

 

3,854

 

 

 

1.53

%

 

 

260,452

 

 

 

4,060

 

 

 

1.56

%

 

 

257,262

 

 

 

2,921

 

 

 

1.14

%

Other Borrowings

 

 

5,000

 

 

 

68

 

 

 

1.34

%

 

 

5,985

 

 

 

78

 

 

 

1.30

%

 

 

9,610

 

 

 

148

 

 

 

1.54

%

Trust Preferred Securities

 

 

16,496

 

 

 

541

 

 

 

3.23

%

 

 

16,496

 

 

 

796

 

 

 

4.83

%

 

 

16,496

 

 

 

773

 

 

 

4.69

%

Total interest bearing liabilities

 

 

467,192

 

 

 

4,893

 

 

 

1.05

%

 

 

472,797

 

 

 

5,979

 

 

 

1.26

%

 

 

452,556

 

 

 

4,265

 

 

 

0.94

%

Non-interest bearing deposits

 

 

210,831

 

 

 

 

 

 

%

 

 

174,944

 

 

 

 

 

 

%

 

 

164,923

 

 

 

 

 

 

%

Total cost of funds

 

 

678,023

 

 

 

4,893

 

 

 

0.72

%

 

 

647,741

 

 

 

5,979

 

 

 

0.92

%

 

 

617,479

 

 

 

4,265

 

 

 

0.69

%

Other liabilities

 

 

9,428

 

 

 

 

 

 

 

 

 

 

 

8,470

 

 

 

 

 

 

 

 

 

 

 

7,906

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

687,451

 

 

 

 

 

 

 

 

 

 

 

656,211

 

 

 

 

 

 

 

 

 

 

 

625,385

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

55,823

 

 

 

 

 

 

 

 

 

 

 

52,880

 

 

 

 

 

 

 

 

 

 

 

50,229

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

743,274

 

 

 

 

 

 

 

 

 

 

 

709,091

 

 

 

 

 

 

 

 

 

 

 

675,614

 

 

 

 

 

 

 

 

 

Net Interest Income

 

 

 

 

 

$

25,143

 

 

 

 

 

 

 

 

 

 

$

24,976

 

 

 

 

 

 

 

 

 

 

$

24,207

 

 

 

 

 

Net Interest Margin

 

 

 

 

 

 

 

 

 

 

3.65

%

 

 

 

 

 

 

 

 

 

 

3.82

%

 

 

 

 

 

 

 

 

 

 

3.94

%

Net Interest Spread

 

 

 

 

 

 

 

 

 

 

3.32

%

 

 

 

 

 

 

 

 

 

 

3.48

%

 

 

 

 

 

 

 

 

 

 

3.69

%

(1) Non-accrual loans have been included inimpaired loan is not on nonaccrual status, the average balance of loans outstanding.

(2) Loan fees have been included in interest income on loans.

(3) Tax exempt incomethe loan is not significant and has been treated as fully taxable.


Netcomputed using the effective interest income is affected by changes in both average interest rates and average volumes of interest-earning assets and interest-bearing liabilities. The following table sets forth the amountsmethod. For more detail on impaired loan balances, refer to Note 6 of the total changesconsolidated financial statements in interest income and expense which can be attributed to rate (change in rate multiplied by old volume) and volume (change in volume multiplied by old rate) for the periods indicated.Item 8 of this Form 10-K.

  

Volume and Rate Analysis
(Dollars in thousands)

 
       

 

 

2020 Compared to 2019

 

 

2019 Compared to 2018

 

 

 

Increase (Decrease)

 

 

Increase (Decrease)

 

 

 

Volume Effect

 

 

Rate Effect

 

 

Change in Interest Income/ Expense

 

 

Volume Effect

 

 

Rate Effect

 

 

Change in Interest Income/ Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

1,959

 

 

$

(1,922

)

 

$

37

 

 

$

1,491

 

 

$

734

 

 

$

2,226

 

Federal funds sold

 

 

 

 

 

(4

)

 

 

(4

)

 

 

2

 

 

 

(1

)

 

 

1

 

Interest bearing deposits

 

 

301

 

 

 

(898

)

 

 

(597

)

 

 

373

 

 

 

53

 

 

 

426

 

Other investments

 

 

(198

)

 

 

(157

)

 

 

(355

)

 

 

(249

)

 

 

79

 

 

 

(170

)

Total Earning Assets

 

 

2,062

 

 

 

(2,981

)

 

 

(919

)

 

 

1,617

 

 

 

865

 

 

 

2,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand

 

 

20

 

 

 

(15

)

 

 

5

 

 

 

(4

)

 

 

14

 

 

 

10

 

Savings and money market

 

 

(208

)

 

 

(412

)

 

 

(620

)

 

 

65

 

 

 

547

 

 

 

612

 

Time deposits

 

 

(104

)

 

 

(102

)

 

 

(206

)

 

 

36

 

 

 

1,103

 

 

 

1,139

 

Other borrowings

 

 

(13

)

 

 

3

 

 

 

(10

)

 

 

(56

)

 

 

(14

)

 

 

(70

)

Trust Preferred Securities

 

 

 

 

 

(255

)

 

 

(255

)

 

 

 

 

 

23

 

 

 

23

 

Total Interest Bearing Liabilities

 

 

(305

)

 

 

(781

)

 

 

(1,086

)

 

 

41

 

 

 

1,673

 

 

 

1,714

 

Change in Net Interest Income

 

$

2,367

 

 

$

(2,200

)

 

$

167

 

 

$

1,576

 

 

$

(807

)

 

$

769

 

Loans

Our primary source of income is interest earned on loans. Total loan balances increased $13.0 million during 2020, or 2.3%, to $575.6 million at December 31, 2020 as compared to $562.5 million at December 31, 2019. The main driver in this increase in total loans was a $32.0 million growth in commercial loans, driven by PPP loans. For the same year over year comparison, commercial loans secured by real estate and Multifamily residential loans grew $8.9 million and $2.9 million, respectively, but residential 1-4 family loans and real estate construction loans decreased $19.9 million and $6.1 million, respectively. Our strategy to grow and diversify the loan portfolio was accelerated by pandemic-related economic conditions, but the overall yield on loans suffered, as discussed above. Loans rated substandard or doubtful increased $276 thousand, or 5.4%, to $5.4 million at December 31, 2020 from $5.1 million at December 31, 2019.

Loans receivable outstanding are summarized as follows:

 

 

Loan Portfolio

 

 

 

December 31,

 

(Dollars in thousands)

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Commercial, financial and agricultural

 

$

110,973

 

 

$

81,291

 

 

$

83,135

 

 

$

68,506

 

 

$

55,073

 

Real estate – construction

 

 

25,031

 

 

 

31,130

 

 

 

35,119

 

 

 

29,763

 

 

 

25,755

 

Real estate – commercial

 

 

179,381

 

 

 

170,436

 

 

 

140,862

 

 

 

127,688

 

 

 

103,331

 

Real estate – residential

 

 

239,549

 

 

 

256,560

 

 

 

263,442

 

 

 

264,640

 

 

 

262,282

 

Installment loans to individuals

 

 

20,632

 

 

 

23,127

 

 

 

24,538

 

 

 

22,411

 

 

 

22,188

 

Total

 

$

575,566

 

 

$

562,544

 

 

$

547,096

 

 

$

513,008

 

 

$

468,629

 

2622

 

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

Loan Composition
  2022 2021
(Dollars in thousands) $ % $ %
Real estate secured:                
   Commercial $197,069   33.7% $206,162   34.7%
   Construction and land development  42,470   7.3%  32,325   5.4%
   Residential 1-4 family  227,232   38.9%  224,530   37.8%
   Multifamily  29,710   5.1%  33,048   5.6%
   Farmland  17,744   3.0%  18,735   3.2%
     Total real estate loans  514,225   88.0%  514,800   86.7%
Commercial  46,697   8.0%  54,325   9.1%
Agriculture  3,756   0.6%  4,021   0.7%
Consumer installment loans  19,309   3.3%  18,756   3.2%
All other loans  626   0.1%  1,842   0.3%
Total loans  584,613   100.0%  593,744   100.0%
Less: allowance for loan losses  6,727       6,735     
Total $577,886      $587,009     

Our loan maturities, and distribution between fixed and variable rate loans as of December 31, 20202022 are shown in the following table:tables :

Maturities of Loans
(Dollars in thousands) Less than One Year One to Five Years Five to Fifteen Years After Fifteen Years Total
Real estate secured:                    
   Commercial $11,285  $39,525  $73,958  $72,301  $197,069 
   Construction and land development  7,511   10,491   10,664   13,804   42,470 
   Residential 1-4 family  7,255   22,850   85,214   111,913   227,232 
   Multifamily  1,152   5,342   11,178   12,038   29,710 
   Farmland  1,995   2,843   8,400   4,506   17,744 
     Total real estate loans  29,198   81,051   189,414   214,562   514,225 
Commercial  15,853   22,929   5,487   2,428   46,697 
Agriculture  1,276   2,324   —     156   3,756 
Consumer installment loans  3,192   14,804   1,293   20   19,309 
All other loans  295   331   —     —     626 
Total $49,814  $121,439  $196,194  $217,166  $584,613 

23

 

 

 

Maturities of Loans

 

(Dollars in thousands)

 

Less than One Year

 

 

One to Five Years

 

 

After Five Years

 

 

Total

 

Commercial, financial and agricultural

 

$

19,649

 

 

$

70,420

 

 

$

20,904

 

 

$

110,973

 

Real estate – construction

 

 

5,428

 

 

 

6,019

 

 

 

13,584

 

 

 

25,031

 

Real estate – commercial

 

 

15,835

 

 

 

63,881

 

 

 

99,665

 

 

 

179,381

 

Real estate – residential

 

 

8,416

 

 

 

32,712

 

 

 

198,421

 

 

 

239,549

 

Installment loans to individuals

 

 

4,345

 

 

 

14,624

 

 

 

1,663

 

 

 

20,632

 

Total

 

$

53,673

 

 

$

187,656

 

 

$

334,237

 

 

$

575,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans with fixed rates

 

$

48,732

 

 

$

179,146

 

 

$

132,992

 

 

$

360,870

 

Loans with variable rates

 

 

4,941

 

 

 

8,510

 

 

 

201,245

 

 

 

214,696

 

Total

 

$

53,673

 

 

$

187,656

 

 

$

334,237

 

 

$

575,566

 

The following table presents the dollar amount of fixed rate and variable rate loans with maturities greater than one year as of December 31, 2022:

(Dollars in thousands) Fixed Rate Variable Rate
Real estate secured:        
   Commercial $75,192  $110,592 
   Construction and land development  17,756   17,203 
   Residential 1-4 family  90,416   129,561 
   Multifamily  12,651   15,907 
   Farmland  3,069   12,680 
     Total real estate loans  199,084   285,943 
Commercial  23,975   6,869 
Agriculture  2,287   193 
Consumer installment loans  15,032   1,085 
All other loans  331   —   
Total $240,709  $294,090 

Contractual maturities of loans do not reflect the actual term of our loan portfolio. The average life of mortgage loans is substantially less than the contractual life due to prepayments and enforcement of due on sale clauses. Scheduled principal amortization also reduces the average life of the loan portfolio. The average life of mortgage loans tends to increase when current market mortgage rates are substantially above rates on existing loans while the average life decreases when rates on existing loans are substantially above current market rates.

Some variable rate loans may not reprice, or fully reprice, at their next reset date due to instances where the reset rate may not be above the rate floor, or may be more than the allowable rate increase under the terms of the loan. In these instances, it may take several reset periods before these loans are fully adjusted.

ProvisionAllowance for Loan Losses

 

The methodology we use to calculate the allowance for loan losses is considered a critical accounting policy. The adequacy of the allowance for loan losses is based upon management’s judgment and analysis. The following factors are included in our evaluation of determining the adequacy of the allowance: risk characteristics of the loan portfolio, current and historical loss experience, concentrations, and internal and external factors such as general economic conditions. As a result of

During the severe economic downturn during the firstfourth quarter of 2020 related2021, in response to rising price inflation, we added inflation to the pandemic,economic factors considered in the model. Throughout 2022, we reassessed ourcontinued to adjust external factors impacting the allowance for loan loss model to best reflect changes in the general and local economies, the increasing interest rate environment, and the risks in the portfolio.

The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Loans are charged against the allowance for loan losses methodology and adjusted qualitative factors forwhen management believes that collectability of all or part of the potential future impact on ourprincipal is unlikely. Subsequent to charging off a loan, portfolio, which has resulted in additional provisionsmanagement makes best efforts to the allowance.recover any charged-off balances.

The allowance for loan losses increased to $7.2remained at $6.7 million atas of December 31, 2020 as compared to $5.4 million at December 31, 2019.2022. The allowance for loan losses at the end of 20202022 was approximately 1.25%1.15% of total loans as compared to 0.95%1.13% at the end of 2019.2021. Provisions for loan losses of $2.3 millionapproximately $625,000 and $372,000 were recorded during 2020the years ended December 31, 2022 and $2.1 million in 2019.2021, respectively. Loans charged off, net of recoveries, totaled $477 thousand,approximately $633,000, or 0.08%0.11% of average loans, for the year ended December 31, 2020,2022, compared to $2.0 million,approximately $828,000, or 0.36%0.14% of average loans, in 2019. This large reduction in net charge-offs is primarily related to the moratorium on foreclosure that existed for most of 2020.2021. The allowance for loan losses is being maintained at a level that management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio whether or not the losses are actually ever realized. In response to the impact of the pandemic, changes to the allowance model included reviewing our internal scoring related to loan modifications and extensions, and external factors, specifically, unemployment and other economic factors. We continue to adjust the allowance for loan loss model to best reflect the risks in the portfolio and the improvements made in our internal policies and procedures; however, future provisions may be deemed necessary.

Nonaccrual loans present higher risks of default, and we have experienced an increase in the volume of these loans during 2020. At2022, while the number of nonaccrual loans decreased. As of December 31, 2020,2022, there were 75 nonaccruing41 nonaccrual loans totaling $5.5$3.4 million, or 0.96%0.58% of total loans. AtAs of December 31, 2019,2021, there were 74 nonaccruing65 nonaccrual loans totaling $5.2$2.9 million, or 0.92%0.50% of total loans. The amount of interest income that would have been recognized on these loans had they been accruing interest was $494 thousandapproximately $10,000 and $714 thousand$223,000 in the years 2020ended December 31, 2022 and 2019,2021, respectively. In 2019, 94 nonperforming and under performing loans totaling $4.4 million were sold, resulting in a net recovery to the allowance for loans losses of $56 thousand, after determining that it was more cost effective to dispose of the accounts than to continue pursuing collection efforts. There were no loans past due 90 days or greater and still accruing interest at either December 31, 20202022 or 2019.2021. There are no commitments to lend additional funds to non-performing borrowers.

24

 

A majority of our loans are collateralized by real estate located in our market area. It is our policy to sufficiently collateralize loans to help minimize exposure to losses in cases of default. Increasing real estate values in our area have reduced this exposure somewhat. However, while we consider our market area to be somewhat diverse, certain areas are more reliant upon agriculture, coal mining and natural gas. As a result, increased risk of loan impairments is possible due to the volatile nature of the coal mining and natural gas industries. As a result of the lingering economic impact of the COVID-19 pandemic, a number of industries have been identified as posing increased risk. Specifically, residential and commercial rentals, hotels, restaurants and entertainment, and the coal and gas industries have been adversely impacted by the global and domestic economic slowdown.slowdown coupled with rising inflation. We are monitoring these industries and consider these segments to be the primary higher risks in the loan portfolio.


Commercial and commercial real estate loans are initially risk rated by the originating loan officer. If deterioration in the financial condition of the borrower and/or their capacity to repay the debt occurs, the loan may be downgraded by the loan officer.officer or our watch list committee. Guidance for risk rate grading is established by the regulatory authorities who periodically review the Bank’s loan portfolio for compliance. Classifications used by the Bank are Pass, Special Mention, Substandard, Doubtful and Loss.

With regard to the Bank’s consumer and consumer real estate loan portfolio, we use the guidance found in the Uniform Retail Credit Classification and Account Management Policy which affects our estimate of the allowance for loan losses. Under this approach, a consumer or consumer real estate loan must initially have a credit risk grade of Pass or better. Subsequently, if the loan becomes contractually 90 days past due or the borrower files for bankruptcy protection, the loan is downgraded to Substandard and placed in nonaccrual status. If the loan is unsecured upon being deemed Substandard, the entire loan amount is charged-off.

For non 1-4non-1-4 family residential loans that are 90 days or more past due or in bankruptcy, the collateral value less estimated liquidation costs isare compared to the loan balance to calculate any potential deficiency. If the collateral is sufficient, then no charge-off is necessary. If a deficiency exists, then upon the loan becoming contractually 120 days past due, the deficiency is charged-off against the allowance for loan loss. In the case of 1-4 family residential or home equity loans, upon the loan becoming 120 days past due, a current value is obtained and after application of an estimated liquidation discount, a comparison is made to the loan balance to calculate any deficiency. Subsequently, any noted deficiency is then charged-off against the allowance for loan loss when the loan becomes contractually 180 days past due. If the customer has filed bankruptcy, then within 60 days of the bankruptcy notice, any calculated deficiency is charged-off against the allowance for loan loss. Collection efforts continue by means of repossessions or foreclosures, and upon bank ownership, liquidation ensues.

All loans of $250,000 or more, along with selected other credits, classified as substandard, doubtful or loss are individually reviewed for impairment in accordance with Accounting Standards Codification (ASC) 310-10-35. The increase in the threshold to $250,000 during 2022, did not significantly impact level of loans assessment for impairment. In evaluating impairment, a current appraisal is generally used to determine if the collateral is sufficient. Appraisals are typically less than a year old and must be independently reviewed to be relied upon. If the appraisal is not current, we perform a useful life review of the appraisal to determine if it is reasonable.  If this review determines that the appraisal is not reasonable, then a new appraisal is ordered. Loans considered impairedImpaired loan balances decreased during 2022, to $5.1$2.7 million, with $2.5 million requiring a valuationrelated allowance of $1.1 million atapproximately $86,000, as of December 31, 2020 as compared to $5.62022, from $2.8 million, with $919 thousand requiring a valuationrelated allowance of $323 thousand atapproximately $166,000, as of December 31, 2019.2021. Management is aggressively working to reduce the impaired credits at minimal loss.

In determining the component of our allowance in accordance with the Contingencies topic of the Accounting Standards Codification (ASC 450), we do not directly consider the potential for outdated appraisals since that portion of our allowance is based on the analysis of the performance of loans with similar characteristics, and external and internal risk factors. We consider the overall quality of our underwriting process in our internal risk factors, but the need to update appraisals is associated with loans identified as impaired under the Receivables topic of the Accounting Standards Codification (ASC 310). If an appraisal is older than one year, a new external certified appraisal may be obtained and used to determine impairment. If an exposure exists, a specific allowance is directly made in the amount of the potential loss, in addition to estimated liquidation and disposal costs. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.


25

Following is a summary of non-accruing loans, loans past due longer than 90 days still accruing interest, and restructured loans:

 

Non-Accrual, Past Due, and Restructured Loans

(Dollars in thousands)

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Non-accruing loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial and agricultural

 

$

554

 

 

$

943

 

 

$

1,719

 

 

$

1,868

 

 

$

1,086

 

Real estate – construction

 

 

57

 

 

 

45

 

 

 

157

 

 

 

470

 

 

 

319

 

Real estate – commercial

 

 

2,225

 

 

 

1,601

 

 

 

784

 

 

 

2,035

 

 

 

3,403

 

Real estate – residential

 

 

2,700

 

 

 

2,544

 

 

 

3,702

 

 

 

3,143

 

 

 

8,521

 

Installment loans to individuals

 

 

12

 

 

 

23

 

 

 

7

 

 

 

48

 

 

 

76

 

Total Non-accruing loans

 

 

5,548

 

 

 

5,156

 

 

 

6,369

 

 

 

7,564

 

 

 

13,405

 

Loans past due 90 days or more and still accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructurings (accruing)

 

 

1,452

 

 

 

3,650

 

 

 

4,909

 

 

 

4,932

 

 

 

7,310

 

Total

 

$

7,000

 

 

$

8,806

 

 

$

11,278

 

 

$

12,496

 

 

$

20,715

 

Percent of total loans

 

 

1.22

%

 

 

1.57

%

 

 

2.06

%

 

 

2.44

%

 

 

4.42

%

The above table includes $2.5 million and $570 thousand in nonaccrual loans as of December 31, 2020 and 2019, respectively, which have been classified as troubled debt restructurings. No troubled debt restructurings were past due 90 days or more and still accruing as of December 31, 2020 or 2019. There were $4.0 million in loans classified as troubled debt restructurings as of December 31, 2020, as compared to $4.3 million in loans classified as troubled debt restructurings as of December 31, 2019.

In addition to impaired loans, the remaining loan portfolio is evaluated based on net charge-off history, economic conditions, and internal processes. To calculate the net charge-off history factor, we perform a 12-quarter look-back and use the average net charge offs as a percentage of the loan balances. To calculate the economic conditions factor, we use current economic data which includes national and local regional unemployment information, local housing price changes, gross domestic product growth, and interest rates. Lastly, we evaluate our internal processes of underwriting and consider the inherent risks present in the portfolio due to past and present lending practices. As economic conditions, performance of our loans, and internal processes change, it is possible that future increases or decreases may be needed to the allowance for loan losses.

Selected Credit Ratios
  December 31,
(Dollars in thousands) 2022 2021
Allowance for loan losses $6,727  $6,735 
Total loans  584,613   593,744 
Allowance for loan losses to total loans  1.15%  1.13%
Nonaccrual loans $3,413  $2,941 
Nonaccrual loans to total loans  0.58%  0.50%
         
Ratio of allowance for loan losses to nonaccrual loans  1.97X  2.29X
         
Charge-offs net of recoveries $633  $828 
Average loans $591,179  $586,963 
Net charge-offs to average loans  0.11%  0.14%

The above table includes $823,000 and $1.1 million in nonaccrual loans as of December 31, 2022 and 2021, respectively, which have been classified as troubled debt restructurings. No troubled debt restructurings were past due 90 days or more and still accruing interest as of December 31, 2022 or 2021. There were $2.0 million in loans classified as troubled debt restructurings as of December 31, 2022, as compared to $2.5 million in loans classified as troubled debt restructurings as of December 31, 2021. For more detail on nonaccrual, impaired, past due and restructured loans, refer to Note 6 and Note 8 to the consolidated financial statements in Item 8 of this Form 10-K.

The following table provides a summaryshows the average balance, net charge-offs or recoveries and percentage of net charge-offs or recoveries by each major category of loans for the activity inyears ended December 31, 2022 and 2021:

             
             
  December 31, 2022 December 31, 2021
(Dollars in thousands) Average Balance Net Charge-offs (Recoveries) Net Charge-offs (Recoveries) as % of Average Loan Type Average Balance Net Charge-offs (Recoveries) Net Charge-offs (Recoveries) as % of Average Loan Type
 Real estate secured:                        
 Commercial $202,435  $(28)  -0.01% $194,517  $913   0.47%
 Construction and land development  39,986   143   0.36%  28,820   (6)  -0.02%
 Residential 1-4 family  225,334   (36)  -0.02%  220,524   (37)  -0.02%
 Multifamily  32,768   109   0.33%  23,840   —     0.00%
 Farmland  18,022   (13)  -0.07%  19,144   (29)  -0.15%
 Total real estate loans  518,545   175   0.03%  486,845   841   0.17%
 Commercial  48,093   14   0.03%  74,711   (45)  -0.06%
 Agriculture  3,823   —     0.00%  4,095   (1)  -0.02%
 Consumer and all other loans  19,235   444   2.31%  19,441   33   0.17%
 Unallocated  1,483   —     0.00%  1,871   —     0.00%
 Total loans $591,179  $633   0.11% $586,963  $828   0.14%

26

The following table shows the balance and percentage of our allowance for loan losses.losses allocated to each major category of loans.

AnalysisAllocation of the Allowance for Loan Losses

(Dollars in thousands)  

 

 

For the Years Ended December 31,

 

Activity

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Beginning Balance

 

$

5,368

 

 

$

5,336

 

 

$

6,196

 

 

$

6,072

 

 

$

7,493

 

Provision charged to expense

 

 

2,300

 

 

 

2,050

 

 

 

252

 

 

 

450

 

 

 

(500

)

Advances made on loans with

off balance sheet provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan Losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial and agricultural

 

 

(386

)

 

 

(1,812

)

 

 

(675

)

 

 

(64

)

 

 

(67

)

Real estate – construction

 

 

 

 

 

 

 

 

(96

)

 

 

(1

)

 

 

(5

)

Real estate – commercial

 

 

(65

)

 

 

(192

)

 

 

(334

)

 

 

(179

)

 

 

(557

)

Real estate – residential

 

 

(165

)

 

 

(336

)

 

 

(290

)

 

 

(714

)

 

 

(738

)

Installment loans to individuals

 

 

(85

)

 

 

(114

)

 

 

(75

)

 

 

(147

)

 

 

(83

)

Total loan losses

 

 

(701

)

 

 

(2,454

)

 

 

(1,470

)

 

 

(1,105

)

 

 

(1,450

)

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial and agricultural

 

 

74

 

 

 

92

 

 

 

157

 

 

 

519

 

 

 

172

 

Real estate – construction

 

 

 

 

 

34

 

 

 

11

 

 

 

 

 

 

26

 

Real estate – commercial

 

 

57

 

 

 

16

 

 

 

73

 

 

 

193

 

 

 

220

 

Real estate – residential

 

 

38

 

 

 

232

 

 

 

73

 

 

 

48

 

 

 

87

 

Installment loans to individuals

 

 

55

 

 

 

62

 

 

 

44

 

 

 

19

 

 

 

24

 

Total recoveries

 

 

224

 

 

 

436

 

 

 

358

 

 

 

779

 

 

 

529

 

Net charge offs

 

 

(477

)

 

 

(2,018

)

 

 

(1,112

)

 

 

(326

)

 

 

(921

)

Balance at End of Period

 

$

7,191

 

 

$

5,368

 

 

$

5,336

 

 

$

6,196

 

 

$

6,072

 

Net charge offs as a % of average loans

 

 

0.08

%

 

 

0.36

%

 

 

0.21

%

 

 

0.07

%

 

 

0.20

%

  December 31, 2022 December 31, 2021
(Dollars in thousands) Amount % of ALLL % of Loans Amount % of ALLL % of Loans
Real estate secured:                        
   Commercial $2,364   35.1   33.7  $2,134   31.7   34.7 
   Construction and land development  345   5.2   7.3   189   2.8   5.4 
   Residential 1-4 family  2,364   35.1   38.9   2,237   33.2   37.8 
   Multifamily  262   3.9   5.1   254   3.8   5.6 
   Farmland  153   2.3   3.0   149   2.2   3.2 
Total real estate loans  5,488   81.6   88.00   4,963   73.7   86.7 
Commercial  381   5.7   8.0   1,099   16.3   9.1 
Agriculture  32   0.5   0.6   28   0.4   0.7 
Consumer and all other loans  386   5.7   3.4   108   1.6   3.5 
Unallocated  440   6.5   —     537   8.0   —   
Total $6,727   100.0   100.0  $6,735   100.0   100.0 
                         

29

We have allocated the allowance according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within each of the categories of loans. The allocation of the allowance as shown in the following table above should not be interpreted as an indication that loan losses in future years will occur in the same proportions or that the allocation indicates future loan loss trends. Furthermore, the portion allocated to each loan category is not the total amount available for future losses that might occur within such categories since the total allowance is a general allowance applicable to the entire portfolio.

The allocation of the allowance for loan losses is based on our judgment of the relative risk associated with each type of loan. We have allocated 32%35.1% of the allowance to commercial real estate loans, which constituted 31.17%33.7% of our loan portfolio at December 31, 2020.2022. This allocation increased whenslightly compared to the 23%31.7% in 20192021, due primarily to the risks to businesses associated withimpact of the COVID-19 pandemic.external factors considered as part of the determination of the overall allowance for loan losses. We have allocated 34%5.7% of the allowance to commercial loans, which constituted 19.28%8.0% of our loan portfolio at December 31, 2020.2022. This allocation percentage decreased compared to December 31, 20192021, due to guarantees provided bya lower loss rate on commercial loans for the SBA on PPP loans, which resultedhistorical period assessed in their being excluded from the allowance assessment of commercial loans.loan loss model for 2022.

Both residential and commercial real estate loans are secured by real estate whose value tends to be easily ascertainable. These loans are made consistent with appraisal policies and real estate lending policies, which detail maximum loan-to-value ratios and maturities.

We have allocated 3%5.2% of the allowance to real estate construction loans, which constituted 4.35%7.3% of our loan portfolio atas of December 31, 2020.2022. Construction loans are secured by real estate with values that are dependent upon market and economic conditions. Values may not always be easily ascertainable as evidenced by the current market conditions.Additionally, these credits are generally shorter-term projects, of eighteen months or less. These loans are made consistent with appraisal policies and real estate lending policies which detail maximum loan-to-value ratios and maturities.

We have allocated 29%35.1% of the allowance to residential real estate loans, which constituted 41.62%38.9% of our loan portfolio atas of December 31, 2020.2022.

We allocated 5.74% of the allowance to consumer and all other loans, which constituted 3.41% of our loan portfolio as of December 31, 2022. Our allocation decreasedincreased as a percentage of the allowance for loan losses due to the $6.9 million decreaseimpact of overdrawn deposit account losses resulting from the cybersecurity incident, combined with a change in residential real estate loansthe treatment of deposit account charge-offs during 2020.

We have allocated 2%2022. As of the allowance to consumer installment loans, which constituted 3.58% of our loan portfolio at December 31, 2020, which declined $31 thousand compared to the 4% allocation2022, we had in 2019.

The following table showsan unallocated portion of the balance and percentage of our allowance for loan losses (or ALLL) allocated to each major category of loans.

Allocationtotaling approximately $440,000. While our legacy loan loss model calculation did not fully allocate the entire allowance, we believe that the lingering impact of the Allowancepandemic, combined with the recent impact of inflation warrant the maintenance of the allowance for Loan Lossesloan losses.

December 31, 2016 through December 31, 2020

(Dollars in thousands)  We implemented the Current Expected Credit Loss (CECL) model to replace our legacy loan loss model for the first quarter of 2023. The cumulative effects of this implementation were immaterial.

 

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Amount

 

 

% of ALLL

 

 

%of Loans

 

 

Amount

 

 

% of ALLL

 

 

%of Loans

 

 

Amount

 

 

% of ALLL

 

 

%of Loans

 

Commercial

 

$

2,424

 

 

 

34

%

 

 

19.28

%

 

$

1,932

 

 

 

36

%

 

 

14.45

%

 

$

775

 

 

 

15

%

 

 

15.20

%

R/E–const.

 

 

233

 

 

 

3

%

 

 

4.35

%

 

 

158

 

 

 

3

%

 

 

5.53

%

 

 

202

 

 

 

4

%

 

 

6.42

%

R/E–comm.

 

 

2,281

 

 

 

32

%

 

 

31.17

%

 

 

1,248

 

 

 

23

%

 

 

30.30

%

 

 

1,386

 

 

 

26

%

 

 

25.75

%

R/E-res.

 

 

2,102

 

 

 

29

%

 

 

41.62

%

 

 

1,840

 

 

 

34

%

 

 

45.61

%

 

 

2,526

 

 

 

47

%

 

 

48.15

%

Installment

 

 

151

 

 

 

2

%

 

 

3.58

%

 

 

188

 

 

 

4

%

 

 

4.11

%

 

 

172

 

 

 

3

%

 

 

4.49

%

Unallocated

 

 

 

 

 

0

%

 

 

 

 

 

 

2

 

 

 

0

%

 

 

 

 

 

 

275

 

 

 

5

%

 

 

 

 

Total

 

$

7,191

 

 

 

100

%

 

 

100.00

%

 

$

5,368

 

 

 

100

%

 

 

100.00

%

 

$

5,336

 

 

 

100

%

 

 

100.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

 

% of ALLL

 

 

 

% of Loans

 

 

 

 

Amount

 

 

 

% of ALLL

 

 

 

% of Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1,098

 

 

 

18

%

 

 

13.35

%

 

$

622

 

 

 

10

%

 

 

11.75

%

 

 

 

 

 

 

 

 

 

 

 

 

R/E-const.

 

 

191

 

 

 

3

%

 

 

5.80

%

 

 

346

 

 

 

6

%

 

 

5.50

%

 

 

 

 

 

 

 

 

 

 

 

 

R/E-comm.

 

 

1,989

 

 

 

32

%

 

 

24.89

%

 

 

1,625

 

 

 

27

%

 

 

22.05

%

 

 

 

 

 

 

 

 

 

 

 

 

R/E-res.

 

 

2,506

 

 

 

41

%

 

 

51.59

%

 

 

2,617

 

 

 

43

%

 

 

55.97

%

 

 

 

 

 

 

 

 

 

 

 

 

Installment

 

 

156

 

 

 

2

%

 

 

4.37

%

 

 

123

 

 

 

2

%

 

 

4.73

%

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

256

 

 

 

4

%

 

 

 

 

 

 

739

 

 

 

12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,196

 

 

 

100

%

 

 

100.00

%

 

$

6,072

 

 

 

100

%

 

 

100.00

%

 

 

 

 

 

 

 

 

 

 

 

 

3027

 

Other Real Estate Owned

Other real estate owned decreased $59 thousand,$1.1 million, or 1.8%80.82%, to $3.3 million atapproximately $261,000 as of December 31, 20202022 from $3.4$1.4 million atas of December 31, 2019.2021. All properties are available for sale, primarily, by commercial and residential realtors under the direction of our Special Assets division. Our aim is to reduce the level of OREO in order to reduce the level of nonperforming assets at the Bank, while keeping in mind the impact to earnings and capital. In 2020During 2022, three former branch locations transferred to OREO in 2021 were sold, which decreased OREO approximately $912,000.

While the levels of problem credits and 2019, pricing adjustments were made to make certainforeclosed properties more marketable, which, in some cases,have been reduced significantly over the price below the fair valuepast several years, we remain mindful of the property (which is basedimpact on an appraisal less estimated disposition costs). During 2020,earnings and capital as we recorded OREO writedowns of $132 thousand as comparedwork to $214 thousand during 2019.

During 2020, we added $1.1 million in OREO properties as a result of settlement of foreclosed loans, offset by sales of $687 thousand with net gains of $60 thousand. As noted previously, a moratorium on foreclosures was initiated in Virginia during the first quarter of 2020 and remained in effect into the third quarter. During 2019, we added $811 thousand in OREO properties as a result of settlement of foreclosed loans, which was offset by sales of $1.3 million with net losses totaling $123 thousand. Additionally, during 2019, a closed branch office facility was transferred from Bank Premises to OREO at a value of $683 thousand. As previously discussed, we continue to take an aggressive approach toward liquidating propertiesachieve our goal to reduce our levelnonperforming assets. However, we may recognize some losses and reductions in the allowance for loan losses as we expedite the resolution of foreclosed properties by making pricing adjustments and holding auctions on some of our older properties. We expect to continue these efforts in 2021, which could result in additional losses, while reducing future carrying costs.problem assets.

Although the properties remain for sale and are actively marketed, we do have lease agreements on certain other real estate owned properties which are generating rental income at market rates. Rental income on OREO properties was $54 thousand and $63 thousand in 2020 and 2019, respectively.

Investment Securities

Total investment securities decreased $2.2$11.3 million, or 4.4%10.51%, to $48.4$96.1 million atas of December 31, 20202022 from $50.6$107.4 million atas of December 31, 2019.2021. All securities are classified as available-for-sale for liquidity purposes. There were no sales of securities during the year ended December 31, 2022. Sales of securities during 20202021 totaled $1.1$7.7 million, with $4 thousandgains of approximately $322,000 realized. During the year ended December 31, 2022 and 2021, there were maturities, calls and paydowns of $14.0 million and $16.3 million, respectively. The Company purchased $19.8 million and $85.1 million in gains realized. Noinvestment securities were sold during 2019. However, paydowns on mortgage backed securities totaled $11.0 million. Purchases of securities totaled $9.6 million during 2020.the year ended December 31, 2022 and 2021, respectively. Investment securities with a carrying value of $6.8$27.3 and $12.1 million and $6.9 million atas of December 31, 20202022 and 2019,2021, respectively, were pledged to secure public deposits and for other purposes required, or permitted, by law.

Our strategy is to invest excess funds in investment securities, which typically yield more interest income than other short termshort-term investment options, such as federal funds sold and overnight deposits with the Federal Reserve Bank of Richmond, but which still provide liquidity. During 2020, since we had plenty of liquidity from increased customer deposit balances, purchases of investment securities essentially replaced maturities and paydowns of other securities. Due to loan demand during 2019, most funds resulting from securities maturities and repayments were used to fund the loan portfolio. We anticipate increasing the size of the portfolio during 2021, as we continue to seek ways of improving returns on liquid funds. The portfolio is comprised of what we believe to be short to mid-term investments, as mortgage backed securities and collateralized mortgage obligations generally repay at a faster rate than their contractual maturities. The carrying values of investment securities and the different types of investments are shown in the following table:

Investment Securities Portfolio

(Dollars in thousands)  

 

 

2020

 

 

2019

 

 

2018

 

December 31,
Available for Sale

 

Amortized
Cost

 

 

Fair
Value

 

 

Amortized
Cost

 

 

Fair
Value

 

 

Amortized
Cost

 

 

Fair
Value

 

U.S. Government Agencies

 

$

13,852

 

 

$

14,107

 

 

$

15,703

 

 

$

15,633

 

 

$

19,755

 

 

$

19,389

 

Taxable municipals

 

 

5,157

 

 

 

5,345

 

 

 

4,389

 

 

 

4,442

 

 

 

4,428

 

 

 

4,313

 

Corporate bonds

 

 

5,893

 

 

 

6,048

 

 

 

5,408

 

 

 

5,523

 

 

 

5,422

 

 

 

5,320

 

Mortgage backed securities

 

 

22,565

 

 

 

22,906

 

 

 

25,077

 

 

 

25,051

 

 

 

31,366

 

 

 

30,385

 

Total Securities AFS

 

$

47,467

 

 

$

48,406

 

 

$

50,577

 

 

$

50,649

 

 

$

60,971

 

 

$

59,407

 

The fair value of our investment portfolio is substantially affected by changes in interest rates, whichrates. Losses could result inbe realized losses if we need to sellliquidity and/or business strategy necessitate the sale of securities and recognize the loss in a rising interest rate environmentloss position, due to Federal Reserve actions, U.S. fiscal policies or other factors affecting market interest rates. AtAs of December 31, 2020,2022, we had a net unrealized gainloss in our investment portfolio totaling $938 thousand$17.6 million as compared to $72 thousand ata $1.0 million loss as of December 31, 2019.2021. As market interest rates increase the level of unrealized losses could change substantially. However, these changes would have no impact on earnings or regulatory capital, unless the securities were sold at a loss. We have reviewed our investment portfolio and no investment security is deemed to have other than temporary impairment. We monitor our portfolio regularly and use it to maintain liquidity, manage interest rate risk and enhance earnings.


The amortized cost, fair value and weighted average yield of investment securities atas of December 31, 20202022 are shown in the following schedule by contractual maturity and do not reflect principal paydowns for amortizing securities. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Weighted average yields are calculated by dividing the contractual interest for each time period by the average amortized contractual cost.

                     
  Less than One Year One to Five Years Five to ten years After ten years Total
(Dollars in thousands) Fair Value Average Yield Fair Value Average Yield Fair Value Average Yield Fair Value Average Yield Fair   Value Average Yield
U.S Treasuries $971   3.87% $9,281   1.39% $1,433   1.04% $—      —% $11,685   1.54%
U.S. Government Agencies  1   4.56%  2,992   3.76%  2,091   3.12%  4,315   2.60%  9,399   3.08%
Taxable municipals  —      —  504   2.95%  3,476   2.30%  12,835   2.33%  16,815   2.33%
Corporate bonds  503   5.48%  1,427   3.49%  1,206   2.58%  —      —  3,136   3.43%
Mortgage backed securities  —      —  1,470   1.92%  5,203   1.77%  48,368   1.66%  55,041   1.68%
  $1,475   4.51% $15,674   2.12% $13,409   2.11% $65,518   1.86% $96,076   1.97%

28

 

Maturities of Securities

 

 

 

 

 

 

 

 

Weighted

 

(Dollars are in thousands)

 

Amortized

 

 

Fair

 

 

Average

 

Securities Available for Sale

 

Cost

 

 

Value

 

 

Yield

 

Due in one year or less

 

$

540

 

 

$

546

 

 

 

2.11

%

Due after one year through five years

 

 

6,664

 

 

 

6,795

 

 

 

3.42

%

Due after five years through ten years

 

 

9,487

 

 

 

9,754

 

 

 

2.68

%

Due after ten years

 

 

30,776

 

 

 

31,311

 

 

 

1.77

%

Total

 

$

47,467

 

 

$

48,406

 

 

 

2.19

%

Bank Owned Life Insurance

AtAs of December 31, 20202022 and 2019, we2021, the Bank had an aggregate total cash surrender value of $4.7$4.5 million and $4.6$4.7 million, respectively, on life insurance policies covering former key officers.

TotalThe Company recorded a loss of $136,000 due to a write-down of approximately $158,000, partially offset by earnings of $22,000, during the year ended December 31, 2022. The write-down was due to the impact of rising interest rates on the value of the underlying assets supporting the policies. The Company recognized income forof approximately $32,000 during the policies during 2020 and 2019 was $77 thousand and $63 thousand, respectively.year ended December 31, 2021.

Deposits

Total deposits were $668.0$692.7 million atas of December 31, 2020, an increase2022, a decrease of $46.5$14.8 million, or 7.5%2.1%, from $621.5$707.5 million atas of December 31, 2019.2021. Most of the increasedecrease was driven by non-interest bearingsavings and money market deposits, which decreased $20.6 million, or 10.7%, to $171.5 million as of December 31, 2022. The majority of the decline occurred during the fourth quarter of 2022 as competition for funds for lending and other needs intensified among banks and non-banks in the Company’s markets.

Information detailing average deposit balances and average rates paid on deposits is presented in the Net Interest Margin Analysis table contained in the “Net Interest Income and Net Interest Margin” section.

Core deposits are considered to include demand deposits which grew $52.9 million, or 31.0%, to $223.7 million during 2020, a result of PPP loan disbursements and federal stimulus payments received by deposit customers. Interest bearing demand deposits grew by $12.5 million, or 33.7%, to $49.7 million. Due to the large influx of non-interest bearing balances, we allowed attrition of time deposit balances, which decreased by $23.4 million and allowed us to reduce our average cost of funds.

Core deposits, which include the demand deposits mentioned in the last paragraph, also include other types of transaction accounts, such as commercial relationships and savings products. Savings accounts increased by $22.2 million to $95.1 million and money market depositsproducts, all of which decreased $17.8 million to $40.1 million during 2020. The decrease in money market deposit accounts was primarily due to one customer whose balance we knew to be temporary.2022. Overall, we continue to maintain core deposits through attractive consumer and commercial deposit products and strong ties with our customer base and communities.

Time deposits of $100,000$250,000 or more equaled approximately 17.0%3.87% of deposits at the end of 20202022 and 19.5%4.00% of deposits at the end of 2019.2021.

As of December 31, 2022 and 2021, uninsured deposits are estimated to be $87.5 million and $93.8 million, respectively. Included in estimated uninsured deposits are $14.4 million and $13.6 million of public funds, for such respective periods, considered secured via pledged securities or letters of credit we have with the FHLB.

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

Maturities of Uninsured Time Deposits
(Dollars in thousands)
December 31, 2022
Three months or less $2,339 
Over three months through six months  3,078 
Over six months through twelve months  10,374 
Over one year  5,252 
Total $21,043 


 

As of December 31, 2022 and 2021, $27.3 million and $12.1 million of securities, respectively, were pledged to collateralize public deposits, including time deposits, held in our Tennessee offices, and as collateral for credit facilities available through FRB. Additionally, we held letters of credit from the FHLB for $7.0 million and $12.0 million at December 31, 2022 and 2021, respectively, to secure public deposits, including time deposits, held in our Virginia offices.

We held no brokered deposits at December 31, 2020 and 2019.2022 or 2021. Internet accounts are limited to customers located in our primary market area and the surrounding geographical area. The average balance of and the average rate paid on deposits is shown in the net interest margin analysis table in the “Net Interest Income and Net Interest Margin” section above.section. Total Certificate of Deposit Registry Service (CDARS) time deposits were $9.6$1.4 million and $11.2$5.8 million at December 31, 20202022 and 2019,2021, respectively.


29

Maturities of time deposits of $100,000 or more outstanding are summarized as follows:

 

Maturities of Time Deposits of $100 Thousand and More

(Dollars in thousands)

 

December 31, 2020

Three months or less

 

$

18,228

 

Over three months through six months

 

 

24,880

 

Over six months through twelve months

 

 

19,888

 

Over one year

 

 

50,587

 

Total

 

$

113,583

 

Noninterest Income

For the year ended December 31, 2020,2022, noninterest income declined $505 thousand,decreased approximately $740,000, or 5.8%7.4%, to $8.1$9.2 million, or 1.10%1.1% of average assets, from $8.6$10.0 million, or 1.22%1.3% of average assets, for the same period in 2019. After excluding2021. The decrease was primarily attributable to non-recurring net gains on sales of investment securities of $322,000 in 2021 and net gains on sales of fixed assets of $190,000 in 2021. During the $803 thousand gainperiod immediately after the cybersecurity incident, in June 2022, we temporarily stopped assessing overdraft and certain other service charges. we estimate that additional normalized charges of approximately $125,000 would have been realized during this period. Additionally, the Company recognized a write-down on the sale and leasebackBOLI of our Lebanon, Virginia office recorded in 2019, noninterest income increased $298 thousand, due primarily to an increase of $300 thousand in card processing and interchange income, plus a $220 thousand bonus received$158,000 during the first quarteryear ended December 31, 2022 due to declines in the market value of 2020the underlying investments supporting the policy related to increased interest rates. Gains and commissions on mortgage loan originations decreased approximately $162,000 due to rising interest rates on mortgage loans.

Noninterest Expense

Noninterest expenses decreased $1.3 million, or 4.8%, to $26.5 million for the year ended December 31, 2022, compared to $27.9 million for the year ended December 31, 2021. Noninterest expense as a percent of total average assets decreased to 3.2% in 2022 from a service provider for renewing and extending our service agreement.

Service charges decreased $388 thousand during 2020,3.5% in 2021. The decrease in noninterest expense was primarily due to the reduced volume of overdraft activity, a direct result of increased deposit balances from PPP loan disbursements and federal stimulus payments. However, changes to our service fee schedule took effect in August of 2020, which has mitigated some of the decline in overdraft activity.

Financial services revenue for 2020 were $716 thousand, an increase of $53 thousand, or 8.0%, from the $663 thousand recognized in 2019. We continue to focus efforts on our financial services operations as we believe this segment continues to show potential for future growth.

In addition, secondary market mortgage origination revenue, included in other noninterest income, decreased approximately 17.0% to $205 thousand, another effect of the economic downturn related to the pandemic and restructuring changes in 2020. However, we remain focused on growing loans, including those sold into the secondary market, as evidenced by our expansion into new markets, like Boone, North Carolina, where population density and housing inventory provide additional opportunities to originate mortgage loans. We have also hired several seasoned lenders to serve the Tri-Cities and surrounding markets.

Noninterest Expense

Noninterest expenses decreased $2.0 million, or 6.9%, to $27.0 million at December 31, 2020, or 3.63% of average assets, compared to $29.0 million at December 31, 2019, or 4.09% of average assets. This decrease was due to reduced salary and benefit costs, which helped offset the impact of the restructuring costs incurred during the second quarter of 2020, combined with a decrease in consulting fees and related out-of-pocket costs.

Salaries and employee benefits decreased $878 thousand, or 6.2%, to $13.2of $1.7 million in 2020 compared to $14.1 million 2019, even with the impact of the restructuring costs. In May 2020, we announced a restructuring which included a combination of eliminated positions, retirements or resignations representing 12% of the workforce. occupancy and equipment expense.

The estimated annual pre-tax savings resulting from this restructuring is $1.6 million. Affected employees received transitional support, including severance payments, assistance to aiddecrease in maintaining health insurance,occupancy and support in applying for unemployment benefits.

We retained an outside consulting firm during the fourth quarter of 2019 to review our products and procedures to identify areas where we could enhance revenue and better manage costs. During the fourth quarter of 2019, non-recurring fees of $233 thousand were recorded. Another $243 thousandequipment expense was recognized during the first quarter of 2020. The vast majority of their recommendations have been implemented and we estimated pre-tax annual benefits will exceed $1.5 million. The only remaining recommendations in process relate to efficiency improvements in operating procedures.


Other operating expenses decreaseddriven nearly entirely by $1.1 million or 14.0%, to $6.7 million in 2020 from $7.8 million in 2019, due largely to reductions in expenses related tonon-recurring losses on three former branch office locations, which were transferred into other real estate owned loan collection, ATM processing, data circuits and telephone, which decreased $328 thousand, $227 thousand, $357 thousand, $47 thousand, and $67 thousand, respectively. Even with $132 thousandduring the third quarter of write-downs, OREO costs benefited from $60 thousand of gains recognized on the sale of a foreclosed property. Loan collection costs reflect the impact of loan forbearance combined with the moratorium on foreclosures during most of 2020. Data circuits and telecommunication expenses benefited from contracts renegotiated2021.

The decrease in 2019. These savings offset non-recurring consulting costs of $265 thousand, plus other related out-of-pocket costs. The Commonwealth of Virginia ended the moratorium on foreclosures in September of 2020. We have since resumed foreclosures and anticipate these costs will rise.

Occupancyoccupancy and equipment expenses remained essentially unchanged at $4.5 million in both 2020 and 2019. Depreciation expense decreased $122 thousand, or 5.3%, to $2.2 million in 2020 compared to 2019, due to the aging out of some of our equipment. Increases in utilities, property taxes, depreciation and repairs and maintenance related to our new Kingsport, Tennessee office negated the reductions in other depreciation expense. While a portion of this site’s operating costs arewas partially offset by rental income, we anticipate increasing tenant occupancy during 2021.a $703,000 increase in salaries and benefits expense attributable to higher bonus accruals based on Company performance, annual performance raises, and adjustments to minimum starting salaries to reflect rising costs to attract and retain talent.

Our efficiency ratio, a non-GAAP measure, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, improved to 81.10%70.6% in 20202022 compared to 86.23%75.6% in 2019.2021. The decrease in this ratio is a result of improvements in both noninterestnet interest income and noninterest expense, as discussed above.above and in the “Net Interest Income and Net Interest Margin” section earlier in this Item 7. We continue to seek opportunities to operate more efficiently through the use of technology, improving processes, reducing nonperforming assets and increasing productivity.

Income Taxes and Deferred Tax Assets

Income taxes were $1.1$2.3 million in 2020,for the year ended December 31, 2022, compared to $522 thousand$1.9 million for the same period in 2019.2021. The effective tax rates were 27.6%22.2%, and 20.2%21.7% for 20202022 and 2019,2021, respectively. The effective tax rate for the periods differed from the federal statutory rate of 21.0% principally due to tax-exempt income from loans as well as earnings from bank owned life insurance, as well as the impact of the recapture of operating loss carryforwards and applicable credits.credits, along with the effect of certain state income taxes. The higher effective tax rate in 2020 when compared to 20192022 is the result of thean increase in pre-tax earnings in relation to the various tax preference items.

Deferred tax assets represent the future tax benefit of future deductible differences and, ifdifferences. If it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. The Company has evaluated positive and negative evidence to assess the realizability of its deferred taxes. Based on the evidence, including taxable income projections, the Company believes it is more likely than not that its deferred tax assets will be realizable. Accordingly, the Company did not include a valuation allowance against its deferred tax assets as of December 31, 20202022 or 2019.2021.

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a position will be sustained upon examination. If a tax position meets the more likely than not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being recognized. The Company classifies interest and penalties as a component of income tax expense.

30

 

As of December 31, 2020, the Company had Federal and state net operating loss carry forward amounts of approximately $10.3 million and $1.0 million, respectively. These amounts are not limited pursuant to Internal Revenue Code (IRC) Section 382. The Company is subject to examination in the United States and multiple state jurisdictions. Open tax years for examination are 2017 – 2020.

Capital Resources

Our total capitalshareholders’ equity at the end of 20202022 was $58.2$57.2 million compared to $54.6$63.6 million at the end of 2019.2021. The increasedecrease was $3.6$6.4 million, or 6.6%10.1%. Book value per common share was $2.43$2.40 at December 31, 20202022 compared to $2.28$2.66 at December 31, 2019.2021. As previously discussed, the year-over-year decline was primarily driven by the $13.1 million net increase in the accumulated other comprehensive loss related to the unrealized loss on investment securities available-for-sale. Excluding the impact of the unrealized loss, equity increased $6.7 million.

During 2022, the board of directors authorized the repurchase of up to 500,000 shares of common stock through March 31, 2023. Through December 31, 2022, 73,595 shares have been repurchased at an average price of $2.33 per share. On February 27, 2023, the board of directors approved an extension of the repurchase program through March 31, 2024.

The Company meets the eligibility criteria to be considered a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement issued in February 2015 and does not report consolidated regulatory capital. The Bank continues to be subject to various capital requirements administered by banking agencies.


The Bank is characterized as “well capitalized”"well capitalized" under the “prompt corrective action” regulations pursuant to Section 38 of the FDIA. The capital adequacy ratios for the Bank, are set forth below along withincluding the minimum ratios to be considered “well capitalized” under such regulations:capitalized,” are set forth in Note 21, Capital, to the consolidated financial statements in Item 8 of this Form 10-K.

Capital Adequacy Ratios

 

 

 

 

 

December 31,

 

 

 

Well-Capitalized

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

Threshold

 

 

2020

 

 

2019

 

Tier 1 leverage

 

 

5.00

%

 

 

9.49

%

 

 

9.43

%

Common equity tier 1

 

 

6.50

%

 

 

15.16

%

 

 

13.72

%

Tier 1 risk-based capital

 

 

8.00

%

 

 

15.16

%

 

 

13.72

%

Total risk-based capital

 

 

10.00

%

 

 

16.41

%

 

 

14.83

%

The Bank is also subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Act. The final rules require the Bank to comply with the following minimum capital ratios: (i) a CET1Common Equity Tier 1 (CET1) ratio of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum CET1 ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a CET1 ratio above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. As of December 31, 2020,2022, the Bank meets all capital adequacy requirements to which it is subject.

Total assets increased in 2020 and we anticipate asset levels to increase in the future due to an emphasis on growing the loan portfolio and the core deposit base of the Bank. Under current economic conditions, we believe it is prudent to continue to increase capital to support planned asset growth while being able to absorb potential losses that may occur if asset quality deteriorates further. Based upon projections, we believe our earnings will be sufficient to support the Bank’s planned asset growth.

NoThe Company paid its first cash dividend of $0.05 per share in 2022. On February 27, 2023, the board of directors declared a dividend of $0.06 per share, to be paid on March 31, 2023. Future payments of cash dividends have been paid historicallywill depend on a number of factors including but not limited to maintaining positive retained earnings, compliance with regulatory rules governing the payment of dividends, strategic plans, and we do not anticipate paying cashsufficient capital at the Bank to allow payment of dividends as long asto the Company continues to have a retained deficit. Earnings will continue to be retained to build capital and position the Company to pay a dividend to its shareholders as soon as practicable.parent company.

Liquidity

We closely monitor our liquidity and our liquid assets in the form of cash, due from banks, federal funds sold and unpledged available-for-sale investments. Collectively, those balances were $134.0$130.5 million atas of December 31, 2020, up2022, down from $93.9$159.3 million atas of December 31, 2019.2021. As discussed previously in this Form 10-K, this increasechange is a direct result of increasesredeployment of excess cash into investment securities, which generally return higher yields, while still providing liquidity, as discussed below, and the decrease in our customers’ deposit balances.deposits. A surplus of short-term assets areis maintained at levels management deems adequate to meet potential liquidity needs.

The Bank’s primary funding source is deposits from customers in the markets in which it provides banking services. As discussed previously, deposits declined during the fourth quarter of 2022 as competition for deposits intensified from both bank and non-bank institutions. The Company expects that pressure on the rates paid on deposits will continue and that it may be required to increase the rates paid on its deposit products, possibly faster and to a higher degree not currently projected, to retain existing customers and attract new deposit relationships to fund loans and other activities. As discussed below, the Company has other liquidity sources to manage its liquidity needs as they arise.

At December 31, 2020,2022, all of our investments are classified as available-for-sale, providing an additional source of liquidity in the amount of $48.4$68.8 million, which is net of the $6.8$27.3 million of securities pledged as collateral. This will serveGenerally, the investment portfolio serves as a source of liquidity while yielding a higher return at the purchase date when compared to other short termshort-term investment options, such as federal funds sold and overnight deposits with the Federal Reserve Bank of Richmond. Total investment securities decreased $2.2$11.3 million, or 4.4%10.51%, during 20202022 from $50.6$107.4 million atas of December 31, 2019.2021 to $96.1 million as of December 31, 2022.

31

 

Our loan to deposit ratio was 86.16% at84.4% as of December 31, 20202022 and 90.52% at year-end 2019.83.9% as of December 31, 2021.

Available third-party sources of liquidity remain intact at December 31, 20202022 which includes the following: our line of credit with the FHLB totaling $187.0$200.1 million, the brokered certificates of deposit markets, internet certificates of deposit, and the discount window at the Federal Reserve Bank of Richmond. We also have $20.0$30.0 million in unsecured federal funds lines of credit available from three correspondent banks as of December 31, 2020, which gives us an additional source of liquidity.2022.


We have used our line of credit with FHLB to issue lettersa letter of credit totaling $12.0$7.0 million to the Treasury Board of Virginia for collateral on public funds. No draws on the lettersletter of credit have been issued. The lettersThis letter of credit areis considered drawsto be a draw on our FHLB line of credit. An additional $169.9$200.1 million was available on December 31, 20202022 on the $187.0$207.1 million line of credit, of which $136.7$113.7 million is secured by a blanket lien on our residential real estate loans.

While we have access to the brokered deposits market, we haveheld no brokered deposits atas of December 31, 20202022 or 2019.2021. As of December 31, 2020,2022, we have $9.6had $1.4 million in reciprocal CDARS time deposits, compared to $11.2$5.8 million atas of December 31, 2019.2021.

The Bank has access to additional liquidity through the Federal Reserve Bank of Richmond’s Discount Window for overnight funding needs. We may collateralizehave collateralized this line with investment securities and loans at our discretion;securities; however, we do not anticipate using this funding source except as a last resort.

With the on-balance sheet liquidity and other external sources of funding, we believe the Bank has adequate liquidity and capital resources to meet our requirements and needs for the foreseeable future. However, liquidity can be further affected by a number of factors such as, counterparty willingness or ability to extend credit, regulatory actions and customer preferences, some of which are beyond our control. With the current economic downturnuncertainty resulting from recovering from the lingering effects of the COVID-19 pandemic, inflation and the war in Ukraine, we have heightened ourcontinue monitoring of our liquidity position, specifically cash on hand in order to meet customer demandsdemands. Additionally, our contingency funding plan is reviewed quarterly with our Asset Liability Committee.

On March 10, 2023, Silicon Valley Bank (SVB) a regional banking company headquartered in Santa Clara, California, with total assets in excess of $200 billion, was taken into receivership through FDIC, after the bank experienced a significant outflow of deposit funds fueled by concerns of large commercial and retail deposit customers holding funds far in excess of the FDIC insured limits at SVB. These concerns related to usageunrealized losses in SVB’s investment portfolio combined with the long-term maturities of stimulus funds. Additionally, the Federal Reserve hasinvestments and other earning assets held by SVB. While we, or any other financial institution, can be impacted by sudden changes in market conditions or customer sentiment, we believe that our funding and liquidity management strategies and procedures are sound. In addition, our deposit customer base is diverse without significant exposure to uninsured deposit relationships. Prior to receivership of SVB our deposit fluctuations were largely tied to cyclical events and inflows and outflows related to customers seeking higher interest rates. Since the date of the receivership, we have not experienced any significant or unusual deposit outflows and we have taken actionssteps to bolstersuccessfully test certain liquidity facilities in the markets.event of any future deposit outflows.

Financial Instruments with Off-Balance-Sheet Risk

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

32

 

A summary of the contract amount of the Bank’s exposure to off-balance-sheet risk as of December 31, 20202022 and 20192021 is as follows:

    
 2022 2021

(Dollars in thousands)

 

2020

 

 

2019

 

        

Financial instruments whose contract amounts represent credit risk:

 

 

 

 

 

 

 

 

Commitments to extend credit

 

$

57,334

 

 

$

59,552

 

 $84,149  $69,015 

Standby letters of credit

 

 

2,031

 

 

 

2,582

 

  3,751   3,684 

Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may not actually be drawn upon to the total extent to which the Bank is committed. In response to two bank failures in March, 2023, and liquidity concerns for other super-regional banks, we have not experienced any significant unusual activity by borrowers drawing against their lines of credit, nor do we anticipate experiencing such demand that might cause us to limit customer access to these lines of credit.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. 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 certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.


Interest Sensitivity

AtAs of December 31, 2020,2022, we had a negative cumulative gap rate sensitivity ratio of 26.46%17.89% for the one yearone-year re-pricing period, compared to 31.36% at12.97% as of December 31, 2019.2021. A negative cumulative gap generally indicates that net interest income would improvedecline in a decliningrising interest rate environment as liabilities re-price more quickly than assets. Conversely, net interest income would likely decreaseincrease in periods during which interest rates are increasing. The below table is based on contractual maturities and next repricing date and does not take into consideration prepayment speeds of investment securities and loans, nor does it consider decay rates for non-maturity deposits. When considering these prepayment speed and decay rate assumptions, along with our ability to control the repricing of a significant portion of the deposit portfolio, we are in a position to increase interest income in a rising interest rate environment.environment; however, the ability to control the repricing of the deposit portfolio can be significantly impacted by competitive pressures, liquidity needs and access to and availability of other funding sources. With the decreases in market rates experienced in 2020,FOMC initiating a series of rate increases, which are expected to continue into 2023, we believe our current interest risk profile is increasing, but remains acceptable. Furthermore, we are implementing strategies to maintain the current profile, or moderate theany potential adverse impact to our current interest rate risk profile, forfrom what could be a sustained medium- to long-term lowenvironment of rising interest rate environment, despite a recent interest rate rise on the benchmark 10 year treasury during the first months of 2021.rates.

33

 

Interest Sensitivity Analysis
December 31, 2022
(In thousands of dollars)

Interest Sensitivity Analysis

  1 - 90 Days 91-365 Days 1 - 3 Years 4-5 Years 6-10 Years Over 10 years Total
Uses of funds:                            
Loans $104,724  $92,065  $170,703  $135,643  $60,156  $21,322  $584,613 
Federal funds sold  960                  960 
Deposits with banks  46,497      250             46,747 
Investments  3,614   7,636   23,440   18,406   28,082   32,546   113,724 
Bank owned life insurance  4,549                  4,549 
Total earning assets $160,344  $99,701  $194,393  $154,049  $88,238  $53,868  $750,593 
                             
Sources of funds:                            
Int Bearing DDA  80,299                  80,299 
Savings & MMDA  174,251                  174,251 
Time Deposits  28,982   94,288   50,670   14,293         188,233 
Trust Preferred Securities  16,496                  16,496 
Federal funds purchased                          
Other Borrowings                     
Total interest bearing liabilities $300,028  $94,288  $50,670  $14,293  $  $  $459,279 
                             
Discrete Gap $(139,684) $5,413  $143,723  $139,756  $88,238  $53,868  $291,314 
Cumulative Gap $(139,684) $(134,271) $9,452  $149,208  $237,446  $291,314     
Cumulative Gap as % of Total Earning Assets  -18.61%  -17.89%  1.26%  19.88%  31.63%  38.81%    

December 31, 2020

(In thousands of dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

91-365

 

 

1 - 3

 

 

4-5

 

 

 

 

 

Over 15

 

 

 

 

 

 

1 - 90 Days

 

 

Days

 

 

Years

 

 

Years

 

 

6-15 Years

 

 

years

 

 

Total

 

Uses of funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

56,633

 

 

$

35,233

 

 

$

148,653

 

 

$

118,123

 

 

$

134,401

 

 

$

82,912

 

 

$

575,955

 

Federal funds sold

 

 

222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

222

 

Deposits w ith banks

 

 

76,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,105

 

Investments

 

 

6,531

 

 

 

2,741

 

 

 

3,502

 

 

 

1,315

 

 

 

17,806

 

 

 

16,511

 

 

 

48,406

 

Bank ow ned life insurance

 

 

4,653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,653

 

Total earning assets

 

$

144,144

 

 

$

37,974

 

 

$

152,155

 

 

$

119,438

 

 

$

152,207

 

 

$

99,423

 

 

$

705,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sources of funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Int Bearing DDA

 

 

49,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,652

 

Savings & MMDA

 

 

160,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

160,186

 

Time Deposits

 

 

45,277

 

 

 

92,106

 

 

 

67,267

 

 

 

29,799

 

 

 

 

 

 

 

 

 

234,449

 

Trust Preferred Securities

 

 

16,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,496

 

Federal funds purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Borrow ings

 

 

 

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

Total interest bearing liabilities

 

$

271,611

 

 

$

97,106

 

 

$

67,267

 

 

$

29,799

 

 

$

 

 

$

 

 

$

465,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discrete Gap

 

$

(127,467

)

 

$

(59,132

)

 

$

84,888

 

 

$

89,639

 

 

$

152,207

 

 

$

99,423

 

 

$

239,558

 

Cumulative Gap

 

$

(127,467

)

 

$

(186,599

)

 

$

(101,711

)

 

$

(12,072

)

 

$

140,135

 

 

$

239,558

 

 

 

 

 

Cumulative Gap as % of Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning Assets

 

 

-18.07

%

 

 

-26.46

%

 

 

-14.42

%

 

 

-1.71

%

 

 

19.87

%

 

 

33.96

%

 

 

 

 

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Not required.

34

 

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Not required.


Item 8.Item 8.    Financial Statements and Supplementary Data

FINANCIAL STATEMENTS

CONTENTS

CONTENTS

Page

Page

Report of Independent Registered Public Accounting Firm

3938

Consolidated Balance Sheets December 31, 20202021 and 20192020

4139

Consolidated Statements of Income – Years Ended December 31, 20202021 and 20192020

4240

Consolidated Statements of Comprehensive Income – Years Ended December 31, 20202021 and 20192020

4341

Consolidated Statements of Stockholders’ Equity – Years Ended December 31, 20202021 and 20192020

4442

Consolidated Statements of Cash Flows – Years Ended December 31, 20202021 and 20192020

4543

Notes to Consolidated Financial Statements

46

44

3835

 

 

image

Report of Independent Registered Public Accounting Firm

To the shareholdersShareholders and the boardBoard of directorsDirectors of New Peoples Bankshares, Inc. and its subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheetssheet of New Peoples Bankshares, Inc. and its subsidiaries (the “Company”)Company) as of December 31, 2020 and 2019,2022, the related consolidated statements of income, comprehensive (loss) income, stockholders’shareholders’ equity and cash flows, for each of the yearsyear then ended, and the related notes to(collectively, the consolidated financial statements (collectively referred to as the “financial statements”)statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019,2022, and the results of its operations and its cash flows for the yearsyear then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our auditsaudit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.

elliottdavis.com

39

Allowance for Loan Losses – Loans Collectively Evaluated for Impairment - Qualitative Factors

Description of the Matter

As described in Note 62 (Summary of significant accounting policies) and Note 7 (Allowance for Loan Losses) to the Company’sconsolidated financial statements, the Company’s loan portfolio and associatedCompany maintains an allowance for loan losses (the “Allowance”) totaled approximately $575.6 million and $7.2 million, respectively, at December 31, 2020. As describedthat represents management’s estimate of the probable losses inherent in Note 1 and Note 7 to the financial statements, the Company’s Allowance is an estimate of probable credit losses as of the balance sheet date and considers both unimpaired and impaired loans. Management’s determination of theloan portfolio. The Company’s allowance for loan losses relatedhas two basic components: the general allowance and the specific allowance. At December 31, 2022, the general allowance represented $6,641,000 of the total allowance for loan losses of $6,727,000. The general allowance is applied to the Company’s loan portfolio segment is generally based on the credit risk ratingsnon-impaired loans and uses historical loss experience of individual borrowers, supplemented, as necessary, by credit judgment to address observedalong with qualitative factors, including changes in trendslending policies and conditions,procedures, the nature and other relevant environmental and economic factors such as concentrationsvolume of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards,the portfolio, experience and depth of lending staff,management, levels and trends in delinquencies, nonaccrual loans, charge-offs and adversely rated loans, the loan review system, portfolio concentrations, economic conditions, collateral values, and the level of net charge-offs (qualitative factor adjustments).

Auditing the Company’s Allowance involved a high degree of subjectivity duecompetitive and legal environment. The qualitative adjustments to the judgment involved inhistorical loss rates are established by applying an additional loss factor to the loan segments identified by management based on their assessment of shared risk characteristics within similar groups of non-impaired loans. Qualitative factors are determined based on management’s identificationcontinuing evaluation of inputs and measurementassumptions underlying the quality of qualitative factor adjustments included in the estimate ofloan portfolio and contribute significantly to the allowance for loan losses.

36

 

Management exercised significant judgment when assessing the qualitative factors in estimating the allowance for loan losses. We identified the assessment of the qualitative factors as a critical audit matter as auditing the qualitative factors involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.

How We Addressed the Matter in Our Audit

The primary audit procedures we performed to address this critical audit matter included the following, among others:

included:

·         Substantively testing management’s process, including evaluating their judgments and assumptions for developing the qualitative factors, which included:

o

We evaluatedEvaluating the relevancecompleteness and accuracy of data inputs used as a basis for the qualitative factors.

oEvaluating the reasonableness of assumptionsmanagement’s judgments related to evaluationthe determination of the loan portfolio, current economic conditions, and other risk factors used in development ofqualitative factors.
oEvaluating the qualitative factors for collectively evaluated loans.

directional consistency and for reasonableness.

o

We evaluatedTesting the reasonablenessmathematical accuracy of assumptions and data used by the Company in developingallowance calculation, including the application of the qualitative factors by comparing these data points to internally developed and third-party sources, and other audit evidence gathered.

Analytical procedures were performed to evaluate changes that occurred in the allowance for loan losses for loans collectively evaluated for impairment.

factors.

/s/ Elliott Davis, LLCYount, Hyde & Barbour, P.C.

We have served as the Company’s auditor since 2011.2022.

Roanoke, Virginia

March 31, 2023

37

 

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of New Peoples Bankshares, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of New Peoples Bankshares, Inc. and Subsidiaries (the Company) as of December 31, 2021, the related consolidated statement of income, comprehensive income, stockholders’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Elliott Davis, LLC

Firm ID 149

We served as the Company's auditor from 2011 to 2021.

Greenville, South Carolina

April 8, 2021March 31, 2022

elliottdavis.com


38

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 20202022 AND 20192021

(in thousands except share data)

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

16,023

 

 

$

13,998

 

Interest-bearing deposits with banks

 

 

76,105

 

 

 

35,897

 

Federal funds sold

 

 

222

 

 

 

252

 

Total Cash and Cash Equivalents

 

 

92,350

 

 

 

50,147

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale

 

 

48,406

 

 

 

50,649

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

389

 

 

 

2

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

 

575,566

 

 

 

562,544

 

Allowance for loan losses

 

 

(7,191

)

 

 

(5,368

)

Net Loans

 

 

568,375

 

 

 

557,176

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

22,174

 

 

 

22,242

 

Other real estate owned

 

 

3,334

 

 

 

3,393

 

Accrued interest receivable

 

 

2,392

 

 

 

2,115

 

Deferred taxes, net

 

 

3,126

 

 

 

4,576

 

Right-of-use assets – operating leases

 

 

5,439

 

 

 

5,835

 

Other assets

 

 

10,317

 

 

 

10,238

 

Total Assets

 

$

756,302

 

 

$

706,373

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest bearing

 

 

223,725

 

 

 

170,782

 

Interest-bearing

 

 

444,287

 

 

 

450,695

 

Total Deposits

 

 

668,012

 

 

 

621,477

 

 

 

 

 

 

 

 

 

 

Borrowed funds

 

 

21,496

 

 

 

21,496

 

Lease liabilities – operating leases

 

 

5,439

 

 

 

5,835

 

Accrued interest payable

 

 

436

 

 

 

694

 

Accrued expenses and other liabilities

 

 

2,742

 

 

 

2,269

 

Total Liabilities

 

 

698,125

 

 

 

651,771

 

 

 

 

 

 

 

 

 

 

Commitments and Contingent Liabilities (Notes 19 and 20)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - $2.00 par value; 50,000,000 shares authorized;

 

 

 

 

 

 

 

 

23,922,086 and 23,922,086 shares issued and outstanding at

 

 

 

 

 

 

 

 

December 31, 2020 and 2019, respectively

 

 

47,844

 

 

 

47,844

 

Additional paid-in capital

 

 

14,570

 

 

 

14,570

 

Retained deficit

 

 

(4,979

)

 

 

(7,869

)

Accumulated other comprehensive income

 

 

742

 

 

 

57

 

Total Stockholders’ Equity

 

 

58,177

 

 

 

54,602

 

Total Liabilities and Stockholders’ Equity

 

$

756,302

 

 

$

706,373

 

     
     
ASSETS 2022 2021
     
Cash and due from banks $13,979  $14,952 
Interest-bearing deposits with banks  46,747   45,766 
Federal funds sold  960   228 
Total cash and cash equivalents  61,686   60,946 
         
Investment securities available-for-sale  96,076   107,358 
         
Loans receivable  584,613   593,744 
Allowance for loan losses  (6,727)  (6,735)
Net loans  577,886   587,009 
         
Bank premises and equipment, net  19,290   20,735 
Other real estate owned  261   1,361 
Accrued interest receivable  2,555   2,112 
Deferred taxes, net  4,623   1,673 
Bank owned life insurance  4,549   4,685 
Right-of-use assets – operating leases  3,725   4,062 
Other assets  4,707   4,706 
Total assets $775,358  $794,647 
         
LIABILITIES        
         
Deposits        
Noninterest bearing $249,924  $251,257 
Interest-bearing  442,783   456,256 
Total deposits  692,707   707,513 
         
Borrowed funds  16,496   16,496 
Lease liabilities – operating leases  3,725   4,062 
Accrued interest payable  526   272 
Accrued expenses and other liabilities  4,685   2,673 
Total liabilities  718,139   731,016 
         
Commitments and Contingent Liabilities (Notes 19 and 20)        
         
SHAREHOLDERS’ EQUITY        
         
Common stock - $2.00 par value; 50,000,000 shares authorized;        
23,848,491 and 23,922,086 shares issued and outstanding at        
December 31, 2022 and 2021, respectively  47,697   47,844 
Additional paid-in capital  14,546   14,570 
Retained earnings  8,917   2,031 
Accumulated other comprehensive loss  (13,941)  (814)
Total shareholders’ equity  57,219   63,631 
Total liabilities and shareholders’ equity $775,358  $794,647 

The accompanying notes are an integral part of these financial statements.

4139

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 20202022 AND 20192021

(in thousands except share and per share data)

 

 

 

 

 

 

 

INTEREST AND DIVIDEND INCOME

 

2020

 

 

2019

 

Loans including fees

 

$

28,638

 

 

$

28,601

 

Federal funds sold

 

 

1

 

 

 

5

 

Interest-earning deposits with banks

 

 

208

 

 

 

805

 

Investments

 

 

1,048

 

 

 

1,388

 

Dividends on equity securities (restricted)

 

 

141

 

 

 

156

 

Total Interest and Dividend Income

 

 

30,036

 

 

 

30,955

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

Deposits

 

 

4,284

 

 

 

5,105

 

Borrowed funds

 

 

609

 

 

 

874

 

Total Interest Expense

 

 

4,893

 

 

 

5,979

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

25,143

 

 

 

24,976

 

 

 

 

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

 

2,300

 

 

 

2,050

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

 

22,843

 

 

 

22,926

 

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

Service charges and fees

 

 

3,217

 

 

 

3,605

 

Card Processing and interchange income

 

 

3,314

 

 

 

3,014

 

Insurance and investment fees

 

 

716

 

 

 

663

 

Net gain on sales of available-for-sale securities

 

 

4

 

 

 

 

Gain on sale and leaseback transaction

 

 

 

 

 

803

 

Other noninterest income

 

 

896

 

 

 

567

 

Total Noninterest Income

 

 

8,147

 

 

 

8,652

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSES

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

13,228

 

 

 

14,106

 

Occupancy and equipment expenses

 

 

4,536

 

 

 

4,514

 

Data processing and telecommunications

 

 

2,497

 

 

 

2,541

 

Other operating expenses

 

 

6,736

 

 

 

7,836

 

Total Noninterest Expenses

 

 

26,997

 

 

 

28,997

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

3,993

 

 

 

2,581

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

1,103

 

 

 

522

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,890

 

 

$

2,059

 

 

 

 

 

 

 

 

 

 

Income Per Share

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

0.12

 

 

$

0.09

 

Average Weighted Shares of Common Stock

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

23,922,086

 

 

 

23,922,086

 

     
     
INTEREST AND DIVIDEND INCOME 2022 2021
Loans including fees $27,739  $28,323 
Federal funds sold  8      
Interest-earning deposits with banks  1,514   95 
Investments  1,983   1,377 
Dividends on equity securities (restricted)  146   117 
Total interest and dividend income  31,390   29,912 
         
INTEREST EXPENSE        
Deposits  1,875   2,248 
Borrowed funds  1,230   453 
Total interest expense  3,105   2,701 
         
NET INTEREST INCOME  28,285   27,211 
         
PROVISION FOR LOAN LOSSES  625   372 
         
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  27,660   26,839 
         
NONINTEREST INCOME        
Service charges and fees  3,969   3,724 
Card processing and interchange income  3,769   3,871 
Insurance and investment fees  954   1,029 
Net gain on sales of available-for-sale securities       322 
Other noninterest income  548   1,034 
Total noninterest income  9,240   9,980 
         
NONINTEREST EXPENSES        
Salaries and employee benefits  13,365   12,662 
Occupancy and equipment expenses  4,135   5,785 
Data processing and telecommunications  2,369   2,444 
Other operating expenses  6,650   6,976 
Total noninterest expenses  26,519   27,867 
         
INCOME BEFORE INCOME TAXES  10,381   8,952 
         
INCOME TAX EXPENSE  2,299   1,942 
         
NET INCOME $8,082  $7,010 
         
Income Per Share        
Basic and Diluted $0.34  $0.29 
Average Weighted Shares of Common Stock        
Basic and Diluted  23,898,185   23,922,086 

The accompanying notes are an integral part of these financial statements.

4240

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE YEARS ENDED DECEMBER 31, 20202022 AND 20192021

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,890

 

 

$

2,059

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Investment securities activity:

 

 

 

 

 

 

 

 

Unrealized gains arising during the year

 

 

871

 

 

 

1,636

 

Reclassification adjustment for net gains included in net income

 

 

(4

)

 

 

 

Other comprehensive gains on investment securities

 

 

867

 

 

 

1,636

 

Related tax expense

 

 

(182

)

 

 

(343

)

TOTAL OTHER COMPREHENSIVE INCOME

 

 

685

 

 

 

1,293

 

TOTAL COMPREHENSIVE INCOME

 

$

3,575

 

 

$

3,352

 

     
     
  2022 2021
     
NET INCOME $8,082  $7,010 
         
Other comprehensive loss:        
     Investment securities activity:        
          Unrealized losses arising during the year  (16,617)  (1,647)
          Reclassification adjustment for net gains included in net income       (322)
             Other comprehensive losses on investment securities  (16,617)  (1,969)
          Related tax benefit  3,490   413 
TOTAL OTHER COMPREHENSIVE LOSS  (13,127)  (1,556)
TOTAL COMPREHENSIVE (LOSS) INCOME $(5,045) $5,454 

The accompanying notes are an integral part of these financial statements.


41

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 20202022 AND 20192021

(in thousands including share data)

 

 

 

Shares of

Common

Stock

 

 

 

Common

Stock

 

 

 

Additional

Paid-in

Capital

 

 

 

 

Retained

Deficit

 

 

Accumulated

Other Comprehensive

Income (Loss)

 

 

 

Total

Stockholders’

Equity

 

Balance, December 31, 2018

 

 

23,922

 

 

$

47,844

 

 

$

14,570

 

 

$

(9,928

)

 

$

(1,236

)

 

$

51,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,059

 

 

 

 

 

 

2,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,293

 

 

 

1,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

23,922

 

 

$

47,844

 

 

$

14,570

 

 

$

(7,869

)

 

$

57

 

 

$

54,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,890

 

 

 

 

 

 

2,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

685

 

 

 

685

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

23,922

 

 

$

47,844

 

 

$

14,570

 

 

$

(4,979

)

 

$

742

 

 

$

58,177

 

                         
  Shares of Common Stock Common Stock Additional Paid-in- Capital 

Retained

Earnings

(Deficit)

 

Accumulated Other

Comprehensive Income (Loss)

 Total Shareholders’ Equity
             
Balance, December 31, 2020  23,922  $47,844  $14,570  $(4,979) $742  $58,177 
                         
Net income  —               7,010        7,010 
Other comprehensive loss, net of tax  —                    (1,556)  (1,556)
Balance, December 31, 2021  23,922  $47,844  $14,570  $2,031  $(814) $63,631 
                         
Net income  —    $    $    $8,082  $    $8,082 
Other comprehensive loss, net of tax  —                    (13,127)  (13,127)
Cash dividend declared ($0.05 per share)  —               (1,196)       (1,196)
Repurchase of common stock  (74)  (147)  (24)            (171)
Balance, December 31, 2022  23,848  $47,697  $14,546  $8,917  $(13,941) $57,219 

The accompanying notes are an integral part of these financial statements.

4442

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 20202022 AND 20192021

(Dollars are in thousands)

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

2,890

 

 

$

2,059

 

Adjustments to reconcile net income to net cash provided by

operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

2,189

 

 

 

2,311

 

Provision for loan losses

 

 

2,300

 

 

 

2,050

 

Income on bank owned life insurance

 

 

(77

)

 

 

(63

)

Gain on sale of mortgage loans

 

 

(174

)

 

 

(138

)

Gain on sale and leaseback transactions

 

 

 

 

 

(803

)

Loss on sale or disposal of premises and equipment

 

 

19

 

 

 

1

 

Gain on sale of securities available-for-sale

 

 

(4

)

 

 

 

(Gain) Loss on sale of foreclosed real estate and repossessed assets

 

 

(58

)

 

 

123

 

Loans originated for sale

 

 

(11,948

)

 

 

(7,937

)

Proceeds from sales of loans originated for sale

 

 

11,735

 

 

 

12,432

 

Adjustment of carrying value of foreclosed real estate and repossessed assets

 

 

165

 

 

 

214

 

Net amortization/accretion of bond premiums/discounts

 

 

419

 

 

 

528

 

Deferred tax expense

 

 

1,103

 

 

 

556

 

Net change in:

 

 

 

 

 

 

 

 

Interest receivable

 

 

(277

)

 

 

(181

)

Other assets

 

 

77

 

 

 

265

 

Accrued interest payable

 

 

(258

)

 

 

107

 

Accrued expenses and other liabilities

 

 

473

 

 

 

24

 

Net Cash Provided by Operating Activities

 

 

8,574

 

 

 

11,548

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Net increase in loans

 

 

(14,199

)

 

 

(19,632

)

Purchase of securities available-for-sale

 

 

(9,584

)

 

 

(790

)

Proceeds from sale of investment securities available-for-sale

 

 

1,025

 

 

 

 

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

 

 

11,254

 

 

 

10,657

 

Net purchase of equity securities (restricted)

 

 

(22

)

 

 

(14

)

Payments for the purchase of premises and equipment

 

 

(2,141

)

 

 

(1,550

)

Proceeds from sale and leaseback transactions

 

 

 

 

 

550

 

Proceeds from sale of premises and equipment

 

 

1

 

 

 

9

 

Proceeds from insurance claims on other real estate owned

 

 

 

 

 

19

 

Proceeds from sales of other real estate owned

 

 

760

 

 

 

1,322

 

Net Cash Used in Investing Activities

 

 

(12,906

)

 

 

(9,429

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVIES

 

 

 

 

 

 

 

 

Net change in short term borrowings

 

 

 

 

 

(5,630

)

Net change in non-interest bearing deposits

 

 

52,943

 

 

 

6,484

 

Net change in interest bearing deposits

 

 

(6,408

)

 

 

19,001

 

Net Cash Provided by Financing Activities

 

 

46,535

 

 

 

19,855

 

Net increase in cash and cash equivalents

 

 

42,203

 

 

 

21,974

 

Cash and Cash Equivalents, Beginning of the Year

 

 

50,147

 

 

 

28,173

 

Cash and Cash Equivalents, End of the Year

 

$

92,350

 

 

$

50,147

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Paid During the Year for:

 

 

 

 

 

 

 

 

Interest

 

$

5,151

 

 

$

5,872

 

Taxes

 

$

(166

)

 

$

(34

)

Supplemental Disclosure of Non Cash Transactions:

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

 

 

$

1,232

 

Transfer of loans to loans held for sale

 

$

 

 

$

4,359

 

Loan made to finance sale of premises and equipment

 

$

 

 

$

752

 

Other real estate acquired in settlement of foreclosed loans

 

$

1,128

 

 

$

811

 

Loans made to finance sale of foreclosed real estate

 

$

428

 

 

$

2,360

 

Transfer of premises and equipment to other real estate

 

$

 

 

$

683

 

Change in unrealized gains on securities available for sale

 

$

867

 

 

$

1,637

 

     
  2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income $8,082  $7,010 

Adjustments to reconcile net income to net cash provided by

operating activities:

        
Depreciation  1,741   2,097 
Provision for loan losses  625   372 
Loss (income) on bank owned life insurance  136   (32)
Gain on sale of securities available-for-sale       (322)
Gain on sale of mortgage loans  (29)  (104)
Loss on sale or disposal of premises and equipment  201   1,098 
Gain on sale of foreclosed real estate and repossessed assets  (70)  (126)
Loans originated for sale  (1,577)  (5,814)
Proceeds from sales of loans originated for sale  1,606   6,307 
Adjustment of carrying value of foreclosed real estate and repossessed assets  197   466 
Net amortization/accretion of bond premiums/discounts  474   482 
Deferred tax expense  540   1,866 
Net change in:        
Interest receivable  (443)  280 
Other assets  26   403 
Accrued interest payable  254   (164)
Accrued expenses and other liabilities  2,068   (19)
Net Cash Provided by Operating Activities  13,831   13,800 
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Net decrease (increase) in loans  9,209   (18,987)
Purchase of securities available-for-sale  (19,790)  (85,082)
Proceeds from sale of investment securities available-for-sale       7,686 
Proceeds from repayments and maturities of securities available-for-sale  13,980   16,315 
Net (purchase) sale of equity securities (restricted)  (27)  555 
Payments for the purchase of premises and equipment  (548)  (4,094)
Proceeds from sale of premises and equipment       1,203 
Proceeds from insurance claims on other real estate owned or premises  51   54 
Proceeds from sales of other real estate owned  207   2,645 
Net Cash Provided by (Used in) Investing Activities  3,082   (79,705)
         
CASH FLOWS FROM FINANCING ACTIVIES        
Net change in short term borrowings       (5,000)
Net change in noninterest bearing deposits  (1,333)  27,532 
Net change in interest bearing deposits  (13,473)  11,969 
Dividends paid  (1,196)     
Repurchase of common stock  (171)     
Net Cash (Used in) Provided by Financing Activities  (16,173)  34,501 
Net increase (decrease) in cash and cash equivalents  740   (31,404)
Cash and Cash Equivalents, Beginning of the Year  60,946   92,350 
Cash and Cash Equivalents, End of the Year $61,686  $60,946 
         
Supplemental Disclosure of Cash Paid During the Year for:        
Interest $2,851  $2,865 
Taxes  650      
Supplemental Disclosure of Non-Cash Transactions:        
Right-of-use assets obtained in exchange for new operating lease liabilities       86 
Loan made to finance sale of premises and equipment       185 
Other real estate acquired in settlement of foreclosed loans       566 
Loans made to finance sale of foreclosed real estate  711   400 
Transfer of premises and equipment to other real estate       950 
Change in unrealized losses on securities available for sale  (16,617)  (1,969)

The accompanying notes are an integral part of these financial statements.

4543

 

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 NATURE OF OPERATIONS

Nature of OperationsNew Peoples Bankshares, Inc. (New Peoples) is a financial holding company whose principal activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the Bank). TheNew Peoples and the Bank isare each organized and incorporated under the laws of the Commonwealth of Virginia. As a state charteredstate-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 Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern West Virginia, and northeastern Tennessee and most recently, western North Carolina. These services include commercial and consumer loans along with traditional deposit products such as checking and savings accounts.

With the onset of the COVID-19 pandemic during the first quarter of 2020, a number of changes were implemented to our operations to ensure the safety of, both, our employees and customers. A pandemic response team was formed to manage, implement and communicate any changes, along with monitoring our compliance with state and local mandates. Branch lobbies were closed to general customer access and services were provided through drive-thru, ITM, internet and mobile banking platforms. Work from home routines were established for various support departments to mitigate the risks of possible exposure and transmission of the virus. Enhanced cleaning procedures were performed as needed at branch and support locations. Social distancing, daily self-assessments and mask requirements were implemented for employees working onsite. Additional customer support was provided by way of loans offered through the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) loan initiative, and efforts were made to provide forbearance to borrowers impacted by the pandemic.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation - 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.

Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles of the United States (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 loan losses and the determination of the deferred tax asset and related valuation allowance are based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

Cash and Cash Equivalents – Cash and cash equivalents as used in the cash flow statements include cash and due from banks, interest-bearing deposits with banks, federal funds sold and investment securities maturing within three months.

Investment Securities – Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized historical cost. Securities not intended to be held to maturity are classified as available-for-sale and carried at fair value. Securities available-for-sale are intended to be used as part of the Company’s asset and liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other similar factors.

The amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period to maturity for discounts and the earlier of call date or maturity for premiums. Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold, using the specific identification method. Realized gains (losses) on securities available-for-sale are included in noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income.loss. Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security. These gains and losses are credited or charged to other comprehensive income,loss, net of tax, whereas realized gains and losses flow through the statements of income.


Loans held for saleMortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance through earnings. Mortgage loans held for sale are generally sold with servicing released. Gains and losses on sales of mortgages are based on the difference between the selling price and the carrying value of the related loan sold.

LoansLoans are carried on the balance sheet at unpaid principal balance, net of any unearned interest and the allowance for loan losses. Interest income on loans is computed using the effective interest method, except where serious doubt exists as to the collectability of the loan, in which case accrual of the income is discontinued.

44

 

It is the Company’s policy to stop accruing interest on a loan, and classify that loan as non-accrual under the following circumstances: (a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when our best judgment indicates that payment in full of principal and interest can no longer be expected, or (c) when any such loan or obligation becomes delinquent for 90 days unless it is both well secured and in the process of collection. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, except in the case of a nonaccrual loan that is well secured and in the process of collection, in which case, the interest accrued but not collected is not reversed. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual.accrual status. Generally, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, six consecutive timely payments are made, and prospects for future contractual payments are reasonably assured.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Significant Group Concentrations of Credit RiskThe Company identifies a concentration as any obligation, direct or indirect, of the same or affiliated interests which represent 25% or more of the Company’s capital structure, or $14.4$14.3 million as of December 31, 2020.2022. Most of the Company’s activities are with customers located within southwest Virginia, southern West Virginia, northeastern Tennessee region and western North Carolina. Certain concentrations may pose credit risk. The Company does not have any significant concentrations to any one industry or customer.

Allowance for Loan LossesThe allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The loan portfolio is analyzed periodically and loans are assigned a risk rating. Allowances for impaired loans are generally determined based on collateral values or the present value of expected cash flows. A general allowance is made for all other loans not considered impaired as deemed appropriate by management. In determining the adequacy of the allowance, management considers the following factors: the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, the estimated value of any underlying collateral, prevailing environmental factors and economic conditions, and other inherent risks. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in collateral values and changes in estimates of cash flows on impaired loans. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Loans are charged against the allowance for loan losses when management believes that collectability of all or part of the principal is unlikely. Past due status is determined based on contractual terms.


In regard to our consumer and consumer real estate loan portfolio, the Company uses the guidance found in the Uniform Retail Credit Classification and Account Management Policy which affects our estimate of the allowance for loan losses. Under this approach, a consumer or consumer real estate loan must initially have a credit risk grade of Pass or better. Subsequently, if the loan becomes contractually 90 days past due or the borrower files for bankruptcy protection, the loan is downgraded to Substandard and placed in nonaccrual status. If the loan is unsecured, upon being deemed Substandard, the entire loan amount is charged off. For non 1-4non-1-4 family residential loans that are 90 days past due or greater, or in bankruptcy, the collateral value less estimated liquidation costs is compared to the loan balance to calculate any potential deficiency. If the collateral is sufficient then no charge-off is necessary. If a deficiency exists, then upon the loan becoming contractually 120 days past due, the deficiency is charged-off against the allowance for loan loss. In the case of 1-4 family residential or home equity loans, upon the loan becoming 120 days past due, a current value is obtained and after application of an estimated liquidation discount, a comparison is made to the loan balance to calculate any deficiency. Subsequently, any noted deficiency is then charged-off against the allowance for loan loss when the loan becomes contractually 180 days past due. If the customer has filed bankruptcy, then within 60 days of the bankruptcy notice, any calculated deficiency is charged-off against the allowance for loan loss. Collection efforts continue by means of repossessions or foreclosures, and upon bank ownership, liquidation ensues.

45

 

Bank Premises and Equipment– Land, buildings and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives:

Schedule of estimated useful lives
TypeEstimated useful life
Buildings39 years
Paving and landscaping15 years
Computer equipment and software3 to 5 years
Vehicles5 years
Furniture and other equipment5 to 10 years

Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Repairs and maintenance costs are recorded as a component of noninterest expense as incurred.

Other Real Estate Owned – Other real estate owned represents properties acquired through foreclosure or deeds taken in lieu of foreclosure.foreclosure and former branch sites that have been closed and for which there are no intentions to re-open or otherwise use the location. At the time of acquisition, these properties are recorded at fair value less estimated costs to sell. Expenses incurred in connection with operating these properties and subsequent write-downs, if any, are charged to operations. Subsequent to foreclosure, management periodically considers the adequacy of the reserve for losses on the property. Gains and losses on the sales of these properties are credited or charged to income in the year of the sale.

Bank PremisesOwned Life Insurance (BOLI)The Bank purchased life insurance policies on certain, now-former, key officers and Equipmentemployees. Changes in the cash surrender value are recorded in noninterest income.

Leases Land, buildingsA right-of-use asset and equipment are recordedrelated lease liability is recognized for operating leases the Bank has entered into for certain office facilities. Most leases include one or more options to renew. The exercise of lease renewal options is typically at cost less accumulated depreciation. Depreciationthe sole discretion of management. If it is computed usingdetermined that it is reasonably certain that the straight-line method overBank will exercise renewal options, the following estimated useful lives:

Type

Estimated useful life

Buildings

39 years

Paving and landscaping

15 years

Computer equipment and software

3 to 5 years

Vehicles

5 years

Furniture and other equipment

5 to 10 years

Leasehold improvements are amortized overadditional term is included in the termscalculation of the respectivelease liability. As most of our leases ordo not provide an implicit rate, we use the estimated useful livesfully collateralized Federal Home Loan Bank borrowing rate, commensurate with the lease terms at the lease commencement date, in determining the present value of the improvements, whichever is shorter. Repairs and maintenance costs are recorded as a component of noninterest expense as incurred.lease payments.

Income Taxes – Deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. The Company provides a valuation allowance on its net deferred tax assets where it is more likely than not such assets will not be realized. AtAs of December 31, 20202022 and 2019,2021, the Company had no valuation allowance on its net deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. See Note 10, Income Taxes, for additional information. The Company records any penalties and interest attributed to uncertain tax positions as a component of income tax expenses.

Income Per Share – Basic income per share computations are based on the weighted average number of shares outstanding during each year.period. Dilutive earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued.

Financial Instruments – Off-balance-sheet instruments - In the ordinary course of business, the Company has entered into commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded.

Financial Instruments – Fair Value – Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully discussed in Note 22. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risks, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or market conditions could significantly affect these estimates.


46

Comprehensive (Loss) Income – GAAP require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive (loss) income. The change in unrealized gains and losses on available-for-sale securities is the Company’s only component of other comprehensive income.loss.

Revenue from Contracts with Customers - Accounting Standards Update (ASU) 2014-9 Revenue from Contracts with Customers” provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance does not apply to revenue associated with financial instruments, including loans and securities. The Company generally satisfies its performance obligations fully on its contracts with customers as services are rendered; and the transaction prices are typically fixed, charged either on a periodic basis or based on activity. The Company has evaluated revenue streams within noninterest income to assess the applicability of this guidance and determined that service charges on deposits, card processing and interchange income and financial service fees are within the scope of this ASU. Because performance obligations are satisfied as services are rendered and the fees are fixed, there is little judgment involved in applying the guidance that significantly affects the determination of the amount and timing of revenue from contracts with customers. Adoption of this standard did not change the timing or pattern of the recognition of revenue for the services covered by this ASU.

Advertising Cost – Advertising costs are expensed in the period incurred. For 2020 and 2019, thoseThose costs, which are included in Advertising, sponsorships and donations in Note 24 totaled $124 thousand$162,000 and $208 thousand,$252,000, for the years ended December 31, 20202022 and 2019,2021, respectively.

Reclassification – Certain reclassifications have been made to the prior years’ financial statements to place them on a comparable basis with the current year. Net income and stockholders’shareholders’ equity previously reported were not affected by these reclassifications.

Subsequent Events – The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued. See Note 25 Subsequent Events for additional information.

NOTE 3 INCOME PER SHARE

Basic income per share computations are based on the weighted average number of shares outstanding during each year. Dilutive earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the years ended December 31, 20202022 and 2019,2021, there were no dilutive potential common shares. Basic and diluted net income per common share calculations follows:

Schedule of basic and diluted net loss per common share calculations        

(Amounts in thousands, except

 

For the years ended

 

 For the year ended

share and per share data)

 

December 31,

 

 December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 2022 2021

Net income

 

$

2,890

 

 

$

2,059

 

 $8,082  $7,010 

Weighted average shares outstanding

 

 

23,922,086

 

 

 

23,922,086

 

  23,898,185   23,922,086 

Weighted average dilutive shares outstanding

 

 

23,992,086

 

 

 

23,992,086

 

  23,898,185   23,992,086 

Basic and diluted income per share

 

$

0.12

 

 

$

0.09

 

 $0.34  $0.29 

NOTE 4 DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS

The Bank had federal funds sold and interest-bearing cash on deposit with the Federal Reserve Bank of Richmond (the Federal Reserve Bank) and other commercial banks amounting to $76.3$47.7 million and $36.1$46.0 million atas of December 31, 20202022 and 2019,2021, respectively. Deposit amounts at other commercial banks may, at times, exceed federally insured limits.

Effective March 26, 2020, the Board of Governors of the Federal Reserve System set reserve requirements to zero. Therefore, the Bank is no longer required to maintain minimum reserve balances with the Federal Reserve Bank of Richmond (the Federal Reserve Bank). Prior to March 26, 2020, the minimum required reserve balance was computed by applying prescribed percentages to various types of deposits, either at the Bank or on deposit with the Federal Reserve Bank.


The Bank has a total of $20.0$30.0 million in unsecured fed funds lines of credit facilities from three correspondent banks that were available at both December 31, 20202022 and 2019.2021, respectively. Of these total commitments, all were available at December 31, 20202022 and 2019.2021. As a condition for $5.0 million of one of the unsecured fed funds line of credit, the Bank maintains a minimum deposit balance of $200 thousand$250,000 with this correspondent bank. As of December 31, 20202022 and 2019,2021, the Bank was in compliance with this requirement.

47

NOTE 5 INVESTMENT SECURITIES

The amortized cost and estimated fair value of securities (all available-for-sale) as of December 31, 20202022 and December 31, 20192021 are as follows:

Schedule of securities amortized cost and estimated fair value                
    Gross Gross Approximate
  Amortized Unrealized Unrealized Fair
(Dollars are in thousands) Cost Gains Losses Value
December 31, 2022
U.S. Treasuries $12,642  $    $957  $11,685 
U.S. Government Agencies  10,129   4   734   9,399 
Taxable municipals  23,022        6,207   16,815 
Corporate bonds  3,512        376   3,136 
Mortgage backed securities  64,419        9,378   55,041 
Total Securities available for sale $113,724  $4  $17,652  $96,076 
                 
December 31, 2021                
U.S. Treasuries $7,791  $2  $122  $7,671 
U.S. Government Agencies  9,098   77   86   9,089 
Taxable municipals  23,075   159   254   22,980 
Corporate bonds  2,014   23   18   2,019 
Mortgage backed securities  66,410   143   954   65,599 
Total Securities available for sale $108,388  $404  $1,434  $107,358 
                 

 

 

 

 

 

Gross

 

 

Gross

 

 

Approximate

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

(Dollars are in thousands) 

Cost

  

Gains

  

Losses

  

Value

 

December 31, 2020

  

 

        

 

U.S. Government Agencies

 

$

13,852

 

 

$

322

 

 

$

67

 

 

$

14,107

 

Taxable municipals

 

 

5,157

 

 

 

188

 

 

 

 

 

 

5,345

 

Corporate bonds

 

 

5,893

 

 

 

186

 

 

 

31

 

 

 

6,048

 

Mortgage backed securities

 

 

22,565

 

 

 

388

 

 

 

47

 

 

 

22,906

 

Total Securities available for sale

 

$

47,467

 

 

$

1,084

 

 

$

145

 

 

$

48,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Agencies

 

$

15,703

 

 

$

57

 

 

$

127

 

 

$

15,633

 

Taxable municipals

 

 

4,389

 

 

 

54

 

 

 

1

 

 

 

4,442

 

Corporate bonds

 

 

5,408

 

 

 

115

 

 

 

 

 

 

5,523

 

Mortgage backed securities

 

 

25,077

 

 

 

111

 

 

 

137

 

 

 

25,051

 

Total Securities available for sale

 

$

50,577

 

 

$

337

 

 

$

265

 

 

$

50,649

 

The following table details unrealized losses and related fair values in the available-for-sale portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 20202022 and December 31, 2019.2021.

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

Schedule of fair value and gross unrealized losses on investment securities                        

 

 

Fair

 

 

 

Unrealized

 

 

 

Fair

 

 

 

Unrealized

 

 

 

Fair

 

 

 

Unrealized

 

 Less than 12 Months 12 Months or More Total

(Dollars are in thousands)

 

 

Value

 

 

 

Losses

 

 

 

Value

 

 

 

Losses

 

 

 

Value

 

 

 

Losses

 

 Fair Value 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022            
U.S. Treasuries $4,761  $145  $6,922  $812  $11,683  $957 

U.S. Government Agencies

 

$

1,479

 

 

$

12

 

 

$

3,829

 

 

$

55

 

 

$

5,308

 

 

$

67

 

  5,925   348   3,295   386   9,220   734 

Taxable municipals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  3,689   1,113   13,127   5,094   16,816   6,207 

Corporate bonds

 

 

1,219

 

 

 

31

 

 

 

 

 

 

 

 

 

1,219

 

 

 

31

 

  2,375   136   761   240   3,136   376 

Mtg. backed securities

 

 

7,517

 

 

 

44

 

 

 

218

 

 

 

3

 

 

 

7,735

 

 

 

47

 

Total Securities AFS

 

$

10,215

 

 

$

87

 

 

$

4,047

 

 

$

58

 

 

$

14,262

 

 

$

145

 

Mortgage backed securities  11,338   861   43,612   8,517   54,950   9,378 
Total $28,088  $2,603  $67,717  $15,049  $95,805  $17,652 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                        

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021                        
U.S. Treasuries $6,200  $122  $    $    $6,200  $122 

U.S. Government Agencies

 

$

6,788

 

 

$

46

 

 

$

4,516

 

 

$

81

 

 

$

11,304

 

 

$

127

 

  977   10   3,434   76   4,411   86 

Taxable municipals

 

 

1,049

 

 

 

1

 

 

 

 

 

 

 

 

 

1,049

 

 

 

1

 

  13,040   237   387   17   13,427   254 

Corporate bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1,482   18             1,482   18 

Mtg. backed securities

 

 

1,586

 

 

 

4

 

 

 

12,002

 

 

 

133

 

 

 

13,588

 

 

 

137

 

Total Securities AFS

 

$

9,423

 

 

$

51

 

 

$

16,518

 

 

$

214

 

 

$

25,941

 

 

$

265

 

Mortgage backed securities  52,180   758   6,282   196   58,462   954 
Total $73,879  $1,145  $10,103  $289  $83,982  $1,434 
                        


At

As of December 31, 2020,2022, the available-for-sale portfolio included 42221 investments for which the fair market value was less than amortized cost. AtAs of December 31, 2019,2021, the available-for-sale portfolio included 100113 investments for which the fair market value was less than amortized cost. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based on the Company’s analysis, the Company concluded that no securities had other-than-temporary impairment at December 31, 20202022 or December 31, 2019.2021.


Investment securities with a carrying value of $6.8$27.3 million and $6.9$12.1 million atas of December 31, 20202022 and 2019,2021, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

There were no securities sold during the year ended December 31, 2022. During the year ended December 31, 2020, $1.02021, $7.7 million of securities were sold, realizing $4 thousand$322,000 in gains. No investment securities were sold during 2019.

48

 

The amortized cost and fair value of investment securities atas of December 31, 2020,2022, by contractual maturity, are shown in the following schedule. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Also, actual maturities may differ from scheduled maturities on amortizing securities, such as mortgage-backmortgage-backed securities and collateralized mortgage obligations, because the underlying collateral on these types of securities may be repaid prior to the scheduled maturity date.

Schedule of amortized cost and fair value of investment securities contractual maturity      
 Weighted
(Dollars are in thousands)Amortized Fair Average
Securities Available for SaleCost Value Yield
Due in one year or less$1,482$1,475 4.51%
Due after one year through five years16,69615,6742.12%
Due after five years through ten years 15,315 13,409 2.11%
Due after ten years 80,231 65,518 1.86%
Total$113,724$96,076 1.97%

 

 

 

 

 

 

 

 

Weighted

 

(Dollars are in thousands)

 

Amortized

 

 

Fair

 

 

Average

 

Securities Available for Sale

 

Cost

 

 

Value

 

 

Yield

 

Due in one year or less

 

$

540

 

 

$

546

 

 

 

2.11

%

Due after one year through five years

 

 

6,664

 

 

 

6,795

 

 

 

3.42

%

Due after five years through ten years

 

 

9,487

 

 

 

9,754

 

 

 

2.68

%

Due after ten years

 

 

30,776

 

 

 

31,311

 

 

 

1.77

%

Total

 

$

47,467

 

 

$

48,406

 

 

 

2.19

%

The Bank, as a member of the 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 Assetsother assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $2.6$2.1 million and $2.0 million as of both December 31, 20202022 and 2019.2021, respectively. The stock has no quoted market value and no ready market exists.

NOTE 6 LOANS

Loans receivable outstanding atas of December 31, 2022 and 2021, are summarized as follows:

Summary of loans receivable outstanding        
 December 31,

(Dollars are in thousands)

 

2020

 

 

2019

 

  2022  2021

Real estate secured:

 

 

 

 

 

 

 

 

        

Commercial

 

$

179,381

 

 

$

170,436

 

 $197,069  $206,162 

Construction and land development

 

 

25,031

 

 

 

31,130

 

  42,470   32,325 

Residential 1-4 family

 

 

222,980

 

 

 

242,922

 

  227,232   224,530 

Multifamily

 

 

16,569

 

 

 

13,638

 

  29,710   33,048 

Farmland

 

 

18,368

 

 

 

20,790

 

  17,744   18,735 

Total real estate loans

 

 

462,329

 

 

 

478,916

 

  514,225   514,800 

Commercial

 

 

86,010

 

 

 

53,994

 

  46,697   54,325 

Agriculture

 

 

4,450

 

 

 

4,797

 

  3,756   4,021 

Consumer installment loans

 

 

20,632

 

 

 

23,127

 

  19,309   18,756 

All other loans

 

 

2,145

 

 

 

1,710

 

  626   1,842 

Total loans

 

$

575,566

 

 

$

562,544

 

 $584,613  $593,744 

Included in commercial loans atas of December 31, 2020, are $34.82022 and 2021, were approximately $273,000 and $6.4 million of PPP loans that are guaranteed by the SBA. Fees paid by SBA ranged from 1% to 5% of the amount borrowed, with 5% paid on loans up to $350 thousand, 3% on loans between $350 thousand and $2 million, and 1% on loans over $2 million. During 2020, 645 loans totaling $28.8 million with original balances of $350 thousand or less were originated, along with the origination of 23 loans totaling $15.7 million, with original balances between $350 thousand and $2 million. As a result of these originations, fees totaling $1.9 million ($1.6 million, net of fees allocated to a third party service provider) were received related to the origination of these loans, of which $994 thousand was earned in 2020.

Also included in total loans above are deferred loan fees of $1.6 million and $1.8 million, as of December 31, 2022 and 2021, respectively, which include net deferred fees, including unearned PPP loan fees in 2020,fees. Total deferred loan costs were $1.9 million and $2.0 million, as of $496 thousand and net deferred costs of $378 thousand, at December 31, 20202022 and 2019,2021, respectively. Income or expense from net deferred fees and costs is recognized as income or expense over the lives of the respective loans as a yield adjustment. If loans repay prior to scheduled maturities any unamortized fee or cost is recognized at that time.

As a result of PPP originations, net deferred fees totaling $3.2 million were received. The Company recognized approximately $211,000 and $2.0 million, respectively, during the years ended December 31, 2022 and 2021.


49

Loans receivable on nonaccrual status atas of December 31, 2022 and 2021 are summarized as follows:

Summary of loans receivable on nonaccrual status        

(Dollars are in thousands)

 

2020

 

 

2019

 

  2022  2021

Real estate secured:

 

 

 

 

 

 

 

 

        

Commercial

 

$

2,225

 

 

$

1,601

 

 $    $415 

Construction and land development

 

 

57

 

 

 

45

 

  471   37 

Residential 1-4 family

 

 

2,700

 

 

 

2,544

 

  2,597   2,314 
Multi-family  268   111 

Farmland

 

 

101

 

 

 

531

 

  41   48 

Total real estate loans

 

 

5,083

 

 

 

4,721

 

  3,377   2,925 

Commercial

 

 

453

 

 

 

390

 

       9 

Consumer installment and other loans

 

 

12

 

 

 

45

 

  36   7 

Total loans receivable on nonaccrual status

 

$

5,548

 

 

$

5,156

 

 $3,413  $2,941 

Total interest income not recognized on nonaccrual loans for 20202022 and 20192021 was $494 thousandapproximately $10,000 and $714 thousand,$223,000, respectively. In 2019, $4.4 million of non-performing and under-performing real estate loans were sold resulting in $113 thousand of charge-offs and $57 thousand of recoveries processed through the allowance for loan losses. No similar loan sales were transacted in 2020.

Under the provisions of the CARES Act, or related guidance issued by banking regulators, modifications, mainly in the form of short-term payment deferrals, were granted on 786 loans. At December 31, 2020, 673 loans totaling $110.7 million had completed their forbearance period and resumed a normal payment schedule. Fifteen loans totaling $836 thousand remained in forbearance. The remaining 98 accounts have repaid in full, or been refinanced at market terms and conditions.

Of the accounts that received some form of forbearance during the year, at December 31, 2020, $21.4 million were to lessors of residential properties, $16.0 million to lessors of non-residential properties, $12.4 million to hotels and restaurants, and $6.0 million to coal and gas mining operations. At December 31, 2020, fifteen loans totaling $836 thousand remain in forbearance, while the remaining loans have resumed a normal repayment schedule.

52

The following table presents information concerning the Company’s investment in loans considered impaired as of December 31, 20202022 and December 31, 2019:2021:

Summary of impaired loans                    

 

As of December 31, 2022

(Dollars are in thousands)

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

 

Recorded

Investment

  Unpaid Principal Balance 

 

 

Related

Allowance

With no related allowance recorded:                    
Real estate secured:                    
Commercial $124  $6  $90  $131  $   
Construction and land development  114   17   471   491      
Residential 1-4 family  1,585   48   1,617   1,972      
Multifamily                         
Farmland  307   24   248   417      
Commercial  14   1   23   31      
Agriculture                         
Consumer installment loans  1                    
All other loans                         
With an allowance recorded:                    
Real estate secured:                    
Commercial  407   2   268   338   63 
Construction and land development  291                     
Residential 1-4 family  201   6   32   48   23 
Multifamily  20                     
Farmland  63                     
Commercial  27   1                
Agriculture                         
Consumer installment loans                         
All other loans                         
Total $3,154  $105  $2,749  $3,428  $86 

50

 

As of December 31, 2020
(Dollars are in thousands)

 

Average

Recorded
Investment 

 

 

  Interest

Income
Recognized

 

 

Recorded

Investment

 

 

 Unpaid Principal Balance

 

 

 

Related
Allowance 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1,680

 

 

$

16

 

 

$

385

 

 

$

386

 

 

$

 

Construction and land development

 

 

89

 

 

 

18

 

 

 

99

 

 

 

376

 

 

 

 

Residential 1-4 family

 

 

1,788

 

 

 

53

 

 

 

1,662

 

 

 

1,898

 

 

 

 

Multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farmland

 

 

550

 

 

 

59

 

 

 

391

 

 

 

560

 

 

 

 

Commercial

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer installment loans

 

 

4

 

 

 

 

 

 

5

 

 

 

6

 

 

 

 

All other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

707

 

 

 

 

 

 

1,566

 

 

 

1,678

 

 

 

574

 

Construction and land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

150

 

 

 

3

 

 

 

337

 

 

 

365

 

 

 

72

 

Multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farmland

 

 

212

 

 

 

9

 

 

 

208

 

 

 

220

 

 

 

2

 

Commercial

 

 

214

 

 

 

12

 

 

 

429

 

 

 

437

 

 

 

404

 

Agriculture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer installment loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,453

 

 

$

170

 

 

$

5,082

 

 

$

5,926

 

 

$

1,052

 

As of December 31, 2019
(Dollars are in thousands)

 

Average
Recorded
Investment

 

 

Interest
Income
Recognized

 

 

Recorded
Investment

 

 

Unpaid Principal Balance

 

 

Related
Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

2,017

 

 

$

100

 

 

$

2,416

 

 

$

2,478

 

 

$

 

Construction and land development

 

 

91

 

 

 

7

 

 

 

70

 

 

 

346

 

 

 

 

Residential 1-4 family

 

 

1,944

 

 

 

55

 

 

 

1,263

 

 

 

1,460

 

 

 

 

Multifamily

 

 

29

 

 

 

1

 

 

 

 

 

 

 

 

 

 

Farmland

 

 

1,143

 

 

 

47

 

 

 

778

 

 

 

970

 

 

 

 

Commercial

 

 

578

 

 

 

11

 

 

 

128

 

 

 

178

 

 

 

 

Agriculture

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

Consumer installment loans

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

All other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

470

 

 

 

1

 

 

 

363

 

 

 

379

 

 

 

70

 

Construction and land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

302

 

 

 

 

 

 

55

 

 

 

60

 

 

 

44

 

Multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farmland

 

 

221

 

 

 

11

 

 

 

216

 

 

 

228

 

 

 

9

 

Commercial

 

 

507

 

 

 

7

 

 

 

286

 

 

 

886

 

 

 

200

 

Agriculture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer installment loans

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

All other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

7,307

 

 

$

240

 

 

$

5,575

 

 

$

6,986

 

 

$

323

 


 

 

 

 

As of December 31, 2021

(Dollars are in thousands)

 

 

 

 

Average

Recorded

Investment

 

 

 

 

Interest

Income

Recognized

 

 

 

 

 

Recorded

Investment

 

 

 

 

Unpaid Principal Balance

 

 

 

 

 

Related

Allowance

With no related allowance recorded:                    
Real estate secured:                    
Commercial $245  $    $99  $140  $   
Construction and land development  64   18   24   298      
Residential 1-4 family  1,720   24   1,508   1,791      
Multifamily                         
Farmland  438   14   320   490      
Commercial                         
Agriculture                         
Consumer installment loans  3        2   2      
All other loans                         
With an allowance recorded:                    
Real estate secured:                    
Commercial  871   3   315   372   94 
Construction and land development                         
Residential 1-4 family  338   6   340   372   53 
Multifamily                         
Farmland  121   4   197   209   17 
Commercial  109   1   28   35   2 
Agriculture                         
Consumer installment loans                         
All other loans                         
Total $3,909  $70  $2,833  $3,709  $166 

An age analysis of past due loans receivable is below. AtAs of December 31, 20202022 and 2019,2021, there were no loans over 90 days past due that were accruing.

Summary of age analysis of past due loans receivable                        

 

 

 

 

As of December 31, 2022

(Dollars are in thousands)

 

 

Loans

30-59

Days

Past

Due

 

 

Loans

60-89

Days

Past

Due

 

Loans

90 or

More

Days

Past

Due

 

 

 

Total

Past

Due

Loans

 

 

 

 

 

Current

Loans

 

 

 

 

 

Total

Loans

Real estate secured:                        
Commercial $268  $    $    $268  $196,801  $197,069 

Construction and land

development

  89             89   42,381   42,470 
Residential 1-4 family  3,521   543   341   4,405   222,827   227,232 
Multifamily  229             229   29,481   29,710 
Farmland  285             285   17,459   17,744 
Total real estate loans  4,392   543   341   5,276   508,949   514,225 
Commercial  56             56   46,641   46,697 
Agriculture                      3,756   3,756 

Consumer installment

loans

  73   17   17   107   19,202   19,309 
All other loans  59             59   567   626 
Total loans $4,580  $560  $358  $5,498  $579,115  $584,613 

51

 

As of December 31, 2020
(Dollars are in thousands)

 

Loans 30-59 Days Past Due

 

 

Loans 60-89 Days Past Due

 

 

Loans 90 or More Days Past Due

 

 

Total Past Due Loans

 

 

Current Loans

 

 

Total Loans

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

969

 

 

$

 

 

$

 

 

$

969

 

 

$

178,412

 

 

$

179,381

 

Construction and land development

 

 

64

 

 

 

 

 

 

 

 

 

64

 

 

 

24,967

 

 

 

25,031

 

Residential 1-4 family

 

 

5,717

 

 

 

615

 

 

 

690

 

 

 

7,022

 

 

 

215,958

 

 

 

222,980

 

Multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,569

 

 

 

16,569

 

Farmland

 

 

57

 

 

 

 

 

 

 

 

 

57

 

 

 

18,311

 

 

 

18,368

 

Total real estate loans

 

 

6,807

 

 

 

615

 

 

 

690

 

 

 

8,112

 

 

 

454,217

 

 

 

462,329

 

Commercial

 

 

214

 

 

 

 

 

 

 

 

 

214

 

 

 

85,796

 

 

 

86,010

 

Agriculture

 

 

7

 

 

 

1

 

 

 

 

 

 

8

 

 

 

4,442

 

 

 

4,450

 

Consumer installment Loans

  

214

   

22

  

 

 

 

 

236

 

 

 

20,396

 

 

 

20,632

 

All other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,145

 

 

 

2,145

 

Total loans

 

$

7,242

 

 

$

638

 

 

$

690

 

 

$

8,570

 

 

$

566,996

 

 

$

575,566

 

As of December 31, 2019
(Dollars are in thousands)

 

Loans 30-59 Days Past Due

 

Loans 60-89 Days Past Due

 

Loans 90 or More Days Past Due

 

Total Past Due Loans

 

Current Loans

 

Total Loans

 

As of December 31, 2021

(Dollars are in thousands)

 

 

Loans

30-59

Days

Past

Due

 

 

Loans

60-89

Days

Past

Due

 

Loans

90 or

More

Days

Past

Due

 

 

 

Total

Past

Due

Loans

 

 

 

 

 

Current

Loans

 

 

 

 

 

Total

Loans

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                        

Commercial

 

$

502

 

 

$

125

 

 

$

262

 

 

$

889

 

 

$

169,547

 

 

$

170,436

 

 $    $    $    $    $206,162  $206,162 

Construction and land development

 

 

50

 

 

 

18

 

 

 

18

 

 

 

86

 

 

 

31,044

 

 

 

31,130

 

  7        7   14   32,311   32,325 

Residential 1-4 family

 

 

3,700

 

 

 

1,096

 

 

 

710

 

 

 

5,506

 

 

 

237,416

 

 

 

242,922

 

  2,473   240   486   3,199   221,331   224,530 

Multifamily

 

 

262

 

 

 

 

 

 

 

 

 

262

 

 

 

13,376

 

 

 

13,638

 

            111   111   32,937   33,048 

Farmland

 

 

111

 

 

 

47

 

 

 

152

 

 

 

310

 

 

 

20,480

 

 

 

20,790

 

                      18,735   18,735 

Total real estate loans

 

 

4,625

 

 

 

1,286

 

 

 

1,142

 

 

 

7,053

 

 

 

471,863

 

 

 

485,916

 

  2,480   240   604   3,324   511,476   514,800 

Commercial

 

 

406

 

 

 

 

 

 

323

 

 

 

729

 

 

 

53,265

 

 

 

53,994

 

  5             5   54,320   54,325 

Agriculture

 

 

244

 

 

 

 

 

 

21

 

 

 

265

 

 

 

4,532

 

 

 

4,797

 

                      4,021   4,021 

Consumer installment Loans

 

 

98

 

 

 

24

 

 

 

23

 

 

 

145

 

 

 

22,982

 

 

 

23,127

 

Consumer installment

loans

  56   5        61   18,695   18,756 

All other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,710

 

 

 

1,710

 

                      1,842   1,842 

Total loans

 

$

5,373

 

 

$

1,310

 

 

$

1,509

 

 

$

8,192

 

 

$

554,352

 

 

$

562,544

 

 $2,541  $245  $604  $3,390  $590,354  $593,744 

The Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings:

Pass- Loans in this category are considered to have a low likelihood of loss based on analysis of relevant information about the ability of the borrowers to service their debt and other factors.

Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances.  Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date.


Substandard- A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful- Loans classified Doubtful have all the weaknesses inherent in loans classified 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. There were no loans classified as doubtful at either December 31, 2020, and one loan with a balance of $286 thousand at December 31, 2019.2022 or 2021.

52

 

Based on the most recent analysis performed, the risk category of loans receivable was as follows:

Summary of risk category of loans receivable                    

 

As of December 31, 2022

(Dollars are in thousands)

 

 

 

Pass

 

 

Special

Mention

 

 

 

Substandard

 

 

 

Doubtful

 

 

 

Total

Real estate secured:                    
Commercial $195,376  $1,425  $268  $    $197,069 
Construction and land development  41,882   117   471        42,470 
Residential 1-4 family  224,228   406   2,598        227,232 
Multifamily  29,503   207             29,710 
Farmland  16,848   855   41        17,744 
Total real estate loans  507,837   3,010   3,378        514,225 
Commercial  46,471   226             46,697 
Agriculture  3,756                  3,756 
Consumer installment loans  19,272   2   35        19,309 
All other loans  626                  626 
Total $577,962  $3,238  $3,413  $    $584,613 

As of December 31, 2020
(Dollars are in thousands)

 

Pass

 

 

Special Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

171,212

 

 

$

6,112

 

 

$

2,057

 

 

$

 

 

$

179,381

 

Construction and land development

 

 

23,168

 

 

 

1,806

 

 

 

57

 

 

 

 

 

 

25,031

 

Residential 1-4 family

 

 

218,947

 

 

 

1,304

 

 

 

2,729

 

 

 

 

 

 

222,980

 

Multifamily

 

 

16,337

 

 

 

232

 

 

 

 

 

 

 

 

 

16,569

 

Farmland

 

 

17,019

 

 

 

1,249

 

 

 

100

 

 

 

 

 

 

18,368

 

Total real estate loans

 

 

446,683

 

 

 

10,703

 

 

 

4,943

 

 

 

 

 

 

462,329

 

Commercial

 

 

81,846

 

 

 

3,711

 

 

 

453

 

 

 

 

 

 

86,010

 

Agriculture

 

 

4,255

 

 

 

195

 

 

 

 

 

 

 

 

 

4,450

 

Consumer installment loans

 

 

20,615

 

 

 

5

 

 

 

12

 

 

 

 

 

 

20,632

 

All other loans

 

 

2,145

 

 

 

 

 

 

 

 

 

 

 

 

2,145

 

Total

 

$

555,544

 

 

$

14,614

 

 

$

5,408

 

 

$

 

 

$

575,566

 

As of December 31, 2019
(Dollars are in thousands)

 

Pass

 

 

Special Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

165,570

 

 

$

3,265

 

 

$

1,601

 

 

$

 

 

$

170,436

 

Construction and land development

 

 

30,747

 

 

 

360

 

 

 

23

 

 

 

 

 

 

31,130

 

Residential 1-4 family

 

 

239,210

 

 

 

1,207

 

 

 

2,505

 

 

 

 

 

 

242,922

 

Multifamily

 

 

13,638

 

 

 

 

 

 

 

 

 

 

 

 

13,638

 

Farmland

 

 

18,779

 

 

 

1,480

 

 

 

531

 

 

 

 

 

 

20,790

 

Total real estate loans

 

 

467,944

 

 

 

6,312

 

 

 

4,660

 

 

 

 

 

 

478,916

 

Commercial

 

 

51,086

 

 

 

2,504

 

 

 

118

 

 

 

286

 

 

 

53,994

 

Agriculture

 

 

4,753

 

 

 

4

 

 

 

40

 

 

 

 

 

 

4,797

 

Consumer installment loans

 

 

23,087

 

 

 

12

 

 

 

28

 

 

 

 

 

 

23,127

 

All other loans

 

 

1,710

 

 

 

 

 

 

 

 

 

 

 

 

1,710

 

Total

 

$

548,580

 

 

$

8,832

 

 

$

4,846

 

 

$

286

 

 

$

562,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

As of December 31, 2021

(Dollars are in thousands)

 

 

 

Pass

 

 

Special

Mention

 

 

 

Substandard

 

 

 

Doubtful

 

 

 

Total

Real estate secured:                    
Commercial $198,022  $7,725  $415  $    $206,162 
Construction and land development  31,366   922   37        32,325 
Residential 1-4 family  221,342   915   2,273        224,530 
Multifamily  32,499   438   111        33,048 
Farmland  18,137   550   48        18,735 
Total real estate loans  501,366   10,550   2,884        514,800 
Commercial  53,162   1,154   9        54,325 
Agriculture  4,021                  4,021 
Consumer installment loans  18,746   2   8        18,756 
All other loans  1,842                  1,842 
Total $579,137  $11,706  $2,901  $    $593,744 
                     

NOTE 7 ALLOWANCE FOR LOAN LOSSES

The following tables present activity in the allowance for loan losses for the yearyears ended December 30, 202031, 2022 and 2019.2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented as of December 30, 202031, 2022 and 2019.  2021.

 Schedule of allocation of portion of allowance                     
                      
    Real estate secured           
  (Dollars are in thousands)   Commercial   Construction and Land Development   Residential 1-4 family   Multifamily   Farmland   Commercial   Agriculture   Consumer and All Other   Unallocated   Total 
  Year ended December 31, 2022                    
  Beginning balance  $         2,134 $               189 $         2,237 $            254 $            149 $         1,099 $               28 $            108 $            537 $         6,735
  Charge-offs                (5)             (149)             (64)           (111)               (1)             (45)               (1)           (559)                -              (935)
  Recoveries                33                   6            100                 2               14               31                 1            115                -               302
  Provision             202               299               91            117               (9)           (704)                 4            722             (97)            625
  Ending balance  $         2,364 $               345 $         2,364 $            262 $            153 $            381 $               32 $            386 $            440 $         6,727
                      
  Allowance for loan losses at December 31, 2022                 
  Individually evluated for impairment  $               63 $                  -    $               23 $                -    $                -    $                -    $                -    $                -    $                -    $               86
  Collectively evaluated for impairment          2,301               345         2,341            262            153            381               32            386            440         6,641
   $         2,364 $               345 $         2,364 $            262 $            153 $            381 $               32 $            386 $            440 $         6,727
                      
  Loans at December 31, 2022                     
  Individually evluated for impairment  $            358 $               471 $         1,649 $                -    $            248 $               23 $                -    $                -    $                -    $         2,749
  Collectively evaluated for impairment     196,711         41,999    225,583       29,710       17,496       46,965         3,756       19,644                -       581,864
   $    197,069 $         42,470 $    227,232 $       29,710 $       17,744 $       46,988 $         3,756 $       19,644 $                -    $    584,613

53

 

 

 

Real estate secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

and Land

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and All

 

 

 

 

 

 

 

(Dollars are in thousands)

 

Commercial

 

 

Development

 

 

1-4 family

 

 

Multifamily

 

 

Farmland

 

 

Commercial

 

 

Agriculture

 

 

Other

 

 

Unallocated

 

 

Total

 

Year ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,248

 

 

$

158

 

 

$

1,736

 

 

$

104

 

 

$

109

 

 

$

1,789

 

 

$

27

 

 

$

195

 

 

$

2

 

 

$

5,368

 

Charge-offs

 

 

(65

)

 

 

 

 

 

(165

)

 

 

 

 

 

(42

)

 

 

(329

)

 

 

(15

)

 

 

(85

)

 

 

 

 

 

(701

)

Recoveries

 

 

57

 

 

 

 

 

 

38

 

 

 

 

 

 

33

 

 

 

40

 

 

 

1

 

 

 

55

 

 

 

 

 

 

224

 

Provision

 

 

1,041

 

 

 

75

 

 

 

342

 

 

 

47

 

 

 

(3

)

 

 

775

 

 

 

27

 

 

 

(2

)

 

 

(2

)

 

 

2,300

 

Ending balance

 

$

2,281

 

 

$

233

 

 

$

1,951

 

 

$

151

 

 

$

97

 

 

$

2,275

 

 

$

40

 

 

$

163

 

 

$

 

 

$

7,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses at December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

574

 

 

$

 

 

$

72

 

 

$

 

 

$

2

 

 

$

404

 

 

$

 

 

$

 

 

$

 

 

$

1,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

 

1,707

 

 

 

233

 

 

 

1,879

 

 

 

151

 

 

 

95

 

 

 

1,871

 

 

 

40

 

 

 

163

 

 

 

 

 

 

6,139

 

 

 

$

2,281

 

 

$

233

 

 

$

1,951

 

 

$

151

 

 

$

97

 

 

$

2,275

 

 

$

40

 

 

$

163

 

 

$

 

 

$

7,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans at December 31, 2020 Individually evaluated for impairment

 

$

1,951

 

 

$

99

 

 

$

1,999

 

 

$

 

 

$

599

 

 

$

429

 

 

$

 

 

$

5

 

 

$

 

 

$

5,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

 

177,430

 

 

 

24,932

 

 

 

220,981

 

 

 

16,569

 

 

 

17,769

 

 

 

85,581

 

 

 

4,450

 

 

 

22,772

 

 

 

 

 

 

570,484

 

 

 

$

179,381

 

 

$

25,031

 

 

$

222,980

 

 

$

16,569

 

 

$

18,368

 

 

$

86,010

 

 

$

4,450

 

 

$

22,777

 

 

$

 

 

$

575,566

 

 

Real estate secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

and Land

 

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and All

 

 

 

 

 

 

 

(Dollars are in thousands)

 

Commercial

 

 

Development

 

 

1-4 family

 

 

Multifamily

 

 

Farmland

 

 

Commercial

 

 

Agriculture

 

 

Other

 

 

Unallocated

 

 

Total

 

Year ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,386

 

 

$

202

 

 

$

2,437

 

 

$

89

 

 

$

287

 

 

$

448

 

 

$

37

 

 

$

175

 

 

$

275

 

 

$

5,336

 

Charge-offs

 

 

(192

)

 

 

 

 

 

(336

)

 

 

 

 

 

(33

)

 

 

(1,762

)

 

 

(17

)

 

 

(114

)

 

 

 

 

 

(2,454

)

Recoveries

 

 

16

 

 

 

34

 

 

 

202

 

 

 

30

 

 

 

29

 

 

 

61

 

 

 

2

 

 

 

62

 

 

 

 

 

 

436

 

Provision

 

 

38

 

 

 

(78

)

 

 

(567

)

 

 

(15

)

 

 

(174

)

 

 

3,042

 

 

 

5

 

 

 

72

 

 

 

(273

)

 

 

2,050

 

Ending balance

 

$

1,248

 

 

$

158

 

 

$

1,736

 

 

$

104

 

 

$

109

 

 

$

1,789

 

 

$

27

 

 

$

195

 

 

$

2

 

 

$

5,368

 

Allowance for loan losses at December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

70

 

 

$

 

 

$

44

 

 

$

 

 

$

9

 

 

$

200

 

 

$

 

 

$

 

 

$

 

 

$

323

 

Collectively evaluated for impairment

 

 

1,178

 

 

 

158

 

 

 

1,692

 

 

 

104

 

 

 

100

 

 

 

1,589

 

 

 

27

 

 

 

195

 

 

 

2

 

 

 

5,045

 

 

 

$

1,248

 

 

$

158

 

 

$

1,736

 

 

$

104

 

 

$

109

 

 

$

1,789

 

 

$

27

 

 

$

195

 

 

$

2

 

 

$

5,368

 

Loans at December 31, 2019 Individually evaluated for impairment

 

$

2,779

 

 

$

70

 

 

$

1,318

 

 

$

 

 

$

994

 

 

$

414

 

 

$

 

 

$

 

 

$

 

 

$

5,575

 

Collectively evaluated for impairment

 

 

167,657

 

 

 

31,060

 

 

 

241,604

 

 

 

13,638

 

 

 

19,796

 

 

 

53,580

 

 

 

4,797

 

 

 

24,837

 

 

 

 

 

 

556,969

 

 

 

$

170,436

 

 

$

31,130

 

 

$

242,922

 

 

$

13,638

 

 

$

20,790

 

 

$

53,994

 

 

$

4,797

 

 

$

24,837

 

 

$

 

 

$

562,544

 

                      
                      
    Real estate secured           
  (Dollars are in thousands)   Commercial   Construction and Land Development   Residential 1-4 family   Multifamily   Farmland   Commercial   Agriculture   Consumer and All Other   Unallocated   Total 
  Year ended December 31, 2021                    
  Beginning balance  $         2,281 $               233 $         1,951 $            151 $               97 $         2,275 $               40 $            163 $                -    $         7,191
  Charge-offs            (915)                  -                (48)                -                   -                (92)                -                (78)                -          (1,133)
  Recoveries                  2                   6               85                -                  29            137                 1               45                -               305
  Provision             766               (50)            249            103               23       (1,221)             (13)             (22)            537            372
  Ending balance  $         2,134 $               189 $         2,237 $            254 $            149 $         1,099 $               28 $            108 $            537 $         6,735
                      
  Allowance for loan losses at December 31, 2021                 
  Individually evluated for impairment  $               94 $                  -    $               53 $                -    $               17 $                 2 $                -    $                -    $                -    $            166
  Collectively evaluated for impairment          2,040               189         2,184            254            132         1,097               28            108            537         6,569
   $         2,134 $               189 $         2,237 $            254 $            149 $         1,099 $               28 $            108 $            537 $         6,735
                      
  Loans at December 31, 2021                     
  Individually evluated for impairment  $            414 $                 24 $         1,848 $                -    $            517 $               28 $                -    $                 2 $                -    $         2,833
  Collectively evaluated for impairment     205,748         32,301    222,682       33,048       18,218       54,297         4,021       20,596                -       590,911
   $    206,162 $         32,325 $    224,530 $       33,048 $       18,735 $       54,325 $         4,021 $       20,598 $                -    $    593,744

In determining the amount of our allowance, 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. Due to the underlying SBA guarantee provided for PPP loans, these accounts were not included in either the portfolio segment or impairment calculations at December 31, 2020.calculations. Additionally, due to uncertainties presented by the ongoinglingering impact of the pandemic and the resulting economic uncertainty, internal and external qualitative factors were revised accordingly. This revision included reviewing our internal scoring relatedIn 2022 and 2021, external qualitative factors were adjusted to loan modifications and extensions, and external factors, specifically, unemployment and other economic factors.consider the impact of inflation.


NOTE 8 TROUBLED DEBT RESTRUCTURINGS

AtAs of December 31, 2020,2022, loans classified as troubled debt restructurings (TDRs) totaled $4.0$2.0 million compared to $4.3$2.5 million atas of December 31, 2019.2021. The following table presents information related to loans modified as troubled debt restructurings during the years ended December 31, 20202022 and 2019.2021.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule of loans modified as troubled debt restructurings                        

 

December 31, 2020

 

 

December 31, 2019

 

 December 31, 2022 December 31, 2021

(Dollars are in thousands)

 

# of
Loans

 

 

Pre-Mod.
Recorded
Investment

 

 

Post-Mod.
Recorded
Investment

 

 

# of
Loans

 

 

Pre-Mod.
Recorded
Investment

 

 

Post-Mod.
Recorded
Investment

 

 

 

# of

Loans

 

Pre-Mod.

Recorded Investment

 

Post-Mod.

Recorded

Investment

 

 

# of

Loans

 

Pre-Mod.

Recorded Investment

 

Post-Mod.

Recorded

Investment

Real estate secured:

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                        

Commercial

 

 

3

 

 

$

190

 

 

$

190

 

 

 

1

 

 

$

150

 

 

$

150

 

      $    $         $    $   

Construction and land Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                              

Residential 1-4 family

 

 

27

 

 

 

1,236

 

 

 

1,236

 

 

 

 

 

 

 

 

 

 

                 1   35   35 

Multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                              

Farmland

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

305

 

 

 

305

 

                              

Total real estate loans

 

 

30

 

 

 

1,426

 

 

 

1,426

 

 

 

2

 

 

 

455

 

 

 

455

 

                 1   35   35 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                              

Agriculture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                              

Consumer installment loans

  

2

 

 

 

7

 

 

 

7

 

 

 

 

 

 

 

 

 

 

                              

All other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                              

Total

 

 

32

 

 

$

1,433

 

 

$

1,433

 

 

 

2

 

 

$

455

 

 

$

455

 

      $    $     1  $35  $35 

As discussed

There were no loans modified that resulted in Note 6,a troubled debt restructuring during the year ended December 31, 2020 modifications were granted on 786 loans with a gross aggregate balance of $119.6 million, under the provisions of the CARES Act. The characteristics of these modifications are considered short-term and did not result in a reclassification of the loans as troubled debt restructurings, as the accounts met the requirements stated in the CARES Act and had not been subject to prior modification.

2022. During the year ended December 31, 2020, the Company2021, one loan was modified the terms of thirty-two loans for which the modification was considered to be a troubled debt restructuring. The interest rate was not modified on these loans; however, the payment terms or maturity date were changed. During

54

For the year ended December 31, 2019,2022 there were no TDRs that subsequently defaulted within twelve months of the Company modified the terms of two loans for which the modification was considered to be a troubled debt restructuring. The interest rate was not modified on these loans; however, the payment terms and maturity date were changed.      

Three loans totaling $142 thousand, modified as troubled debt restructurings during 2020, have since failed to perform in accordance with the revised terms and have been placed, or remained in nonaccrual status at December 31, 2020. Two loans modified as troubled debt restructurings defaulted duringloan modification. For the year ended December 31, 2019.2021, there were two TDRs with a modified balance of $56,000 that subsequently defaulted within twelve months of the loan modification. Generally, a troubled debt restructuringTDR is considered to be in default once it becomes 90 days or more past due following a modification.

When determining the level of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings in its estimate. The Company evaluates all troubled debt restructurings for possible further impairment. As a result, the allowance may be increased, adjustments may be made in the allocation of the allowance, or charge-offs may be taken to further write down the carrying value of these loans.


NOTE 9 BANK PREMISES AND EQUIPMENT

Depreciation expense for 20202022 and 20192021 was $2.2$1.7 million and $2.3$2.1 million, respectively. Bank premises and equipment atas of December 31, 20202022 and 20192021 are summarized as follows:

 

 

 

 

 

 

Schedule of bank premises and equipment        

(Dollars are in thousands)

 

2020

 

 

2019

 

 2022 2021

Land

 

$

7,796

 

 

$

7,485

 

 $7,371  $7,424 

Buildings and improvements

 

 

17,287

 

 

 

16,227

 

  15,972   16,252 

Furniture and equipment

 

 

16,900

 

 

 

16,253

 

  13,965   14,139 

Construction in progress

 

 

1,025

 

 

 

1,003

 

 

 

43,008

 

 

 

40,968

 

  37,308   37,815 

Less accumulated depreciation

 

 

(20,834

)

 

 

(18,726

)

  (18,018)  (17,080)

Bank Premises and Equipment

 

$

22,174

 

 

$

22,242

 

 $19,290  $20,735 

As presented in Note 14 Other Real Estate Owned, the bank sold three former branch locations during 2022. These properties with a combined carrying value of $2.0 million, were transferred to other real estate owned during 2021, resulting in an increase to OREO of $950,000, and disposal and valuation costs of approximately $1.1 million. Equipment with a combined net book value of $188,000 was written off in 2021.

During the year ended December 31, 2021, the Bank sold four other former branch locations, with net book values of approximately $1.1 million, resulting in approximately $173 thousand of net gains on sales.

During 2021, we opened one new branch office, in Bristol, Virginia, resulting in a net increase of $1.7 million in premises and equipment.

As presented in Note 17 Leasing Activities, in September 2019,during 2021, the Bank entered into a sale and leaseback transaction for itsrepurchased the branch office located in Lebanon, Virginia.Virginia, which had previously been sold and leased back.

In December 2019, the former branch office located in Norton, Virginia, with a recorded balance of $683 thousand, was transferred to Other Real Estate Owned.

NOTE 10 INCOME TAXES

The Company files a consolidated federal income tax return. The following summarizes the provision for income taxes and the related deferred tax components for the years ended December 31, 20202022 and 2019.2021.

The source of pre-tax book income is summarized as follows for the years ended December 31:

(Dollars are in thousands)

 

2020

 

 

2019

 

Pre-tax book income

 

 

 

 

 

 

 

 

Domestic

 

$

3,993

 

 

$

2,581

 

Total pre-tax book income

 

$

3,993

 

 

$

2,581

 

Income tax expense is summarized as follows for the years ended December 31:31, 2022 and 2021:

(Dollars are in thousands)

 

2020

 

 

2019

 

Current income tax expense (benefit)

 

 

 

 

 

 

 

 

Federal

 

$

(200

)

 

$

(35

)

State

 

 

 

 

 

 

Total current income tax expense (benefit)

 

 

(200

)

 

 

(35

)


Deferred income tax expense

 

 

 

 

 

 

 

 

Federal

 

 

1,304

 

 

 

557

 

State

 

 

(1

)

 

 

 

Total deferred income tax expense

 

 

1,303

 

 

 

557

 

Income tax expense

 

$

1,103

 

 

$

522

 

Schedule of pre-tax book income        
(Dollars are in thousands) 2022 2021

 

Current income tax expense (benefit)

        
     Federal $1,759  $(172)
     State          
Total current income tax expense (benefit)  1,759   (172)

Deferred income tax expense    
     Federal  500   2,067 
     State  40   47 
Total deferred income tax expense  540   2,114 
Income tax expense $2,299  $1,942 

5855

 

The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rate of 21% for years endingended December 31, 20202022 and 2019,2021, respectively:

Schedule of reconciliation of income tax expense        

(Dollars are in thousands)

 

2020

 

 

2019

 

 2022 2021

 

 

 

 

 

 

 

 

    

Income tax expense (benefit) at the applicable federal rate74

 

$

839

 

 

$

542

 

Income tax expense (benefit) at the applicable federal rate $2,180  $1,879 

Permanent differences resulting from:

 

 

 

 

 

 

 

 

        

Nondeductible expenses

 

 

8

 

 

 

10

 

  9   7 

Tax exempt interest income

 

 

(7

)

 

 

(11

)

  (3)  (4)

Bank owned life insurance

 

 

(16

)

 

 

(13

)

  29   (7)

Other adjustments

 

 

279

 

 

 

(6

)

  84   67 

Income tax expense

 

$

1,103

 

 

$

522

 

 $2,299  $1,942 

The net deferred tax assets and liabilities resulting from temporary differences as of December 31, 2022 and 2021, are summarized as follows:

Schedule of net deferred tax assets and liabilities        

(Dollars are in thousands)

 

2020

 

 

2019

 

 2022 2021

Deferred Tax Assets

 

 

 

 

 

 

 

 

Deferred tax assets        

Allowance for loan losses

 

$

1,568

 

 

$

1,127

 

 $1,498  $1,500 

Deferred compensation

 

 

92

 

 

 

90

 

  80   85 

Nonaccrual loan interest

 

 

490

 

 

 

439

 

  543   532 
Unrealized loss on securities available for sale  3,706   216 

Other real estate owned

 

 

83

 

 

 

127

 

  48   305 

Amortization of core deposits

 

 

18

 

 

 

28

 

       6 

Amortization of goodwill

 

 

90

 

 

 

144

 

       31 

Capitalized interest and repair expense

 

 

23

 

 

 

23

 

  22   23 

Net operating loss carryforward

 

 

2,172

 

 

 

3,631

 

       460 

AMT carryforward

 

 

 

 

 

320

 

Other

 

 

33

 

 

 

 

  57   98 

Total Assets, gross

 

 

4,569

 

 

 

5,929

 

Valuation allowance

 

 

 

 

 

 

Total Assets, net

 

 

4,569

 

 

 

5,929

 

 

 

 

 

 

 

 

 

Deferred Tax Liabilities

 

 

 

 

 

 

 

 

Total assets, gross  5,954   3,256 
Deferred tax liabilities        

Accelerated depreciation

 

 

869

 

 

 

937

 

  896   1,105 

Accrued employee benefits

 

 

 

 

 

11

 

Unrealized gain on securities available for sale

 

 

197

 

 

 

15

 

Prepaid expenses

 

 

22

 

 

 

59

 

  17   27 

Deferred loan costs

 

 

355

 

 

 

331

 

  418   451 

Total Liabilities, gross

 

 

1,443

 

 

 

1,353

 

Net Deferred Tax Asset

 

$

3,126

 

 

$

4,576

 

Total liabilities, gross  1,331   1,583 
Net deferred tax asset $4,623  $1,673 

In accordance with applicable accounting guidance, the Company determined that it was not required to establish a valuation allowance for deferred tax assets as it is more likely than not that the deferred tax asset will be realized through future taxable income, future reversals of existing taxable temporary differences and tax strategies. The Company’s net deferred tax asset is recorded in the consolidated financial statements separately.

AtAs of December 31, 20202022 and 2019,2021, the Company had no unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to increase significantly over the next twelve months. The company recognizes interest and penalties as a component of income tax expense.

The Company and Bank are subject to U. S. federal income tax, a capital basedcapital-based franchise tax in the Commonwealth of Virginia; and income and excise taxes in West Virginia, Tennessee and Tennessee,North Carolina, respectively, based on earnings realized from business activities within each state. Years prior to 20172019 are no longer subject to examination by taxing authorities.


56

NOTE 11 TIME DEPOSITS

The aggregate amount of time deposits that meet or exceed the Federal Deposit Insurance Corporation (FDIC) Insurance limit of $250,000 was $34.8$26.8 million and $36.2$28.6 million atas of December 31, 20202022 and 2019,2021, respectively. We had no brokered time deposits at either December 31, 20202022 or 2019. At2021. As of December 31, 2020,2022, the scheduled maturities of time deposits are as follows (dollars are in thousands):

2021

 

$

137,383

 

2022

 

 

44,170

 

Schedule of maturities  

2023

 

 

23,097

 

$123,270

2024

 

 

11,283

 

 20,683

2025

 

 

18,516

 

 29,987
2026 8,185
2027 6,108

After five years

 

 

 

 -

Total

 

$

234,449

 

$188,233

NOTE 12 RELATED PARTY TRANSACTIONS

Officers, directors (and companies controlled by them), principal shareholders, and associates were customers of and had loan transactions with the Bank in the normal course of business. The following table summarizes these transactions, which were made on substantially the same terms as those prevailing for other customers and did not involve any abnormal risk.

Schedule of related party        

 

For the years ended December 31,

 

  For the year ended December 31,

(Dollars in thousands)

 

2020

 

 

2019

 

  2022  2021

Beginning balance

 

$

2,457

 

 

$

2,553

 

 $3,419  $4,187 

New loans and advances on lines

 

 

4,567

 

 

 

1,925

 

  2,636   2,620 

Payments and other reductions

 

 

(2,837

)

 

 

(2,021

)

  (4,496)  (3,388)

Ending balance

 

$

4,187

 

 

$

2,457

 

 $1,559  $3,419 

Total related party deposits held at the Bank were $21.5$29.0 million and $42.8$24.8 million at the endas of years 2020December 31, 2022 and 2019,2021, respectively.

NPB Insurance Services, Inc. holds a 39% membership interest in Lonesome Pine Title Agency, LLC, which provides title insurance. Another member of the agency is a related party to the Company.

In August 2021, the Bank sold a parcel of land, adjacent to the Grundy, Virginia office to a director for $150 thousand, which approximated the fair value of the property. A gain of approximately $17,000 was recorded from this transaction.

NOTE 13 RETIREMENT PLANS

The Company has established a qualified defined contribution plan that covers all full timefull-time employees. The Company matches employee contributions up to a maximum of 3% of their salary. The Company contributed $258 thousandapproximately $235,000 and $299 thousand$246,000 to the defined contribution plan for 2020during the years ended December 31, 2022 and 2019,2021, respectively.

The Bank maintains a salary continuation plan for key executives which was established in 2002 and is funded by single premium life insurance policies. Expenses related to the plan were $17 thousandapproximately $27,000 and $4 thousand$29,000 for the years ended December 31, 20202022 and 2019,2021, respectively.

6057

 

NOTE 14 OTHER REAL ESTATE OWNED

The following table summarizes the activity in other real estate owned for the years ended December 31, 20202022 and 2019:2021:

Schedule of other real estate owned        

 

2020

 

 

2019

 

  2022  2021

(Dollars are in thousands)

 

 

 

 

 

 

        

Balance, beginning of year

 

$

3,393

 

 

$

5,937

 

 $1,361  $3,334 

Additions

 

 

1,128

 

 

 

811

 

       566 

Transfers from premises and equipment

 

 

 

 

 

683

 

       950 

Proceeds from sales

 

 

(687

)

 

 

(1,322

)

  (207)  (2,645)

Proceeds from insurance claims

 

 

 

 

 

(19

)

       (54)

Loans made to finance sales

 

 

(428

)

 

 

(2,360

)

  (711)  (400)

Adjustment of carrying value

 

 

(132

)

 

 

(214

)

  (197)  (466)

Gains (losses) from sales

 

 

60

 

 

 

(123

)

  15   76 

Balance, end of year

 

$

3,334

 

 

$

3,393

 

 $261  $1,361 

During 2022, three former branch offices that were transferred from premises to other real estate owned during 2021, were sold, resulting in valuation adjustments of $137,000 and net losses totaling $5,000, respectively.

NOTE 15 BANK OWNED LIFE INSURANCE

AtAs of December 31, 20202022 and 2019, we2021, the Bank had an aggregate total cash surrender value of $4.7$4.5 million and $4.6$4.7 million, respectively, on life insurance policies covering current and former key officersofficers.

TotalThe Company recorded a net write-down of approximately $136,000 during the year ended December 31, 2022. The Company recognized income forof approximately $32,000 during the policies during 2020 and 2019 was $77 thousand and $63 thousand, respectively.year ended December 31, 2021.

NOTE 16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK

A principal source of funds offor the Company is dividends paid by the Bank. The Federal Reserve Act restricts the amount of dividends the Bank may pay. Approval by the Board of Governors of the Federal Reserve System is required if the dividends declared by a state member bank, in any year, exceed the sum of (1) net income of the current year and (2) income net of dividends for the preceding two years.

Virginia law restricts the amount of dividends a Virginia corporation may pay. Generally, a Virginia corporation may not authorize and make distributions if, after giving effect to the distribution, it would be unable to meet its debts as they become due in the usual course of business or if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if it were dissolved at that time, to satisfy the preferential rights of shareholders whose rights are superior to the rights of those receiving the distribution. In addition, the payment of distributions to shareholders is subject to any prior rights of outstanding preferred stock.

NOTE 17 LEASING ACTIVITIES

The Bank leases five branch office sites resulting from sale leaseback transactions entered into in 2017 and 2019.

In September 2019, the Bank entered into a sale leaseback transaction, with a non-affiliated third party, for its branch office located in Lebanon, Virginia for a total purchase price of $1.34 million. Net proceeds, after sales expenses of $42 thousand totaled $1.30 million and a gain of $803 thousand was recorded. The Bank provided financing to the purchaser, in the amount of $752 thousand, for a term of 5 years. In connection with this sale, the Bank entered into a lease agreement with the purchaser with an initial term of 15 years, with five 5 year renewal options.

As of December 31, 2020,2022, the Bank leases fivefour branch offices.offices and sublets a lot adjacent to another branch office. The lease agreements have maturity dates ranging from May 2032 to September 2034.December 2041. It is assumed that there are currently no circumstances in which the leases would be terminated prior to expiration. The weighted average remaining life of the lease terms atas of December 31, 2020,2022, was 11.89 9.60 years.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to the lease term for each transaction. This methodology is expected to be used for any other subsequent lease agreements. The weighted average discount rate for the leases atas of December 31, 20202022 was 3.16%3.28%.

The Company’s operating lease costs for the years ended December 31, 20202022 and 2019,2021, as a result of the transactions discussed above, was $552 thousand$456,000 and $505 thousand,$528,000, respectively.

During 2021, the Bank repurchased its branch office located in Lebanon, Virginia, for $1.3 million. This branch had previously been sold and leased back in September 2019. As a result of the repurchase, the lease with a remaining term of 12.9 years was cancelled.


58

The Company’s other operating leases were evaluated and determined to be immaterial to the financial statements. AtAs of December 31, 2020,2022, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars are in thousands):

2021

 

$

511

 

2022

 

 

530

 

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

2023

 

 

544

 

$456

2024

 

 

546

 

 456

2025

 

 

550

 

 456
2026 456
2027 477

Thereafter

 

 

3978

 

 2,226

Total lease payments

 

 

6,659

 

 4,527

Less imputed interest

 

 

1,220

 

 802

 

 

 

 

 

Total

 

$

5,439

 

$3,725

NOTE 18 BORROWED FUNDS

The following table presents the breakdown of borrowed funds as of December 31, 20202022 and 2019 (Dollars2021 (dollars in thousands):

Schedule of breakdown of borrowed funds              
   

FHLB Revolving Advances

(a)

 

Federal Funds Lines

(b)

 

FHLB Term Loans Short-Term

(c)

 

FHLB Term Loans Long-Term

(d)

 

NPB Capital Trust I

(e)

 

NPB Capital Trust 2

(e)

  Total
Balance December 31, 2022$ -   $-$-$-$11,341$5,155$16,496
  Highest balance at any month-end - - 60,000 - 11,341 5,155  
  Average weighted balance 863 - 19,507 - 11,341 5,155 36,866
  Average interest rate:              
 Paid during the year 1.68% -% 2.48% -% 4.63% 3.79% 3.31%
 At year-end -% -% -% -% 6.68% 5.85% 6.42%
                
                
Balance December 31, 2021$ -   $-$-$-$11,341$5,155$16,496
  Highest balance at any month-end - 1,020 5,000 - 11,341 5,155  
  Average weighted balance  - 8 2,466 - 11,341 5,155 18,970
  Average interest rate:              
 Paid during the year - % 2.51% 1.36% -% 2.81% 1.97% 2.39%
 At year-end -% -% -% -% 2.72% 1.89% 2.46%

 

 

FHLB Revolving Advances

(a)

 

 

Federal

Funds

Lines

(b)

 

 

FHLB

Term

Loans

Short-Term (c)

 

 

FHLB

Term

Loans

Long-Term (d)

 

 

NPB

Capital

Trust I

(e)

 

 

NPB

Capital

Trust 2

(e)

 

 

Total

 

Balance December 31, 2020

 

$

 

 

$

 

 

$

5,000

 

 

$

 

 

$

11,341

 

 

$

5,155

 

 

$

21,496

 

Highest balance at any month-end

 

 

 

 

 

 

 

 

5,000

 

 

 

5,000

 

 

 

11,341

 

 

 

5,155

 

 

 

 

 

Average weighted balance

 

 

 

 

 

 

 

 

2,555

 

 

 

2,445

 

 

 

11,341

 

 

 

5,155

 

 

 

21,496

 

Average interest rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid during the year

 

 

%

 

 

%

 

 

1.36

%

 

 

1.36

%

 

 

3.55

%

 

 

2.70

%

 

 

2.84

%

At year-end

 

 

%

 

 

%

 

 

1.34

%

 

 

%

 

 

2.84

%

 

 

2.01

%

 

 

2.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2019

 

$

 

 

$

 

 

$

 

 

$

5,000

 

 

$

11,341

 

 

$

5,155

 

 

$

21,496

 

Highest balance at any month-end

 

 

 

 

 

 

 

 

2,000

 

 

 

5,000

 

 

 

11,341

 

 

 

5,155

 

 

 

 

 

Average weighted balance

 

 

 

 

 

10

 

 

 

975

 

 

 

5,000

 

 

 

11,341

 

 

 

5,155

 

 

 

22,481

 

Average interest rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid during the year

 

 

%

 

 

3.32

%

 

 

1.26

%

 

 

1.36

%

 

 

5.09

%

 

 

4.25

%

 

 

3.89

%

At year-end

 

 

%

 

 

%

 

 

%

 

 

1.34

%

 

 

4.59

%

 

 

3.76

%

 

 

3.64

%

(a) - The Bank has the ability to borrow up to an additional $169.9$113.7 million from the FHLB under a line of credit which is secured by a blanket lien on residential real estate loans. With additional collateral, the Bank’s total credit availability would be $200.1 million. The Bank had no overnight borrowings subject to daily rate changes from the FHLB at December 31, 20202022 or 2019.2021.

We have used our line of credit with FHLB to issue letters of credit totaling $12.0$7.0 million to the Treasury Board of Virginia for collateral on public funds deposited in the Bank. No draws on the letters of credit have been issued. The letters of credit are considered draws on our FHLB line of credit.

(b) - Federal funds lines consist of $20.0$30.0 million in unsecured federal funds line of credit facilities with correspondent banks as of both December 31, 20202022 and 2019,2021, respectively exclusive of any outstanding balance. The Company did not borrow from the lines other than to test the ability to access the lines.

(c) - At– As of December 31, 2020,2022, there are no short term FHLB advances consistedoutstanding.

(d) – As of one $5.0 million advance with a fixed rate of 1.34%.

(d) - At December 31, 20202022 and 2021, there were no long term FHLB advances. Long term FHLB advances totaled $5 million at December 31, 2019


(e) - TPS I - On July 7, 2004, the Company completed the issuance of $11.3 million in floating rate trust preferred securities offered by its wholly owned subsidiary, NPB Capital Trust I (TPS I). The rate is determined quarterly and floats based on the 3 month3-month LIBOR plus 260 basis points.

59

 

TPS 2 - On September 27, 2006, the Company completed the issuance of $5.2 million in floating rate trust preferred securities offered by its wholly owned subsidiary, NPB Capital Trust 2 (TPS 2). The rate is determined quarterly and floats based on the 3 month3-month LIBOR plus 177 basis points.

Under the terms of the subordinated debt transactions, the securities have 30-year maturities and are redeemable, in whole or in part, without penalty, at the option of the Company after five years from the issuance date, and on a quarterly basis thereafter.

Following are maturities of borrowed funds atas of December 31, 20202022 (dollars in thousands):

2021

 

$

5,000

 

2022

 

 

 

2023

 

 

 

2024

 

 

 

2025

 

 

 

2026 and thereafter

 

 

16,496

 

 

 

$

21,496

 

Schedule of maturities of borrowed funds
2023$-
2024-
2025-
2026-
2027-
2028 and thereafter16,496
$ 16,496

NOTE 19 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal course of business, the Bank has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making such commitments as it does for instruments that are included in the balance sheet.

Financial instruments whose contract amount represents credit risk atas of December 31, 2022 and 2021 were as follows:

Schedule of financial instruments with credit risk    

 

2020

 

 

2019

 

 2022 2021

(Dollars in thousands)

 

 

 

 

 

 

        

Commitments to extend credit

 

$

57,334

 

 

$

59,552

 

 $84,149  $69,015 

Standby letters of credit

 

 

2,031

 

 

 

2,582

 

  3,731   3,684 

Commitments to extend credit are agreements to lend to a customer at either a fixed or variable interest rate as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

63

NOTE 20 LEGAL CONTINGENCIES

In the course of operations, we may become a party to legal proceedings in the normal course of business. At December 31, 2020,2022, we do not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or any of its subsidiaries to which the property of the Company or any of its subsidiaries is subject, in the opinion of management, may materially impact the financial condition or liquidity of the Company.

60

 

The Bank was named as a defendant in an action filed in the United States District Court for the Western District of Virginia on December 22, 2020. The plaintiff alleges that the Bank breached a contractual arrangement in the assessment of overdraft fees for the re-presentment of items previously returned due to lack of sufficient funds. The plaintiff is seeking class action status in their pursuit of this complaint. The Bank denies the allegation and intends to vigorously defend against this claim. As no formal or specific financial demand has been made, and due to the preliminary status of this case, any possible loss cannot be estimated at this time.

The Bank is a defendant in a complaint filed by a former employee in the United States District Court for the Western District of Virginia on January 1, 2021. The complaint alleges wrongful termination based on gender, religion and age. The Bank denies the allegations and intends to vigorously defend against these claims. As no formal or specific financial demand has been made, and due to the preliminary status of this case, any possible loss cannot be estimated at this time.

NOTE 21 CAPITAL

Capital Requirements and Ratios

The Company meets eligibility criteria of a small bank holding company in accordance with the Board of Governors of the Federal Reserve System’s Small Bank Holding Company Policy Statement issued in February of 2015, and is no longer obligated to report consolidated regulatory capital.

The Bank is subject to various capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets, Tier 1 capital to average assets, and Common Equity Tier 1 capital to risk-weighted assets. As of December 31, 2020,2022, the Bank meets all capital adequacy requirements to which it is subject.

The Bank’s actual capital amounts and ratios are presented in the following table as of December 31, 20202022 and 2019,2021, respectively.

Schedule of capital requirements
  ActualMinimum Capital RequirementMinimum to Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars are in thousands)AmountRatioAmountRatio AmountRatio
December 31, 2022:
Total Capital to Risk Weighted Assets$93,02816.50%$45,106 8.0%$56,38210.0%
Tier 1 Capital to Risk Weighted Assets 86,30115.31%33,829 6.0% 45,1068.0%
Tier 1 Capital to Average Assets 86,30110.40%33,2064.0% 41,5085.0%
Common Equity Tier 1 Capital
      to Risk Weighted Assets 86,30115.31%25,3724.5% 36,6486.5%

 

December 31, 2021:

Total Capital to Risk Weighted Assets$85,89016.23%$ 42,332 8.0%$52,91510.0%
Tier 1 Capital to Risk Weighted Assets 79,27414.98%31,749 6.0% 42,3328.0%
Tier 1 Capital to Average Assets 79,2749.86%32,1454.0% 40,1815.0%
Common Equity Tier 1 Capital
      to Risk Weighted Assets 79,27414.98%23,8124.5% 34,3956.5%

 

 

Actual

 

 

Minimum Capital Requirement

 

 

Minimum to Be Well

Capitalized Under

Prompt Corrective

Action Provisions

 

 

(Dollars are in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

December 31, 2020:

Total Capital to Risk Weighted Assets

 

$

77,133

 

 

 

16.41

%

 

$

37,603

 

 

 

8.0

%

 

$

47,028

 

 

 

10.0

%

 

Tier 1 Capital to Risk Weighted Assets

 

 

71,241

 

 

 

15.16

%

 

 

28,202

 

 

 

6.0

%

 

 

37,603

 

 

 

8.0

%

 

Tier 1 Capital to Average Assets

 

 

71,241

 

 

 

9.49

%

 

 

29,989

 

 

 

4.0

%

 

 

37,545

 

 

 

5.0

%

 

Common Equity Tier 1 Capital to Risk Weighted Assets

 

 

71,241

 

 

 

15.16

%

 

 

30,036

 

 

 

4.5

%

 

 

30,552

 

 

 

6.5

%

 

 

 

December 31, 2019:

Total Capital to Risk Weighted Assets

 

$

72,109

 

 

 

14.83

%

 

$

38,910

 

 

 

8.0

%

 

$

48,637

 

 

 

10.0

%

 

Tier 1 Capital to Risk Weighted Assets

 

 

66,741

 

 

 

13.72

%

 

 

29,182

 

 

 

6.0

%

 

 

38,910

 

 

 

8.0

%

 

Tier 1 Capital to Average Assets

 

 

66,741

 

 

 

9.43

%

 

 

28,313

 

 

 

4.0

%

 

 

35,391

 

 

 

5.0

%

 

Common Equity Tier 1 Capital to Risk Weighted Assets

 

 

66,741

 

 

 

13.72

%

 

 

21,887

 

 

 

4.5

%

 

 

31,614

 

 

 

6.5

%

 

64

Accordingly, as of December 31, 20202022 and 2019,2021, the Bank was well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since such dates that management believes have changed the Bank’s category.

 

The Bank is also subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The final rules require the Bank to comply with the following minimum capital ratios: (i) a Common Equity Tier 1 capital to risk-weighted assets ratio of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum Common Equity Tier 1 capital to risk-weighted assets ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The Bank’s capital conservation buffer was 8.20%8.50% at December 31, 2020.2022. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a Common Equity Tier 1 capital to risk-weighted assets ratio above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. As of both December 31, 20202022 and 2019,2021, the Common Equity Tier 1 Capital to Risk-weighted Assets ratio, the Tier 1 Capital to Risk-weighted Assets ratio, the Total Capital to Risk-weighted Assets ratio, and the Tier 1 Capital to Average Assets ratio of the Bank, all exceeded the minimum requirements.

61

 

NOTE 22 FAIR VALUES

Fair value is defined asThe Company established a hierarchal disclosure framework associated with the exchange price that would be received for an asset or paid to transfer a liability (an exit price),level of pricing observability utilized in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Fair Value Measurementsmeasuring assets and Disclosures also establish fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuringliabilities at fair value. The standard describes three broad levels of inputs that may be used to measure fair value:defined by this hierarchy are:

Level 1: Quoted prices are available in active markets for identical assets or liabilities. liabilities as of the reported date.

Level 12: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include debt and equity securities and derivative contracts that are traded in an exchange market, as well as U. S. Treasury, other U. S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2: Significant observable inputs other than Level 1 prices such asitems for which quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that areavailable but traded less frequently, than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputsitems that are observable invalued using other financial instruments, the market orparameters of which can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts and impaired loans.directly observed.

Level 3: Significant unobservable inputsAssets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are supported by little or no market activity and that are significant to themeasured using management’s best estimate of fair value, ofwhere the assets and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for whichinputs into the determination of fair value requiresrequire significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

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 available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s available for sale securities, totaling $48.4$96.1 million and $50.6$107.4 million atas of December 31, 20202022 and 2019,2021, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service.

 

Loans - The Company does not record loans at fair value on a recurring basis. Real estate serves as collateral on a substantial majority of the Company’s loans. When a loan is considered impaired, a specific reserve may be established. Loans, which are deemed to be impaired and require a reserve, are primarily valued on a non-recurring basis at the fair value of the underlying real estate collateral. Where there is no observable market price, such fair values are obtained using independent appraisals, which management evaluates to determine whether or not the fair value of the collateral is further impaired below the appraised value and adjusts for estimated costs of disposition. The Company records impaired loans as nonrecurring Level 3 assets. The aggregate amount of impaired loans carried at fair value was $4.0 million$213,000 and $5.3 million at$714,000 as of December 31, 20202022 and 2019,2021, respectively.

65

Foreclosed AssetsOther Real Estate Owned Foreclosed assets areOther real estate owned is adjusted to fair value upon transfer of the loans, or former bank premises, to foreclosed assets. Foreclosedother real estate owned.  These assets are carried at the lower of their carrying value or fair value.  Fair value is based upon observable market prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When observable market prices are not available, management determines the fair value of the foreclosed asset using independent third partythird-party appraisals, evaluated to determine whether or not the property is further impaired below the appraised value, and adjusts for estimated costs of disposition. The Company records foreclosed assets as nonrecurring Level 3. The aggregate carrying amounts of foreclosed assets were $3.3approximately $261,000 and $1.4 million and $3.4 million atas of December 31, 20202022 and 2019,2021, respectively.

62

 

Assets and liabilities measured at fair value are as follows as of December 31, 20202022 (for purpose of this table the impaired loans are shown net of the related allowance):

Schedule of summary of assets and liabilities measured at fair value            

 

 

 

 

(Dollars are in thousands)

 

 

Quoted market price in active markets

(Level 1)

 

 

 

Significant other observable inputs

(Level 2)

 

 

Significant unobservable inputs

(Level 3)

(On a recurring basis)

Available for sale investments

            
    U.S. Treasuries $    $11,685   $ 
    U.S. Government Agencies       9,399      
    Taxable municipals       16,815      
    Corporate bonds       3,136      
    Mortgage backed securities       55,041      

(On a non-recurring basis)

Other real estate owned

            261 
Impaired loans:            
  Real estate secured:            
      Commercial            205 
      Construction and land development               
      Residential 1-4 family            8 
      Multifamily               
      Farmland               
  Commercial               
  Agriculture               
  Consumer installment loans               
  All other loans               
Total $    $96,076  $474 

63

 

(Dollars are in thousands)

 

Quoted market

price in active markets

(Level 1)

 

 

Significant other observable inputs
(Level 2)

 

 

Significant unobservable

inputs

(Level 3)

 

(On a recurring basis)

Available for sale investments

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Agencies

 

$

 

 

$

14,107

 

 

$

 

Taxable municipals

 

 

 

 

 

5,345

 

 

 

 

Corporate bonds

 

 

 

 

 

6,048

 

 

 

 

Mortgage backed securities

 

 

 

 

 

22,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(On a non-recurring basis)

Other real estate owned

 

 

 

 

 

 

 

 

3,334

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

1,377

 

Construction and land development

 

 

 

 

 

 

 

 

99

 

Residential 1-4 family

 

 

 

 

 

 

 

 

1,927

 

Multifamily

 

 

 

 

 

 

 

 

 

Farmland

 

 

 

 

 

 

 

 

597

 

Commercial

 

 

 

 

 

 

 

 

25

 

Agriculture

 

 

 

 

 

 

 

 

 

Consumer installment loans

 

 

 

 

 

 

 

 

5

 

All other loans

 

 

 

 

 

 

 

 

 

Total

 

$

 

 

$

48,406

 

 

$

7,364

 


Assets and liabilities measured at fair value are as follows as of December 31, 20192021 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)

 

Quoted

market price in

active markets

(Level 1)

 

 

Significant other observable inputs
(Level 2)

 

 

Significant unobservable

inputs

(Level 3)

 

(On a recurring basis)

Available for sale investments

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Agencies

 

$

 

 

$

15,633

 

 

$

 

Taxable municipals

 

 

 

 

 

4,442

 

 

 

 

Corporate bonds

 

 

 

 

 

5,523

 

 

 

 

Mortgage backed securities

 

 

 

 

 

25,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(On a non-recurring basis)

Other real estate owned

 

 

 

 

 

 

 

 

3,393

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

Real estate secured:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

2,709

 

Construction and land development

 

 

 

 

 

 

 

 

70

 

Residential 1-4 family

 

 

 

 

 

 

 

 

1,274

 

Multifamily

 

 

 

 

 

 

 

 

 

Farmland

 

 

 

 

 

 

 

 

985

 

Commercial

 

 

 

 

 

 

 

 

214

 

Agriculture

 

 

 

 

 

 

 

 

 

Consumer installment loans

 

 

 

 

 

 

 

 

 

All other loans

 

 

 

 

 

 

 

 

 

Total

 

$

 

 

$

50,649

 

 

$

8,645

 

 

 

 

 

(Dollars are in thousands)

 

 

Quoted market price in active markets

(Level 1)

 

 

 

Significant other observable inputs

(Level 2)

 

 

Significant unobservable inputs

(Level 3)

(On a recurring basis)

Available for sale investments

            
    U.S. Treasuries $    $7,671  $   
    U.S. Government Agencies       9,089      
    Taxable municipals       22,980      
    Corporate bonds       2,019      
    Mortgage backed securities       65,599      

(On a non-recurring basis)

Other real estate owned

            1,361 
Impaired loans:            
  Real estate secured:            
      Commercial            221 
      Construction and land development               
      Residential 1-4 family            287 
      Multifamily               
      Farmland            180 
  Commercial            26 
  Agriculture               
  Consumer installment loans               
  All other loans               
Total $    $107,358  $2,075 

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of December 31, 20202022 and 2019,2021, 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 December 31,

2022

 

 

 

 

Fair Value at

December 31,

2021

 

 

 

 

 

Valuation Technique

 

 

 

 

 

Significant Unobservable Inputs

 

 

 

General Range of Significant Unobservable Input Values

           
Impaired Loans$213$714 Appraised Value Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 018%
           
Other Real Estate Owned$261$1,361 Appraised Value/Comparable Sales/Other Estimates from Independent Sources Discounts to reflect current market conditions and estimated costs to sell 018%

(Dollars in

thousands)

 

Fair Value at December 31,

2020

 

 

Fair Value at

December 31,

2019

 

 

Valuation

Technique

 

 

Significant

Unobservable Inputs

 

 

General Range

of Significant Unobservable

Input Values

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans

 

 

$

 

4,030

 

 

$

5,252

 

 

 

Appraised Value/Discounted Cash

Flows/Market Value of Note

 

 

 

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

 

 

 

0 – 18%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Real Estate

Owned

 

 

$

3,334

 

 

$

3,393

 

 

 

Appraised Value/Comparable Sales/Other Estimates from Independent Sources

 

 

 

Discounts to reflect current market conditions and estimated costs to sell

 

 

 

0 – 18%

 

6764

 

Fair Value of Financial Instruments

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 are as follows:

 

 

 

 

 

 

 

 

Fair Value Measurements

 

(Dollars are in thousands)

 

Carrying

Amount

 

 

Fair

Value

 

 

Quoted

market

price in

active

markets

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant unobservable

inputs

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments – Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loans

 

$

568,375

 

 

$

564,664

 

 

$

 

 

$

560,634

 

 

$

4,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments – Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time Deposits

 

 

234,449

 

 

 

237,768

 

 

 

 

 

 

237,768

 

 

 

 

Borrowed Funds

 

 

21,496

 

 

 

16,788

 

 

 

 

 

 

16,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments – Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loans

 

$

557,176

 

 

$

550,495

 

 

$

 

 

$

545,243

 

 

$

5,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments – Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time Deposits

 

 

257,406

 

 

 

259,325

 

 

 

 

 

 

259,325

 

 

 

 

Borrowed Funds

 

 

21,496

 

 

 

18,503

 

 

 

 

 

 

18,503

 

 

 

 

 Schedule of estimated fair value of financial instruments                    
      Fair Value Measurements

 

 

 

 

 

(Dollars are in thousands)

 

 

 

 

 

Carrying

Amount

 

 

 

 

 

Fair

Value

 

Quoted market price in active markets

(Level 1)

 

 

Significant other observable inputs

(Level 2)

 

 

 

Significant unobservable inputs

(Level 3)

           
December 31, 2022                    
Financial instruments – assets                    
   Net loans $577,886  $552,675  $    $552,462  $213 
                     
Financial instruments – liabilities                    
   Time deposits  188,233   187,179        187,179      
   Borrowed funds  16,496   14,825        14,825      
                     
December 31, 2021                    
Financial instruments – assets                    
   Net loans $587,009  $580,024  $    $579,310  $714 
                     
Financial instruments – liabilities                    
   Time deposits  196,285   198,353        198,353      
   Borrowed funds  16,496   15,649        15,649      

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates.

Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments.

The carrying value of cash and due from banks, federal funds sold, interest-bearing deposits, deposits with no stated maturities and accrued interest approximates fair value and is excluded from the table above.

In accordance with our adoption of ASU 2016-01 in 2018, theThe methods utilized to measure the fair value of financial instruments represent an approximation of exit price; however, an actual exit price may differ.

NOTE 23 REVENUE FROM CONTRACTS WITH CUSTOMERS

All of our revenue from contracts with customers as defined in ASC 606 is recognized within Noninterest Income.noninterest income. The following table presents Noninterest Income by revenue stream for the years ended December 31, 20202022 and 2019.2021.

Schedule of revenue from contracts with customers        

(Dollars are in thousands)

 

2020

 

 

2019

 

 2022 2021

Service charges and fees

 

$

3,217

 

 

$

3,605

 

 $3,969  $3,724 

Card processing and interchange income

 

 

3,314

 

 

 

3,014

 

  3,769   3,871 

Insurance and investment fees

 

 

716

 

 

 

663

 

  954   1,029 

Gains on sales of available-for-sale securities (1)

 

 

4

 

 

 

 

       322 

Gain on sale and leaseback transactions (1)

 

 

 

 

 

803

 

Other noninterest income

 

 

896

 

 

 

567

 

  548   1,034 

Total Noninterest Income

 

$

8,147

 

 

$

8,652

 

Total noninterest income $9,240  $9,980 

(1) – Not within the scope of ASU 2014-9

65

 

Certain revenues are earned from contracts with customers. These revenues are recognized when the promised services are rendered to the customer and reflects the entitled consideration received in exchange for those services.

68

Service charges and fees – revenue is recognized on deposit services based on published fees for the services provided. These fees may be collected on a transaction basis, at the time the service is rendered or periodically based on the period over which the service is provided. Transaction based fees include services such as stop payment requests, paper statement rendering and ITM usage fees. Periodic fees include such charges as monthly account maintenance fees. Overdraft fees are realized at the time the overdraft occurs.

Card processing and interchange feesCard relatedCard-related interchange revenue is primarily comprised of debit and credit card income. Debit and credit card income is earned when customers’ debit or credit cards are processed through a card payment network. Card relatedCard-related interchange income is recognized at the time the customer transactions settle.

Insurance and investment fees - Insurance and investment fee income consists of commissions received on annuity and investment product sales through a third-party service provider. Performance is generally satisfied at the time an annuity policy is issued, or at the execution of an investment transaction.

NOTE 24 NONINTEREST EXPENSES

Other operating expenses, included as part of noninterest expenses, consisted of the following for the years ended December 31, 20202022 and 2019:2021:

Schedule of noninterest expenses        

(Dollars are in thousands)

 

2020

 

 

2019

 

  2022  2021

Advertising, sponsorships and donations

 

$

216

 

 

$

315

 

 $162  $252 

ATM network expense

 

 

1,476

 

 

 

1,832

 

  1,471   1,473 

Legal and professional fees

 

 

839

 

 

 

872

 

  1,120   922 

Consulting fees

 

 

504

 

 

 

829

 

  272   269 

Loan related expenses

 

 

353

 

 

 

581

 

  416   599 

Printing and supplies

 

 

141

 

 

 

146

 

  160   133 

FDIC insurance premiums

 

 

393

 

 

 

222

 

  217   266 

Other real estate owned expenses, net

 

 

307

 

 

 

635

 

  176   506 

Other operating expenses

 

 

2,507

 

 

 

2,404

 

  2,656   2,556 

Total

 

$

6,736

 

 

$

7,836

 

 $6,650  $6,976 

NOTE 25 SUBSEQUENT EVENTS

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were available to be issued and has identified the following as a non-recognized subsequent event.

As disclosedOn February 27, 2023, the board of directors declared a dividend of $0.06 per share payable on March 31, 2023 to shareholders of record as of March 15, 2023.

On February 27, 2023, the board of directors authorized the continuation of the Company’s repurchase of up to 500,000 shares of its common stock through March 31, 2024. This is a continuation of the repurchase program originally announced April 28, 2022, which was set to expire March 31, 2023. To the date of this announced continuation, 82,352 shares have been repurchased at an average price of $2.32 per share, leaving 417,648 shares available for repurchase. Repurchases made through this program will be made through open market purchases or in Note 20 Legal Contingencies,privately negotiated transactions.

On February 27, 2023 the board of directors approved and adopted the New Peoples Bankshares, Inc. Long-Term Cash Incentive Plan (the Plan). The Plan, which became effective on February 27, 2023, provides for cash incentive awards to Plan participants based on the Company’s quarterly earnings per share of common stock over the period specified in the Plan. Certain members of management or highly compensated employees of the Company or the Bank isare eligible to participate in the Plan. On February 28, 2023, the executive committee of the board of directors awarded a defendantcombined 500,000 notional shares to five members of management. Individual awards are settled solely in a complaint filedcash, determined by multiplying quarterly earnings per share by the number of notional shares covered by a former employeePlan award. The Plan does not grant participants equity in the United States District Court for the Western District of Virginia on January 1, 2021.Company and does not create any shareholders rights.

66

 

In response to the ongoing economic impact of the pandemic, on March 11, 2021, the American Rescue Plan Act of 2021, was signed into law. This legislation provides a third round of stimulus payments to individuals of $1,400, extends supplemental unemployment assistance through September 6, 2021, while exempting the first $10,200 of unemployment benefits from income tax. This combined with the second round of $600 stimulus payments and the second round of PPP lending signed into law in December, can be expected to provide economic support to our customers, resulting in an increase in liquid assets. As of March 31, 2021, 322 PPP loans totaling $18.8 million have been funded during this second round.

At this time we cannot state how the continuing economic uncertainty or the resulting stimulus efforts will affect the financial position, operations or liquidity of the Company.


NOTE 26 RECENT ACCOUNTING DEVELOPMENTS

The following is a summary of recent authoritative announcements:

In June 2016, per ASU No.the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, ‘Financial“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. The Company adopted ASU 2016-13 as of January 1, 2023 in accordance with the required implementation date and recorded the impact of adoption to retained earnings, net of deferred income taxes, as required by the standard. The adjustment recorded at adoption, was not significant to the overall allowance for credit losses or shareholders’ equity as compared to December 31, 2022 and consisted of adjustments to the allowance for credit losses on loans, as well as an adjustment to the Company’s reserve for unfunded loan commitments. Subsequent to adoption, the Company will record adjustments to its allowance(s) for credit losses and reserves for unfunded commitments through the provision for credit losses in the consolidated statements of income.

The Company is utilizing a third-party model to tabulate its estimate of current expected credit losses, using a loan-level probability of default / loss given default cash flow method with an exposure at default model methodology. In accordance with ASC 326, the Company has segmented its loan portfolio based on similar risk characteristics which included call report classification and risk rating. The Company primarily utilizes the cohort and the probability of default/loss given default methodologies for its reasonable and supportable forecasting of current expected credit losses. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: changes to: lending policies and procedures, national and local economic conditions, the experience and ability of management and staff; the volume and severity of past due, rated and nonaccrual assets, loan review system, collateral value, concentrations of credit, and legal or regulatory requirements and competition. The Company’s CECL implementation process was overseen by the Audit and Risk Committee of the board of directors, and managed by credit, finance and risk management personnel, to include an assessment of data availability and gap analysis, data collection, consideration and analysis of multiple loss estimation methodologies, an assessment of relevant qualitative factors and correlation analysis of multiple potential loss drivers and their impact on the Company’s historical loss experience. During 2022, the Company calculated its current expected credit losses model in parallel to its incurred loss model in order to further refine the methodology and model. In addition, the Company engaged a third-party to perform a comprehensive model validation.

Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.

In March 2020, the Financial Accounting Standards Board (the FASB)(FASB) issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. Subsequently, per ASUAccounting Standards Update (ASU) No. 2019-10, implementation for the Company is delayed until reporting periods beginning after December 15, 2022. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

In May 2019, the FASB issued targeted transition relief for entities which irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the amendments to the transition guidance for ASU 2016-13 will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Subsequently, per ASU No. 2019-10, implementation for the Company is delayed until reporting periods beginning after December 15, 2021. The Company is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.

In November, 2019, the FASB released ASU 2019-10, ‘Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),’ in which the FASB shared a new philosophy to extend and simplify how effective dates for certain major Updates would be staggered between larger public companies (bucket one) and all other entities (bucket two). A major Update would first be effective for bucket-one entities. For bucket-two entities, including the Company, it is anticipated that the FASB will consider requiring an effective date staggered at least two years after bucket one for major Updates. Generally, it is expected that early application would continue to be allowed for all entities.  The Company is considered a bucket-two entity due to its eligibility to be a smaller reporting company, per the Securities and Exchange Commission (the SEC). This Update applies to ASU 2016-13, as discussed above, ASU 2017-12, which does not apply to the Company, and ASU 2016-02, which the Company has already early-adopted. 

In December, 2019, the FASB released ASU 2019-12, ‘Income Taxes (Topic 740),’ which simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, improve consistent application, and simplify GAAP for other areas of Topic 740. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

In January, 2020, the FASB released ASU 2020-01, ‘Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815),’ which clarify certain interactions between the guidance to account for certain equity securities under Topic 321, 323 and 815, and improve current GAAP by reducing diversity in practice and increasing comparability of accounting. The amendments in this Update are effective for the Company for fiscal years beginning after December 31, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2020, the FASB released ASU 2020-03, ‘Codification Improvements to Financial Instruments,’ as part of its ongoing project for improving the Codification or correcting its unintended application. This Update is being issued to increase stakeholder awareness of these amendments. These amendments affect Fair Value Option Disclosures, Applicability of Portfolio Exception in Topic 820 to Nonfinancial Items, Disclosures for Depository and Lending Institutions, Cross-Reference to Line-of-Credit or Revolving-Debt Arrangements Guidance in Subtopic 470-50, Cross-Reference to Net Asset Value Practical Expedient in Subtopic 820-10, Interaction of Topic 842 and Topic 326, and Interaction of Topic 326 and Subtopic 860-20. The amendments in this update are effective immediately. The Company does not expect these amendments to have a material effect on its financial statements.

In March, 2020, the FASB released ASU 2020-04 ‘Reference“Reference Rate Reform (Topic 848),: Facilitation of the Effects of Reference Rate Reform on Financial Reporting,’ which providesReporting.” These amendments provide temporary optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. The amendments in this Update are electiveASU provides optional expedients and applyexceptions for applying generally accepted accounting principles to all entities,contract modifications and hedging relationships, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because ofdiscontinued. It is intended to help stakeholders during the global market-wide reference rate reform.transition period. The amendments in the Update areguidance is effective for the Companyall entities as of March 12, 2020 through December 31, 2022. The Company is currentlySubsequently, in the process of evaluating the impact of adoption of this guidance, but does not expect this amendment to have a material impact on its financial statements.


In August 2020, the FASB released ASU 2020-06, ‘Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,’ which reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The Board concluded that eliminating certain accounting models simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners, and improves the decision usefulness and relevance of the information provided to financial statement users. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

In October, 2020, the FASB released ASU 2020-08, ‘Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs,’ which amends ASU 2017-08 and clarifies that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of paragraph 310-20-35-33 for each reporting period. These amendments are part of the FASB’s ongoing project for improving the Codification or correcting its unintended application. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is not permitted. The Company does not expect this amendment to have a material effect on its financial statements.

In January 2021, the FASB released ASUFinancial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-01 ‘Reference“Reference Rate Reform (Topic 848),’ which: Scope.” This ASU clarifies that certain optional expedients and exceptions in topicTopic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition relatedtransition. The ASU also amends the expedients and exceptions in Topic 848 to reference rate reform. The amendments in this Update are effective immediately for all entities.capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the amendments in the Update on a full retrospective basisinterest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of anthe interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update,January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.The Company has adopted an alternative reference rate for loans based on LIBOR and is assessing alternatives for financial instruments referencing LIBOR that do not allow for the substitution of an alternative reference rate. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments that have not already been transitioned to an alternative reference rate.

67

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect this amendmentthe adoption of ASU 2022-03 to have a material effectimpact on its consolidated financial statements.

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13. Early adoption is permitted if an entity has adopted ASU 2016-13. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently assessing the impact that ASU 2022-02 will have on its consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”. ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for all entities upon issuance. The Company is assessing ASU 2022-06 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments that have not already been transitioned to an alternative reference rate.

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.

68

NOTE 27 PARENT CORPORATION ONLY FINANCIAL STATEMENTS

CONDENSED BALANCE SHEETS

AS OF DECEMBER 31, 20202022 AND 20192021

(Dollars in Thousands)

 

 

 

 

 

 

Schedule of parent corporation only condensed balance sheets        

 

2020

 

 

2019

 

 2022 2021

ASSETS

 

 

 

 

 

 

 

 

        

Due from banks

 

$

215

 

 

$

209

 

 $521  $187 

Investment in subsidiaries

 

 

72,990

 

 

 

69,463

 

  72,360   78,460 

Other assets

 

 

1,669

 

 

 

1,737

 

  1,150   1,645 

Total Assets

 

$

74,874

 

 

$

71,409

 

Total assets $74,031  $80,292 

 

 

 

 

 

 

 

 

        

LIABILITIES

 

 

 

 

 

 

 

 

        

Accrued interest payable

 

$

109

 

 

$

182

 

 $277  $104 

Accrued expenses and other liabilities

 

 

92

 

 

 

129

 

  39   61 

Trust preferred securities

 

 

16,496

 

 

 

16,496

 

  16,496   16,496 

Total Liabilities

 

 

16,697

 

 

 

16,807

 

Total liabilities  16,812   16,661 

 

 

 

 

 

 

 

 

        

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Common stock - $2.00 par value, 50,000,000 shares authorized;

23,922,086 shares issued and outstanding at both

December 31, 2020 and 2019

 

 

47,844

 

 

 

47,844

 

SHAREHOLDERS’ EQUITY        

Common stock - $2.00 par value, 50,000,000 shares authorized;

23,848,491 and 23,922,086 shares issued and outstanding at December 31, 2022 and 2021, respectively

  47,697   47,844 

Additional paid capital

 

 

14,570

 

 

 

14,570

 

  14,546   14,570 

Retained deficit

 

 

(4,979

)

 

 

(7,869

)

Accumulated other comprehensive income

 

 

742

 

 

 

57

 

Total Stockholders’ Equity

 

 

58,177

 

 

 

54,602

 

Total Liabilities and Stockholders’ Equity

 

$

74,874

 

 

$

71,409

 

Retained earnings  8,917   2,031 
Accumulated other comprehensive loss  (13,941)  (814)
Total shareholders’ equity  57,219   63,631 
Total liabilities and shareholders’ equity $74,031  $80,292 

71

CONDENSED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 20202022 AND 20192021

(Dollars in thousands)

Schedule of parent corporation only condensed statements of income        

 

 

 

 

 

 

 2022 2021

 

2020

 

 

2019

 

    

Income

 

 

 

 

 

 

 

 

        

Miscellaneous income

 

$

16

 

 

$

26

 

 $22  $13 

Dividends from subsidiaries

 

 

610

 

 

 

760

 

  1,749   430 

Undistributed income of subsidiaries

 

 

2,842

 

 

 

2,076

 

  7,027   7,026 

Total income

 

 

3,468

 

 

 

2,862

 

  8,798   7,469 

 

 

 

 

 

 

 

 

        

Expenses

 

 

 

 

 

 

 

 

        

Trust preferred securities interest expense

 

 

541

 

 

 

796

 

  729   420 

Professional fees

 

 

114

 

 

 

154

 

  116   99 

Other operating expenses

 

 

19

 

 

 

60

 

  57   58 

Total Expenses

 

 

674

 

 

 

1,010

 

Total expenses  902   577 

 

 

 

 

 

 

 

 

        

Income before Income Taxes

 

 

2,794

 

 

 

1,852

 

Income Tax Benefit

 

 

(96

)

 

 

(207

)

Net Income

 

$

2,890

 

 

$

2,059

 

Income before income taxes  7,896   6,892 
Income tax benefit  (186)  (118)
Net income $8,082  $7,010 

69

 

CONDENSED STATEMENTSOF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 20202022 AND 20192021

(Dollars in thousands)

 

 

2020

 

 

2019

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

2,890

 

 

$

2,059

 

Adjustments to reconcile net income to net cash used in 

operating activities:

 

 

 

 

 

 

 

 

Equity in undistributed earnings of subsidiaries

 

 

(2,842

)

 

 

(2,076

)

Net decrease (increase) in other assets

 

 

67

 

 

 

(173

)

Net (decrease) increase in other liabilities

 

 

(109

)

 

 

38

 

Net cash provided by (used in) operating activities

 

 

6

 

 

 

(152

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in Cash and Cash Equivalents

 

 

6

 

 

 

(152

)

Cash and Cash Equivalents, Beginning of year

 

 

209

 

 

 

361

 

Cash and Cash Equivalents, End of Year

 

$

215

 

 

$

209

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Paid During the Year for:

 

 

 

 

 

 

 

 

Interest

 

$

614

 

 

$

811

 

Taxes

 

$

(166

)

 

$

(34

)

 Schedule of parent corporation only condensed statements of cash flows    
  2022 2021
     
Cash flows from operating activities        
Net income $8,082  $7,010 

Adjustments to reconcile net income to net cash provided by (used

in) operating activities:

        
     Equity in undistributed earnings of subsidiaries  (7,027)  (7,026)
     Net decrease in other assets  495   24 
     Net increase in other liabilities  151   (36)
Net cash provided by (used in) operating activities  1,701   (28)
         
Cash flows from financing activities:        
    Repurchase of common stock  (171)     
    Cash dividends paid  (1,196)     
Net cash used in financing activities  (1,367)     
         
Net increase (decrease) in cash and cash equivalents  334   (28)
Cash and cash equivalents, beginning of year  187   215 
Cash and cash equivalents, end of year $521  $187 
         

70

 


NOTE 28 SELECTED QUARTERLY INFORMATION (UNAUDITED)

  2020 QUARTERS 
(Dollars in thousands except per share data) Fourth  Third  Second  First 
Income statement                
Net interest income $6,447  $6,414  $6,140  $6,142 
Provision for loan losses  300   450   550   1,000 
Noninterest income  2,234   2,116   1,628   2,165 
Noninterest expense  6,272   6,282   7,192   7,251 
Net income  1,391   1,424   29   46 
Earnings per share, basic and diluted  0.06   0.06   0.00   0.00 
                 
Period end balance sheet                
Total loans receivable $575,566  $585,122  $587,566  $560,468 
Total assets  756,302   749,125   754,651   715,144 
Total deposits  668,012   661,672   668,404   629,525 
Total stockholders’ equity  58,177   56,919   55,473   55,251 

  2019 QUARTERS 
(Dollars in thousands except per share data) Fourth  Third  Second  First 
Income statement                
Net interest income $6,252  $6,347  $6,282  $6,095 
Noninterest income  760   1,020   135   135 
Provision for loan losses  2,051   2,855   1,969   1,777 
Noninterest expense  7,006   7,079   7,684   7,228 
Net income (loss)  432   876   345   406 
Earnings (loss) per share, basic and diluted  0.02   0.04   0.01   0.02 
                 
Period end balance sheet                
Total loans receivable $562,544  $558,174  $551,131  $553,585 
Total assets  706,373   706,939   701,952   721,868 
Total deposits  621,477   621,603   619,313   638,409 
Total stockholders’ equity  54,602   54,206   53,179   52,026 

Item 9.Changes9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.None

Item 9A.Controls9A. Controls and Procedures

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting of New Peoples Bankshares, Inc. New Peoples’ internal control system was designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting practices.

All internal control systems, no matter how well designed, have inherent limitations. Because of these inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation, and may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Management assessed the effectiveness of New Peoples’ internal control over financial reporting as of December 31, 2020.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control - Integrated Framework” issued in 2013. Based on this assessment, management concluded that the internal control over financial reporting was effective as of December 31, 2020.2022.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that is designed to ensure that material information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of December 31, 2020.2022.

Item 9B.Other Information

Item 9B.       Other InformationNone.

None.

 

Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10.Directors, Executive Officers and Corporate Governance

Item 10.     Directors, Executive Officers and Corporate Governance

The information contained under the captions “Election of Directors,” “Incumbent Directors”Directors,” “Executive Officers Who Are Not Directors,” “Corporate Governance” and “Delinquent Section 16(a) Reports” in the 20212023 Proxy Statement that is required to be disclosed in this Item 10 is incorporated herein by reference.

71

Item 11.Executive Compensation

Item 11.     Executive Compensation

The information contained under the captions “Director Compensation” and “Executive Compensation and Related Party Transactions” in the 20212023 Proxy Statement that is required to be disclosed in this Item 11 is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information contained under the captions “Security Ownership of Management” and “Security Ownership of Certain Beneficial Owners” in the 20212023 Proxy Statement that is required to be disclosed in this Item 12 is incorporated herein by reference.

Item 13.      Certain Relationships and Related Transactions, and Director Independence

Item 13.Certain Relationships and Related Transactions, and Director Independence

 

The information contained under the caption “Executive Compensation and Related Party Transactions” and “Corporate Governance” in the 20212023 Proxy Statement that is required to be disclosed in this Item 13 is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Item 14.Principal Accountant Fees and Services

 

The information contained under the caption “Audit Information” in the 20212023 Proxy Statement that is required to be disclosed in this Item 14 is incorporated herein by reference.


The Independent Registered Public Accounting Firm for the financial statements as of December 31, 2022 and the year then ended was Yount, Hyde & Barbour, P.C., (U.S. PCAOB Auditor Firm I.D.: 613, located in Roanoke, Virginia.

Item 15.    Exhibits and Financial Statement Schedules

Item 15.Exhibit and Financial Statement Schedules

 

(a)(1) The response to this portion of Item 15 is included in Item 8 above.

(a)(2) The response to this portion of Item 15 is included in Item 8 above.

(a)(3) The following exhibits are filed as part of this Form 10-K and this list includes the exhibit index:10-K:

  

Exhibit

Number

3.1

Amended Articles of Incorporation of New Peoples Bankshares, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarterly period ended June 30, 2008 filed on August 11, 2008).

3.2

Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to Form 8-K filed August 26, 2020).

4.1

Specimen Common Stock Certificate of New Peoples Bankshares, Inc. (incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarterly period ended June 30, 2012 filed on August 14, 2012).

4.2

Description of New Peoples Bankshares, Inc.’s Securities (incorporated by reference to Exhibit 4.2 to Annual Report on Form 10-K for the fiscal year ended December 31, 2019).

10.1*

Employment Agreement dated December 1, 2016 between New Peoples Bankshares, Inc., New Peoples Bank, Inc., and C. Todd Asbury (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 2, 2016
10.2*

Employment Agreement dated December 1, 2016 between New Peoples Bankshares, Inc., New Peoples Bank, Inc., and C. Todd Asbury (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 2, 2016).

10.3*

Employment Agreement dated May 14, 2019 between New Peoples Bank, Inc., and James W. Kiser.

10.4*

Form of Award Agreement for New Peoples Bankshares, Inc. Long-Term Cash Incentive Plan (incorporated by reference to Exhibit 10.2 to Form 8-K filed March 2, 2023).

14

Code of Ethics (incorporated by reference to Exhibit 14 to Annual Report on Form 10-K for the fiscal year ended December 31, 2003). 

21

Subsidiaries of the Registrant.

24

Powers of Attorney (contained on signature page).

31.1

Certification by Chief Executive Officer pursuant to Rule 13a-14(a).

31.2

Certification by Chief Financial Officer pursuant to Rule 13a-14(a).

32

101

Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

The following materials for the Company’s 10-K Report for the year ended December 31, 2020, formatted in XBRL are being furnished, not filed. XBRL Taxonomy Extension Calculation Linkbase Document, XBRL Taxonomy Extension Definitions Linkbase Document, Taxonomy Extension Label Linkbase Document, XBRL Taxonomy Extension Label Linkbase Document.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document in Exhibit 101).


____________________________________

* Denotes management contract.

(b)       See Item 15(a)(3) above.

(c)       See Items 15(a)(1) and (2) above.

72

Item 16.Form 10-K Summary

Item 16.          Form 10-K SummaryNone.

None.

7573

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NEW PEOPLES BANKSHARES, INC.

By:

/s/ C. TODD ASBURY

C. Todd Asbury

Director, President and Chief Executive Officer

Date:

April 8, 2021

By:

/s/ JOHN J. BOCZAR

John J. Boczar

Executive Vice President and Chief Financial Officer

Date:

April 8, 2021

NEW PEOPLES BANKSHARES, INC.

By: /s/ C. TODD ASBURY

C. Todd Asbury

Director, President and Chief Executive Officer

Date: March 31, 2023

By: /s/ CHRISTOPHER G. SPEAKS

Christopher G. Speaks

Executive Vice President, Chief Financial Officer and Treasurer

Date: March 31, 2023

By: /s/ JOHN J. BOCZAR

John J. Boczar

Chief Accounting Officer and Secretary

Date: March 31, 2023

7674

 

POWER OF ATTORNEY

Each of the undersigned hereby appoints C. Todd Asbury and John J. Boczar,Christopher G. Speaks, and each of them, as attorneys and agents for the undersigned, with full power of substitution, in his name and on his behalf as a director of New Peoples Bankshares, Inc. (the “Registrant”)Registrant), to act and to execute any and all instruments as such attorneys or attorney deem necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, and any rules, regulations, policies or requirements of the Securities and Exchange Commission (the “Commission”)Commission) in respect thereof, in connection with the preparation and filing with the Commission of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 20202022 (the “Report”)Report), and any and all amendments to such Report, together with such other supplements, statements, instruments and documents as such attorneys or attorney deem necessary or appropriate.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature

Capacity

Date

/s/ C. TODD ASBURY

Director, President and 

April 8, 2021March 31, 2023

C. Todd Asbury

Chief Executive Officer

(Principal Executive Officer)


/s/ CHRISTOPHER G. SPEAKS

Executive Vice President and

March 31, 2023

Christopher G. Speaks

Chief Financial Officer

(Principal Financial Officer)

/s/ JOHN J. BOCZAR

Chief Accounting Officer

April 8, 2021March 31, 2023

John J. Boczar

  (Principal Accounting Officer)

Executive Vice President and Chief Financial Officer

/s/ TIM BALL

Director

March 31, 2023

Tim Ball

(Principal Financial and

/s/ GINA D. BOGGESS

Director

March 31, 2023

Gina D. Boggess

Accounting Officer)

/s/ TIM BALL

Director

April 8, 2021

Tim Ball/s/ J. ROBERT BUCHANAN

Director

/s/ GINA D. BOGGESS

Director

April 8, 2021March 31, 2023

Gina D. BoggessJ. Robert Buchanan

/s/ JOE CARTER

Director

March 31, 2023

Joe Carter

/s/ J. ROBERT BUCHANAN

Director

April 8, 2021

J. Robert Buchanan

/s/ JOE CARTER

Director

April 8, 2021

Joe Carter

/s/ JOHN D. COX

Director

April 8, 2021March 31, 2023

John D. Cox

/s/ CHARLES H. GENT

Director

April 8, 2021

Charles H. Gent


/s/ EUGENE HEARL

Director

April 8, 2021

Eugene Hearl

/s/ HAROLD LYNN KEENE

Chairman, Director

April 8, 2021March 31, 2023

Harold Lynn Keene


/s/ MICHAEL G. MCGLOTHLIN

Director

March 31, 2023

Michael G. McGlothlin

Director

Fred Meade

/s/ B. SCOTT WHITE

Vice Chairman, Director

April 8, 2021March 31, 2023

B. Scott White

 

 

 

 

7775