EXHIBIT (13)

The Annual Report to Security Holders is Appendix A to the Proxy Statement for the 2024 Annual Meeting of Shareholders and is incorporated herein by reference.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

General Description of Business

Peoples Bancorp of North Carolina, Inc. (the “Company”), was formed in 1999 to serve as the holding company for Peoples Bank (the “Bank”). The Company is a bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the “BHCA”). The Company’s principal source of income is dividends declared and paid by the Bank on its capital stock, if any. The Company has no operations and conducts no business of its own other than owning the Bank and PEBK Capital Trust II. Accordingly, the discussion of the business which follows primarily concerns the business conducted by the Bank. Our principal executive offices are located at 518 West C Street, Newton, North Carolina, 28658, and our telephone number is (828) 464-5620.

The Bank, founded in 1912, is a state-chartered commercial bank serving the citizens and business interests of the Catawba Valley and surrounding communities through 16 banking offices, located in Lincolnton, Newton, Denver, Catawba, Conover, Maiden, Claremont, Hiddenite, Hickory, Charlotte, Huntersville, Mooresville and Raleigh, North Carolina. The Bank also operates loan production offices in Charlotte, Denver, Salisbury and Winston-Salem North Carolina. The Company’s fiscal year ends December 31. At December 31, 2024, the Company had total assets of $1.7 billion, net loans of $1.1 billion, deposits of $1.5 billion, total securities of $390.7 million, and shareholders’ equity of $130.6 million.

The Bank has a diversified loan portfolio, with no foreign loans and few agricultural loans. Real estate loans are predominately variable rate and fixed rate commercial property loans, which include residential development loans to commercial customers. Commercial loans are spread throughout a variety of industries with no one particular industry or group of related industries accounting for a significant portion of the commercial loan portfolio. The majority of the Bank’s deposit and loan customers are individuals and small-to medium-sized businesses located in the Bank’s market area. Additional discussion of the Bank’s loan portfolio and sources of funds for loans can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages A-4 through A-19 of the Annual Report, which is included in this Form 10-K as Exhibit (13).

The operations of the Bank are significantly influenced by general economic conditions and by related monetary and fiscal policies of the Company and the Bank’s regulatory agencies, including the Federal Reserve, the Federal Deposit Insurance Corporation (the “FDIC”) and the North Carolina Commissioner of Banks (the “Commissioner”).

At December 31, 2024, the Company employed 281 full-time employees and 13 part-time employees, which equated to 288 full-time equivalent employees.

Subsidiaries

The Bank is a subsidiary of the Company. At December 31, 2024, the Bank had four subsidiaries, Peoples Investment Services, Inc., Real Estate Advisory Services, Inc., Community Bank Real Estate Solutions, LLC (“CBRES”) and PB Real Estate Holdings, LLC. Through a relationship with Raymond James Financial Services, Inc., Peoples Investment Services, Inc. provides the Bank’s customers access to investment counseling and non-deposit investment products such as stocks, bonds, mutual funds, tax deferred annuities, and related brokerage services. Real Estate Advisory Services, Inc. provides real estate appraisal and real estate brokerage services. CBRES serves as a “clearing-house” for appraisal services for community banks. Other banks are able to contract with CBRES to find and engage appropriate appraisal companies. As a separate legal entity, CBRES’s services and the appraisal process are conducted independent from the financing process of the Bank. PB Real Estate Holdings, LLC acquires, manages and disposes of real property, other collateral and assets obtained in the ordinary course of collecting debts previously contracted. All of the Bank’s subsidiaries are incorporated in the state of North Carolina.

In June 2006, the Company formed a wholly-owned Delaware statutory trust, PEBK Capital Trust II (“PEBK Trust II”), to facilitate the issuance of $20.6 million of trust preferred securities. PEBK Trust II is not included in the consolidated financial statements. The Company redeemed $5.0 million of outstanding trust preferred securities in 2019.

A-1

This report contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company and on the information available to management at the time that these disclosures were prepared. These statements can be identified by the use of words like “expect,” “anticipate,” “estimate” and “believe,” variations of these words and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, (1) competition in the markets served by the Company’s subsidiary, Peoples Bank, (2) changes in the interest rate environment, (3) general national, regional or local economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and the possible impairment of collectibility of loans, (4) legislative or regulatory changes, including changes in accounting standards, (5) significant changes in the federal and state legal and regulatory environment and tax laws, (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations and (7) other risks and factors identified in the Company’s other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements.

A-2

SELECTED FINANCIAL DATA
Dollars in Thousands Except Per Share Amounts
	2024			2023			2022
Summary of Operations
Interest income	$	80,733			71,862			54,431
Interest expense		26,654			17,143			3,323
Net interest income		54,079			54,719			51,108
Provision for (recovery of) credit losses		(285	)		1,566			1,472
Net interest income after provision
for credit losses		54,364			53,153			49,636
Non-interest income		27,715			22,914			26,689
Non-interest expense		61,150			56,144			56,030
Earnings before income taxes		20,929			19,923			20,295
Income tax expense		4,576			4,377			4,172
Net earnings	$	16,353			15,546			16,123
Selected Year-End Balances
Assets	$	1,651,962			1,635,910			1,620,927
Investment securities available for sale		388,003			391,924			445,394
Net loans		1,128,409			1,082,025			1,022,114
Mortgage loans held for sale		1,367			686			211
Interest-earning assets		1,559,313			1,538,570			1,502,868
Deposits		1,484,731			1,392,045			1,435,215
Interest-bearing liabilities		1,097,941			1,061,537			975,279
Shareholders' equity	$	130,563			121,016			105,195
Shares outstanding		5,457,646			5,534,499			5,636,830
Selected Average Balances
Assets	$	1,653,356			1,605,386			1,663,665
Investment securities available for sale		442,097			454,823			467,484
Loans		1,113,488			1,061,075			949,175
Interest-earning assets		1,611,816			1,561,825			1,601,168
Deposits		1,465,965			1,395,265			1,480,113
Interest-bearing liabilities		1,094,699			1,003,479			979,315
Shareholders' equity	$	129,866			116,295			123,887
Shares outstanding		5,300,964			5,424,890			5,480,123
Profitability Ratios
Return on average total assets		0.99	%		0.97	%		0.97	%
Return on average shareholders' equity		12.59	%		13.37	%		13.01	%
Dividend payout ratio		30.86	%		32.86	%		30.61	%
Liquidity and Capital Ratios (averages)
Loan to deposit		75.96	%		76.05	%		64.13	%
Shareholders' equity to total assets		7.85	%		7.24	%		7.45	%
Per share of Common Stock
Basic net earnings	$	3.08			2.87			2.94
Diluted net earnings	$	2.98			2.77			2.85
Cash dividends	$	0.92			0.91			0.87
Book value	$	24.64			22.53			19.24

A-3

Management's Discussion and Analysis of Financial Condition

and Results of Operations

The following is a discussion of our financial position and results of operations and should be read in conjunction with the information set forth under Item 1A Risk Factors in the Company’s Annual Report on Form 10-K and the Company’s consolidated financial statements and notes thereto on pages A-20 through A-63.

Introduction

Management’s discussion and analysis of earnings and related data are presented to assist in understanding the consolidated financial condition and results of operations of the Company, for the years ended December 31, 2024, 2023 and 2022. The Company is a registered bank holding company operating under the supervision of the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the parent company of the “Bank. The Bank is a North Carolina-chartered bank, with offices in Catawba, Lincoln, Alexander, Mecklenburg, Iredell, Wake, Rowan and Forsyth counties, operating under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation (the “FDIC”).

Overview

Our business consists principally of attracting deposits from the general public and investing these funds in commercial loans, real estate mortgage loans, real estate construction loans and consumer loans. Our profitability depends primarily on our net interest income, which is the difference between the income we receive on our loan and investment securities portfolios and our cost of funds, which consists of interest paid on deposits and borrowed funds. Net interest income also is affected by the relative amounts of our interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, a positive interest rate spread will generate net interest income. Our profitability is also affected by the level of other income and operating expenses. Other income consists primarily of miscellaneous fees related to our loans and deposits, mortgage banking income and commissions from sales of annuities and mutual funds. Operating expenses consist of compensation and benefits, occupancy related expenses, federal deposit and other insurance premiums, data processing, advertising and other expenses.

Our operations are influenced significantly by local economic conditions and by policies of financial institution regulatory authorities. The earnings on our assets are influenced by the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rates, market and monetary fluctuations. Lending activities are affected by the demand for commercial and other types of loans, which in turn is affected by the interest rates at which such financing may be offered. Our cost of funds is influenced by interest rates on competing investments and by rates offered on similar investments by competing financial institutions in our market area, as well as general market interest rates. These factors can cause fluctuations in our net interest income and other income. In addition, local economic conditions can impact the credit risk of our loan portfolio, in that (1) local employers may be required to eliminate employment positions of individual borrowers, and (2) small businesses and commercial borrowers may experience a downturn in their operating performance and become unable to make timely payments on their loans. Management evaluates these factors in estimating the allowance for credit losses (“ACL”, “allowance for credit losses”, or “allowance”) and changes in these economic factors could result in increases or decreases to the provision for loan losses.

Prior to the COVID-19 pandemic, economic conditions, while not as robust as the period from 2004 to 2007, had stabilized such that businesses in our market area were growing and investing again. The uncertainty expressed in the local, national and international markets through the primary economic indicators of activity were previously sufficiently stable to allow for reasonable economic growth in our markets. Subsequently, continuing supply-chain disruption and rising inflation has caused the Federal Reserve Federal Open Market Committee (“FOMC”) to increase the target federal funds rate 500 basis points between March 2022 and July 2023 before being reduced to a range of 4.25% to 4.50% at December 31, 2024.

Although we are unable to control the external factors that influence our business, by maintaining high levels of balance sheet liquidity, managing our interest rate exposures and by actively monitoring asset quality, we seek to minimize the potentially adverse risks of unforeseen and unfavorable economic trends. Because the assets and liabilities of a bank are primarily monetary in nature (payable in fixed, determinable amounts), the performance of a bank is affected more by changes in interest rates than by inflation. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not be the same. The effect of inflation on banks is normally not as significant as its influence on those businesses that have large investments in plants and inventories. During periods of high inflation there are normally corresponding increases in the money supply, and banks will normally experience above average growth in assets, loans, and deposits. Also, general increases in the price of goods and services can be expected to result in increased operating expenses.

A-4

Our business emphasis has been and continues to be to operate as a well-capitalized, profitable and independent community-oriented financial institution dedicated to providing quality customer service. We are committed to meeting the financial needs of the communities in which we operate. We expect growth to be achieved in our local markets and through expansion opportunities in contiguous or nearby markets. While we would be willing to consider growth by acquisition in certain circumstances, we do not consider the acquisition of another company to be necessary for our continued ability to provide a reasonable return to our shareholders. We believe that we can be more effective in serving our customers than many of our non-local competitors because of our ability to quickly and effectively provide senior management responses to customer needs and inquiries. Our ability to provide these services is enhanced by the stability and experience of our Bank officers and managers.

The Company does not have specific plans for additional offices in 2025 but will continue to look for growth opportunities in nearby markets and may expand if considered a worthwhile opportunity.

Summary of Critical Accounting Policies

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary, the Bank, along with the Bank’s wholly owned subsidiaries, Peoples Investment Services, Inc., Real Estate Advisory Services, Inc., Community Bank Real Estate Solutions, LLC and PB Real Estate Holdings, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. The following is a summary of the Company’s critical accounting policy, which is the most subjective and complex accounting policies of the Company. A more complete description of the Company’s significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements in the Company’s 2024 Annual Report to Shareholders which is Appendix A to the Proxy Statement for the May 1, 2025 Annual Meeting of Shareholders.

The allowance for credit losses reflects management’s assessment and estimate of the risks associated with extending credit and its evaluation of the quality of the loan portfolio. The Bank periodically analyzes the loan portfolio in an effort to review asset quality and to establish an allowance for credit losses that management believes will be adequate in light of anticipated risks and loan losses.

The collectability of loans is reflected through the Company’s estimate of the allowance for credit losses. The Company performs periodic and systematic detailed reviews of its lending portfolio to assess overall collectability. The Company’s internal models generally involve present value of cash flow techniques. The various techniques are discussed in greater detail elsewhere in this management’s discussion and analysis and the Notes to Consolidated Financial Statements.

Management of the Company has made a number of estimates and assumptions relating to reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the accompanying consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates.

A-5

Results of Operations

Summary. The Company reported net earnings of $16.4 million or $3.08 per share and $2.98 per diluted share for the year ended December 31, 2024, compared to $15.5 million or $2.87 per share and $2.77 per diluted share for the year ended December 31, 2023. The increase in net earnings is primarily attributable to an increase in non-interest income and a decrease in the provision for credit losses, which were partially offset by a decrease in net interest income and an increase in non-interest expense, compared to the prior year, as discussed below.

The Company reported net earnings of $15.5 million or $2.87 per share and $2.77 per diluted share for the year ended December 31, 2023, as compared to $16.1 million or $2.94 per share and $2.85 per diluted share for the year ended December 31, 2022.

The return on average assets in 2024 was 0.99%, as compared to 0.97% in 2023 and 2022. The return on average shareholders’ equity was 12.59% in 2024, as compared to 13.37% in 2023 and 13.01% in 2022.

Net Interest Income. Net interest income, the major component of the Company’s net income, is the amount by which interest and fees generated by interest-earning assets exceed the total cost of funds used to carry them. Net interest income is affected by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in the yields earned and rates paid. Net interest margin is calculated by dividing tax-equivalent net interest income by average interest-earning assets, and represents the Company’s net yield on its interest-earning assets.

Net interest income was $54.1 million for the year ended December 31, 2024, compared to $54.7 million for the year ended December 31, 2023. The decrease in net interest income is due to a $9.5 million increase in interest expense, partially offset by a $8.9 million increase in interest income. The increase in interest income reflects a $7.4 million increase in interest income and fees on loans, a $580,000 increase in interest income on balances due from banks and a $878,000 increase in interest income on investment securities. The increase in interest income and fees on loans is primarily due to an increase in total loans and rate increases implemented by the Federal Reserve between December 2022 and July 2023. The increase in interest income on balances due from banks is also due to an increase in average balances outstanding and Federal Reserve rate increases. The increase in interest income on investment securities is primarily due to increases in yields on variable rate securities and higher yields on securities held during the more recent reporting period. The increase in interest expense is due to an increase in balances of interest-bearing liabilities and an increase in rates paid on interest-bearing liabilities. Net interest income increased to $54.7 million in 2023 from $51.1 million in 2022.

Table 1 sets forth for each category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding, the interest incurred on such amounts and the average rate earned or incurred for the years ended December 31, 2024, 2023 and 2022. The table also sets forth the average rate earned on total interest-earning assets, the average rate paid on total interest-bearing liabilities, and the net yield on total average interest-earning assets for the same periods. Yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity. Yields and interest income on tax-exempt investments have been adjusted to a tax equivalent basis using an effective tax rate of 22.98% for securities that are both federal and state tax exempt and an effective tax rate of 20.48% for federal tax-exempt securities. Non-accrual loans and the interest income that was recorded on non-accrual loans, if any, are included in the yield calculations for loans in all periods reported. The Company believes the presentation of net interest income on a tax-equivalent basis provides comparability of net interest income from both taxable and tax-exempt sources and facilitates comparability within the industry. Although the Company believes these non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are presented below.

A-6

Table 1 - Average Balance Table
	December 31, 2024								December 31, 2023								December 31, 2022
(Dollars in thousands)	Average Balance			Interest		Yield / Rate			Average Balance			Interest		Yield / Rate			Average Balance			Interest		Yield / Rate
Interest-earning assets:
Loans receivable	$	1,113,488			62,920		5.65	%		1,061,075			55,507		5.23	%		949,175			43,077		4.54	%
Investments - taxable		431,205			14,592		3.38	%		436,114			13,374		3.07	%		399,036			7,159		1.79	%
Investments - nontaxable*		14,146			449		3.17	%		21,888			836		3.82	%		71,943			2,355		3.27	%
Due from banks		52,977			2,796		5.28	%		42,748			2,216		5.18	%		181,014			2,223		1.23	%
Total interest-earning assets		1,611,816			80,757		5.01	%		1,561,825			71,933		4.61	%		1,601,168			54,814		3.42	%
Cash and due from banks		30,207								35,772								36,778
Other assets		21,919								17,820								35,373
Allowance for credit losses		(10,586	)							(10,031	)							(9,654	)
Total assets	$	1,653,356								1,605,386								1,663,665
Interest-bearing liabilities:
Interest-bearing demand,
MMDA & savings deposits	$	699,690			10,237		1.46	%		689,795			6,731		0.98	%		824,955			2,019		0.24	%
Time deposits		346,246			14,316		4.13	%		228,309			7,916		3.47	%		99,880			562		0.56	%
Junior subordinated debentures		15,464			1,116		7.22	%		15,464			1,079		6.98	%		15,464			529		3.42	%
Other		33,299			985		2.96	%		69,911			1,417		2.03	%		39,016			213		0.55	%
Total interest-bearing liabilities		1,094,699			26,654		2.43	%		1,003,479			17,143		1.71	%		979,315			3,323		0.34	%
Demand deposits		420,029								477,162								555,278
Other liabilities		8,762								8,449								5,185
Shareholders' equity		129,866								116,296								123,887
Total liabilities and shareholder's equity	$	1,653,356								1,605,386								1,663,665
Net interest spread				$	54,103		2.58	%				$	54,790		2.90	%				$	51,491		3.08	%
Net yield on interest-earning assets							3.36	%							3.51	%							3.22	%
Taxable equivalent adjustment
Investment securities				$	24							$	71							$	383
Net interest income				$	54,079							$	54,719							$	51,108
*Includes U.S. Government agency securities that are non-taxable for state income tax purposes of $10.2 million in 2024, $11.7 million in 2023 and $13.3 million in 2022.  A tax rate of 2.50% was used to calculate the tax equivalent yields on these securities in 2024, 2023 and 2022.

Changes in interest income and interest expense can result from variances in both volume and rates. Table 2 describes the impact on the Company’s tax equivalent net interest income resulting from changes in average balances and average rates for the periods indicated. The changes in net interest income due to both volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

A-7

Table 2 - Rate/Volume Variance Analysis-Tax Equivalent Basis
	December 31, 2024									December 31, 2023
(Dollars in thousands)	Changes in average volume			Changes in average rates			Total Increase (Decrease)			Changes in average volume			Changes in average rates		Total Increase (Decrease)
Interest income:
Loans: Net of unearned income	$	2,852			4,561			7,413		$	5,466			6,964		12,430
Investments - taxable		(158	)		1,376			1,218			901			5,314		6,215
Investments - nontaxable		(271	)		(116	)		(387	)		(1,775	)		256		(1,519	)
Due from banks		535			45			580			(4,433	)		4,426		(7	)
Total interest income		2,958			5,866			8,824			159			16,960		17,119
Interest expense:
Interest-bearing demand,
MMDA & savings deposits		121			3,385			3,506			(825	)		5,537		4,712
Time deposits		4,483			1,917			6,400			2,588			4,766		7,354
Junior subordinated debentures		-			37			37			-			550		550
Other		(913	)		481			(432	)		397			807		1,204
Total interest expense		3,691			5,820			9,511			2,160			11,660		13,820
Net interest income	$	(733	)		46			(687	)	$	(2,001	)		5,300		3,299

Net interest income on a tax equivalent basis totaled $54.1 million in 2024, as compared to $54.8 million in 2023. The net interest spread, which represents the rate earned on interest-earning assets less the rate paid on interest-bearing liabilities, was 2.58% in 2024, as compared to 2.90% in 2023. The net yield on interest-earning assets was 3.36% in 2024 and 3.51% in 2023.

Tax equivalent interest income increased $8.8 million in 2024 primarily due to a $7.4 million increase in interest income and fees on loans, a $831,000 increase in tax equivalent interest income on investment securities, and a $580,000 increase in interest income on balances due from banks. The increase in interest income and fees on loans is primarily due to an increase in total loans and rate increases implemented by the Federal Reserve between December 2022 and July 2023. The increase in interest income on balances due from banks is also due to an increase in average balances outstanding and Federal Reserve rate increases. The increase in interest income on investment securities is primarily due to increases in yields on variable rate securities and higher yields on securities held during the more recent reporting period. The yield on interest-earning assets was 5.01% in 2024, as compared to 4.61% in 2023.

Interest expense totaled $26.7 million in 2024, as compared to $17.1 million in 2023. The increase in interest expense is due to an increase in increase in balances of interest-bearing liabilities and an increase in rates paid on interest-bearing liabilities. Average interest-bearing liabilities increased by $91.2 million to $1.09 billion in 2024, as compared to $1.00 billion in 2023. The cost of funds increased to 2.43% in 2024 from 1.71% in 2023.

In 2023, net interest income on a tax equivalent basis was $54.8 million, as compared to $51.5 million in 2022. The net interest spread was 2.90% in 2023, as compared to 3.08% in 2022. The net yield on interest-earning assets was 3.51% in 2023, as compared to 3.22% in 2022.

Provision for Credit Losses. Provisions for credit losses are charged to income in order to bring the total allowance for credit losses to a level deemed appropriate by management of the Company based on factors such as management’s judgment as to losses within the Bank’s loan portfolio, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies and management’s assessment of the quality of the loan portfolio and general economic climate.

The provision for credit losses for the year ended December 31, 2024 was a recovery of $285,000, compared to an expense of $1.6 million for the year ended December 31, 2023. Loan balances in 2024 increased by about $45.3 million, but decreases in balances for funded and unfunded loans with higher loss rates than other categories of loans in the portfolio resulted in a decrease in provision for the year ended December 31, 2024. The decrease in the provision for credit losses during the year ended December 31, 2024 is primarily attributable to a negative provision of $1.2 million related to funded and unfunded balance reductions of $37.9 million in construction loans being paid off or transitioning to permanent financing in loan categories within the portfolio with lower loss rates, a $385,000 negative provision for loans secured by owner-occupied real estate resulting from a recovery of $200,000, and offset by a $713,000 provision related to $432,000 in charge-offs of individually evaluated loans.

A-8

During the fourth quarter 2024 an update to the general forecast function in the model was set for all pools that projects the next four quarters to have similar loss rates to the period between December 2018 and February 2020, followed by a reversion to the long-term average over four quarters. This is intended to reflect the Bank's experience when the Federal Reserve began its last series of rate cuts beginning in July 2019 up to, but excluding, the two March 2020 cuts that occurred at the outset of COVID. This adjusted the previous general forecast function in the model during 2024 that utilized historical loss rates for the period between November 2015 and September 2019, reflecting a period of interest rate increases. The general forecast function adjustment resulted in a reduction of ACL for 2024 of approximately $409,000.

Net charge-offs for the year ended December 31, 2024 were $1.4 million, compared to $306,000 for the year ended December 31, 2023. The increase in net charge-offs during the year ended December 31, 2024, compared to the year ended December 31, 2023, is primarily due to commercial and industrial loan charge-offs of $432,000 during the year ended December 31 2024, which were previously reflected in reserves on individually evaluated loans.

The ratio of net charge-offs/(recoveries) to average total loans was 0.13% in 2024, 0.04% in 2023 and 0.03% in 2022. The allowance for credit losses was $10.0 million or 0.88% of total loans outstanding at December 31, 2024. For December 31, 2023 and 2022, the allowance for credit losses amounted to $11.0 million or 1.01% of total loans outstanding and $10.5 million, or 1.02% of total loans outstanding, respectively. The decrease as a percentage of total loans outstanding from December 31, 2023 to December 31, 2024 is primarily due to the general forecast function adjustment in 2024.

Table 3 presents a summary of net charge off activity for the years ended December 31, 2024, 2023 and 2022.

Table 3 - Net Charge-off Analysis
	Net charge-offs/(recoveries)									Net charge-offs/(recoveries) as a percent of average loans outstanding
	Years ended December 31,									Years ended December 31,
(Dollars in thousands)	2024			2023			2022			2024			2023			2022
Real estate loans
Construction and land development	$	-			-			-			0.00	%		0.00	%		0.00	%
Single-family residential		4			(171	)		(101	)		0.00	%		-0.05	%		-0.03	%
Commercial		(202	)		(6	)		(9	)		-0.05	%		0.00	%		0.00	%
Multifamily and farmland		-			-			-			0.00	%		0.00	%		0.00	%
Total real estate loans		(198	)		(177	)		(110	)		-0.02	%		-0.02	%		-0.01	%
Loans not secured by real estate
Commercial loans		1,078			62			(39	)		1.60	%		0.08	%		-0.05	%
Farm loans		-			-			-			0.00	%		0.00	%		0.00	%
Consumer loans (1)		445			421			482			6.57	%		6.07	%		7.27	%
All other loans		107			-			-			0.58	%		0.00	%		0.00	%
Total loans	$	1,432			306			333			0.13	%		0.04	%		0.03	%
Provision for (recovery of) credit losses
for the period	$	(285	)		1,566			1,472
Allowance for credit losses at end of period	$	9,995			11,041			10,494
Total loans at end of period	$	1,138,404			1,093,066			1,032,608
Non-accrual loans at end of period	$	440			3,887			3,728
Allowance for credit losses as a percent of
total loans outstanding at end of period		0.88	%		1.01	%		1.02	%
Non-accrual loans as a percent of
total loans outstanding at end of period		0.04	%		0.36	%		0.36	%
Allowance for credit losses as a percent of
nonaccrual loans at end of period		225.11	%		284.05	%		281.49	%
(1) The loss ratio for consumer loans is elevated because overdraft charge-offs related to DDA and NOW accounts are reported in consumer loan charge-offs and recoveries.  The net overdraft charge-offs are not considered material and are therefore not shown separately.

Please see the section below entitled “Allowance for Credit Losses” for a more complete discussion of the Bank’s policy for addressing potential loan losses.

A-9

Non-Interest Income. Non-interest income was $27.7 million for the year ended December 31, 2024, compared to $22.9 million for the year ended December 31, 2023. The increase in non-interest income is primarily attributable to a $2.5 million net loss on the sales of securities during the year ended December 31, 2023 compared to a $5,000 net gain on the sales of securities during the year ended December 31, 2024, and a $2.1 million increase in appraisal management fee income due to an increase in appraisal volume in 2024.

Non-interest income was $22.9 million for the year ended December 31, 2023, compared to $26.7 million for the year ended December 31, 2022. The decrease in non-interest income is primarily attributable to a $2.5 million net loss on the sales of securities and a $2.1 million decrease in appraisal management fee income due to a decrease in appraisal volume related to national trends in real estate purchases, which were partially offset by a $454,000 increase in miscellaneous non-interest income primarily due to an increase in income on mutual funds held in deferred compensation trust due to an increase in valuations for the assets in the deferred compensation plan.

The Company periodically evaluates its investments for credit losses. There were no credit losses on investments in 2024, 2023 or 2022.

Table 4 presents a summary of non-interest income for the years ended December 31, 2024, 2023 and 2022.

Table 4 - Non-Interest Income
(Dollars in thousands)	2024		2023			2022
Service charges	$	5,653	$	5,496		$	5,290
Other service charges and fees		685		697			734
Gain (loss) on sale of securities, net		5		(2,488	)		-
Mortgage banking income		357		301			393
Insurance and brokerage commissions		989		929			945
Gain/(loss) on sale of premises and equipment, net		-		184			(85	)
Bank owned life insurance income		783		432			458
Visa debit card income		4,417		4,717			4,901
Appraisal management fee income		11,691		9,592			11,663
Income on mutual funds held in deferred compensation trust		555		844			(183	)
Miscellaneous		2,580		2,210			2,573
Total non-interest income	$	27,715	$	22,914		$	26,689

Non-Interest Expense. Non-interest expense was $61.2 million for the year ended December 31, 2024, compared to $56.1 million for the year ended December 31, 2023. The increase in non-interest expense is primarily attributable to a $1.6 million increase in salaries and employee benefits expense primarily due to increases in salary and supplemental executive retirement plan expenses, a $724,000 increase in occupancy expense that includes a $362,000 write-off of leasehold improvements for the Bank’s branch in Cary, North Carolina, which was closed in June 2024, a $1.7 million increase in appraisal management fee expense due to an increase in appraisal volume and a $1.0 million increase in other non-interest expense primarily due to increases in consulting fees and debit card fraud expense.

Non-interest expense was $56.1 million for the year ended December 31, 2023 compared to $56.0 million for the year ended December 31, 2022. The increase in non-interest expense is primarily attributable to a $1.2 million increase in other non-interest expenses primarily due to an increase in deferred compensation expense due to an increase in valuations for the assets in the deferred compensation plan and a $510,000 increase in salaries and employee benefits expense primarily due to a reduction in the amortization of loan origination costs, which were partially offset by a $1.7 million decrease in appraisal management fee expense due to a decrease in appraisal volume related to national trends in real estate purchases.

A-10

Table 5 presents a summary of non-interest expense for the years ended December 31, 2024, 2023 and 2022.

Table 5 - Non-Interest Expense
(Dollars in thousands)	2024		2023		2022
Salaries and employee benefits	$	28,209	$	26,640	$	26,130
Occupancy expense		8,686		7,962		8,048
Office supplies		534		482		532
FDIC deposit insurance		764		745		461
Visa debit card expense		1,391		1,255		1,224
Professional services		673		673		451
Postage		202		237		238
Telephone		595		664		691
Director fees and expense		564		503		454
Advertising		791		750		693
Consulting fees		1,643		1,043		1,464
Taxes and licenses		202		143		277
Foreclosure/OREO expense		19		1		7
Internet banking expense		1,067		996		949
Appraisal management fee expense		9,263		7,559		9,264
Deferred comp expense (benefit)		555		844		(183	)
Other operating expense		5,992		5,647		5,330
Total non-interest expense	$	61,150	$	56,144	$	56,030

Income Taxes. The Company reported income tax expense of $4.6 million, $4.4 million and $4.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. The Company’s effective tax rates were 21.86%, 21.97 % and 20.56% in 2024, 2023 and 2022, respectively. Income tax expense for the year ended December 31, 2024 reflects the revaluation of the deferred tax asset due to planned reductions in the North Carolina corporate income tax rate, which will be phased out over a five year period, starting in 2025.

Liquidity. The objectives of the Company’s liquidity policy are to provide for the availability of adequate funds to meet the needs of loan demand, deposit withdrawals, maturing liabilities and to satisfy regulatory requirements. Both deposit and loan customer cash needs can fluctuate significantly depending upon business cycles, economic conditions and yields and returns available from alternative investment opportunities. In addition, the Company’s liquidity is affected by off-balance sheet commitments to lend in the form of unfunded commitments to extend credit and standby letters of credit. As of December 31, 2024, such unfunded commitments to extend credit were $348.9 million, while commitments in the form of standby letters of credit totaled $1.7 million.

The Company uses several funding sources to meet its liquidity requirements. The primary funding source is core deposits, a non-GAAP measure, which includes demand deposits, savings accounts and non-brokered certificates of deposits of denominations less than $250,000. Management believes it is useful to calculate and present core deposits because of the positive impact this low cost funding source provides to the Bank’s funding base The Company considers these to be a stable portion of the Company’s liability mix and the result of on-going consumer and commercial banking relationships. As of December 31, 2024, the Company’s core deposits totaled $1.34 billion, or 90% of total deposits.

The Bank’s two largest deposit relationships, including securities sold under agreements to repurchase, amounted to $117.0 million and $106.9 million at December 31, 2024 and 2023, respectively. These balances represent 7.88% of total deposits at December 31, 2024, as compared to 7.23% of total deposits and securities sold under agreements to repurchase combined at December 31, 2023.

The other sources of funding for the Company are through large denomination certificates of deposit, including brokered deposits, federal funds purchased, securities under agreement to repurchase and FHLB borrowings. The Bank is also able to borrow from the Federal Reserve Bank (“FRB”) on a short-term basis. The Bank’s policies include the ability to access wholesale funding up to 40% of total assets. The Bank’s wholesale funding includes FHLB borrowings, FRB borrowings, brokered deposits and internet certificates of deposit. The Bank did not have any wholesale funding at December 31, 2024.

The Bank has a line of credit with the FHLB equal to 20% of the Bank’s total assets, with no balances outstanding at December 31, 2024. At December 31, 2024, the carrying value of loans pledged as collateral totaled approximately $232.9 million. The availability under the line of credit with the FHLB was $131.9 million at December 31, 2024. The Bank had no borrowings from the FRB at December 31, 2024. FRB borrowings are collateralized by a blanket assignment on all qualifying loans that the Bank owns that are not pledged to the FHLB. At December 31, 2024, the carrying value of loans pledged as collateral to the FRB totaled approximately $637.9 million. Availability under the line of credit with the FRB was $511.9 million at December 31, 2024.

A-11

The Bank also had the ability to borrow up to $110.5 million for the purchase of overnight federal funds from five correspondent financial institutions as of December 31, 2024.

The liquidity ratio for the Bank, which is defined as net cash, interest-bearing deposits with banks, federal funds sold and certain investment securities, as a percentage of net deposits and short-term liabilities was 28.16%, 25.39% and 30.32% at December 31, 2024, 2023 and 2022, respectively. The minimum required liquidity ratio as defined in the Bank’s Asset/Liability and Interest Rate Risk Management Policy for on balance sheet liquidity was 10% at December 31, 2024, 2023 and 2022.

As disclosed in the Company’s Consolidated Statements of Cash Flows, net cash provided by operating activities was $20.6 million during 2024. Net cash used in investing activities was $42.6 million during 2024 and net cash used by financing activities was $1.0 million during 2024.

Asset Liability and Interest Rate Risk Management. The objective of the Company’s Asset Liability and Interest Rate Risk strategies is to identify and manage the sensitivity of net interest income to changing interest rates and to minimize the interest rate risk between interest-earning assets and interest-bearing liabilities at various maturities. This is done in conjunction with the need to maintain adequate liquidity and the overall goal of maximizing net interest income. Table 6 presents an interest rate sensitivity analysis for the interest-earning assets and interest-bearing liabilities for the year ended December 31, 2024.

Table 6 - Interest Sensitivity Analysis
(Dollars in thousands)	Immediate			1-3 months			4-12 months			Total Within One Year			Over One Year & Non-sensitive		Total
Interest-earning assets:
Loans	$	194,074			4,229			15,485			213,788			924,616		1,138,404
Mortgage loans held for  sale		1,367			-			-			1,367			-		1,367
Investment securities available for sale		-			86,320			7,615			93,935			294,068		388,003
Interest-bearing deposit accounts		28,347			-			-			28,347			-		28,347
Other interest-earning assets		-			-			-			-			3,192		3,192
Total interest-earning assets		223,788			90,549			23,100			337,437			1,221,876		1,559,313
Interest-bearing liabilities:
NOW, savings, and money market deposits		741,363			-			-			741,363			-		741,363
Time deposits		32,625			74,148			218,188			324,961			16,153		341,114
Trust preferred securities		-			15,464			-			15,464			-		15,464
Total interest-bearing liabilities		773,988			89,612			218,188			1,081,788			16,153		1,097,941
Interest-sensitive gap	$	(550,200	)		937			(195,088	)		(744,351	)		1,205,723		461,372
Cumulative interest-sensitive gap	$	(550,200	)		(549,263	)		(744,351	)		(744,351	)		461,372
Interest-earning assets as a percentage of interest-bearing liabilities		28.91	%		101.05	%		10.59	%		31.19	%		7,564.39	%

The Company manages its exposure to fluctuations in interest rates through policies established by the Asset/Liability Committee (“ALCO”) of the Bank. The ALCO meets quarterly and has the responsibility for approving asset/liability management policies, formulating and implementing strategies to improve balance sheet positioning and/or earnings and reviewing the interest rate sensitivity of the Company. The ALCO seeks to minimize interest rate risk between interest-earning assets and interest-bearing liabilities by attempting to minimize wide fluctuations in net interest income due to interest rate movements. The ability to control these fluctuations has a direct impact on the profitability of the Company. Management monitors this activity on a regular basis through analysis of its portfolios to determine the difference between rate sensitive assets and rate sensitive liabilities.

The Company’s rate sensitive assets are those earning interest at variable rates and those with contractual maturities within one year. Rate sensitive assets therefore include both loans and available for sale (“AFS”) securities. Rate sensitive liabilities include interest-bearing checking accounts, money market deposit accounts, savings accounts, time deposits and borrowed funds. At December 31, 2024, rate sensitive assets and rate sensitive liabilities totaled $1.61 billion and $1.09 billion, respectively.

A-12

Included in the rate sensitive assets are $189.4 million in variable rate loans indexed to prime rate subject to immediate repricing upon changes by the FOMC. The Bank utilizes interest rate floors on certain variable rate loans to protect against further downward movements in the prime rate. At December 31, 2024, the Bank had $127.2 million in loans with interest rate floors. No floors were in effect on these loans at December 31, 2024.

An analysis of the Company’s financial condition and growth can be made by examining the changes and trends in interest-earning assets and interest-bearing liabilities. A discussion of these changes and trends follows.

Analysis of Financial Condition

Investment Securities. The composition of the investment securities portfolio reflects the Company’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of income. The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits.

All of the Company’s investment securities are held in the available for sale (“AFS”) category. At December 31, 2024 the market value of AFS securities totaled $388.0 million, as compared to $391.9 million at December 31, 2023.

The Company’s investment portfolio consists of U.S. Government sponsored enterprise securities, municipal securities, U.S. Treasury securities, U.S. Government sponsored enterprise mortgage-backed securities, private label mortgage-backed securities, trust preferred securities and equity securities. AFS securities averaged $442.1 million in 2024 and $454.8 million in 2023.

Table 7 presents the book value of AFS securities held by the Company by maturity category at December 31, 2024. Yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity. Yields are calculated on a tax equivalent basis. Yields and interest income on tax-exempt investments have been adjusted to a tax equivalent basis using an effective tax rate of 22.98% for securities that are both federal and state tax exempt and an effective tax rate of 20.48% for federal tax-exempt securities.

Table 7 - Maturity Distribution and Weighted Average Yield on Investments
						After One Year					After 5 Years
	One Year or Less					Through 5 Years					Through 10 Years					After 10 Years					Totals
(Dollars in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Book value:
U.S. Treasuries		-		-			7,257		1.20	%		-		-			-		-			7,257		1.20	%
U.S. Government sponsored enterprises		2,991		3.02	%		198		1.78	%		4,416		2.68	%		1,127		6.52	%		8,732		3.46	%
GSE - Mortgage-backed securities		-		-			5,052		2.19	%		24,836		2.17	%		195,904		3.88	%		225,792		3.58	%
Private label mortgage-backed securities		5,000		5.60	%		-		-			-		-			36,767		5.24	%		41,767		5.27	%
State and political subdivisions		-		-			11,452		2.58	%		55,574		2.07	%		37,429		1.88	%		104,455		1.85	%
Total securities	$	7,991		4.31	%		23,959		2.09	%		84,826		2.35	%		271,227		4.23	%		388,003		3.25	%

Loans. The loan portfolio is the largest category of the Company’s earning assets and is comprised of commercial loans, real estate mortgage loans, real estate construction loans and consumer loans. The Bank makes loans and extensions of credit primarily within the Catawba Valley region of North Carolina, which encompasses Catawba, Alexander, Iredell and Lincoln counties and also in Mecklenburg, Wake, Rowan and Forsyth counties in North Carolina.

Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by real estate, which is dependent upon the real estate market. Real estate mortgage loans include both commercial and residential mortgage loans. At December 31, 2024, the Bank had $121.5 million in residential mortgage loans, $115.0 million in home equity loans and $688.5 million in commercial mortgage loans, which include $541.1 million secured by commercial property and $147.4 million secured by residential property. All residential mortgage loans are originated as fully amortizing loans, with no negative amortization. The Bank also had construction and land development loans totaling $122.3 million at December 31, 2024.

The mortgage loans originated in the traditional banking offices are generally 15–30 year fixed rate loans with attributes that prevent the loans from being sellable in the secondary market. These factors may include higher loan-to-value ratio, limited documentation on income, non-conforming appraisal or non-conforming property type. These loans are generally made to existing Bank customers and have been originated throughout the Bank’s seven county service area, with no geographic concentration.

A-13

As of December 31, 2024, gross loans outstanding were $1.14 billion, as compared to $1.09 billion at December 31, 2023. Average loans represented 69% and 68% of average total earning assets for the years ended December 31, 2024 and 2023, respectively. The Bank had $1.4 million and $686,000 in mortgage loans held for sale as of December 31, 2024 and 2023, respectively.

Table 8 identifies the maturities of all loans as of December 31, 2024 and addresses the sensitivity of these loans to changes in interest rates.

Table 8 - Maturity and Repricing Data for Loans
(Dollars in Thousands)	Within one year or less		After one year through five years		After five years through 15 years		After 15 years		Total Loans
Real estate loans
Construction and land development	$	39,182	$	58,438	$	24,388	$	320	$	122,328
Single-family residential		134,740		132,315		71,864		45,590		384,509
Commercial		52,377		325,983		88,958		4,126		471,444
Multifamily and farmland		6,593		25,140		20,774		17,164		69,671
Total real estate loans		232,892		541,876		205,984		67,200		1,047,952
Commercial loans (not secured by real estate)		23,389		23,863		16,585		-		63,837
Farm loans (not secured by real estate)		151		131		119		-		401
Consumer loans (not secured by real estate)		2,589		3,150		736		-		6,475
All other loans (not secured by real estate)		12,195		6,560		984		-		19,739
Total loans	$	271,216	$	575,580	$	224,408	$	67,200	$	1,138,404
Total fixed rate loans	$	57,428	$	557,284	$	190,123	$	67,200	$	872,035
Total floating rate loans		213,788		18,296		34,285				266,369
Total loans	$	271,216	$	575,580	$	224,408	$	67,200	$	1,138,404

In the normal course of business, there are various commitments outstanding to extend credit that are not reflected in the financial statements. At December 31, 2023, outstanding loan commitments totaled $367.5 million. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Additional information regarding commitments is provided below in the section entitled “Commitments and Contingencies” and in Note 11 to the Consolidated Financial Statements.

Allowance for Credit Losses (ACL). The allowance for credit losses reflects management’s assessment and estimate of the risks associated with extending credit and its evaluation of the quality of the loan portfolio. The Bank periodically analyzes the loan portfolio in an effort to review asset quality and to establish an allowance that management believes will be adequate in light of anticipated risks and loan losses. In assessing the adequacy of the allowance, size, quality and risk of loans in the portfolio are reviewed.

The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of December 31, 2024. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company calculates the allowance for credit losses using a Weighted Average Remaining Maturity (“WARM”) methodology.

A-14

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or decrease reserve levels and include adjustments for: local, state and national economic outlook; levels and trends of delinquencies; trends in volume, mix and size of loans; seasoning of the loan portfolio; experience of staff; concentrations of credit; and interest rate risk.

The portion of the ACL balance attributable to qualitative factors was $5.2 million at December 31, 2024 and December 31, 2023. The risk factors are weighted as follows: Local, State and National Economic Outlook – 30%, Concentrations of Credit – 5%, Interest Rate Risk – 5%, Trends in Terms of Volume, Mix and Size of Loans – 15%, Seasoning of the Loan Portfolio – 10%, Experience of Staff – 10%, and Levels and Trends of Delinquencies – 25%. No changes to the risk status of any of the risk factors was made during year ended 2024.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. There were no loans individually evaluated as of December 31, 2024, and two loans totaling $432,000 were individually evaluated as of December 31, 2023, which were fully reserved for at December 31, 2023.

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments represents the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

The allowance for credit losses on unfunded commitments was $1.1 million at December 31, 2024, compared to $1.8 million at December 31, 2023. The decrease in the allowance for credit losses on unfunded commitments was primarily due to a $503,000 decrease in the allowance for other construction loans and all land development and other land loans resulting from a $19.6 million decrease in unfunded commitments in this category during the year ended December 31, 2024.

Management uses several measures to assess and monitor the credit risks in the loan portfolio, including a loan grading system that begins upon loan origination and continues until the loan is collected or collectability becomes doubtful. Upon loan origination, the Bank’s originating loan officer evaluates the quality of the loan and assigns one of eight risk grades. The loan officer monitors the loan’s performance and credit quality and makes changes to the credit grade as conditions warrant. When originated or renewed, all loans over a certain dollar amount receive in-depth reviews and risk assessments by the Bank’s Credit Administration. Before making any changes in these risk grades, management considers assessments as determined by the third-party credit review firm (as described below), regulatory examiners and the Bank’s Credit Administration. Any issues regarding the risk assessments are addressed by the Bank’s senior credit administrators and factored into management’s decision to originate or renew the loan. The board of directors of the Bank (the “Bank Board”) reviews, on a monthly basis, an analysis of the Bank’s reserves relative to the range of reserves estimated by the Bank’s Credit Administration.

As an additional measure, the Bank engages an independent third party to review the underwriting, documentation and risk grading analyses. This independent third party reviews and evaluates loan relationships greater than or equal to $1.5 million as well as a periodic sample of commercial relationships with exposures below $1.5 million, excluding loans in default, and loans in process of litigation or liquidation. The third party’s evaluation and report is shared with management and the Bank Board.

Since the adoption of Current Expected Credit Loss (“CECL”) methodology on January 1, 2023, the allowance for credit losses represents management’s estimate of credit losses for the remaining estimated life of the Bank’s financial assets, including loan receivables and some off-balance sheet credit exposures. Estimating the amount of the allowance for credit losses requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet. Credit losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

A-15

There are many factors affecting the allowance for credit losses; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.

Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. Such agencies may require adjustments to the allowance based on their judgments of information available to them at the time of their examinations. Management believes it has established the allowance for credit losses pursuant to CECL, and has taken into account the views of its regulators and the current economic environment. Management considers the allowance adequate to cover the estimated losses inherent in the Bank’s loan portfolio as of the date of the financial statements. Although management uses the best information available to make evaluations, significant future additions to the allowance may be necessary based on changes in economic and other conditions, thus adversely affecting the operating results of the Company.

Table 9 presents an analysis of the allowance for loan losses, including charge-off activity.

Table 9 - Analysis of Allowance for Credit Losses
(Dollars in thousands)	2024			2023			2022
Allowance for Credit losses at beginning of year	$	12,811		$	10,494		$	9,355
Adjustment for CECL implementation		-			1,058			-
Real estate loans:
Single-family residential		131			-			128
Total real estate loans		131			-			128
Loans not secured by real estate:
Commercial loans		1,134			129			33
Consumer loans		716			569			591
Total chargeoffs		1,981			698			752
Recoveries of losses previously charged off:
Real estate loans:
Single-family residential		129			171			229
Commercial		202			6			9
Total real estate loans		331			177			238
Loans not secured by real estate:
Commercial loans		55			67			72
Consumer loans		165			147			109
Total recoveries		551			391			419
Net loans charged off		1,430			307			333
Provision for (recovery of)credit losses		(285	)		1,566			1,472
Allowance for credit losses at end of year	$	11,096		$	12,811		$	10,494
Allowance for credit loss-loans	$	9,995		$	11,041		$	-
Alowance for credit loss-unfunded loan commitments		1,101			1,770			-
Total allowance for credit losses	$	11,096		$	12,811		$	-
Loans charged off net of recoveries, as
a percent of average loans outstanding		0.13	%		0.03	%		0.04	%
Allowance for loan losses as a percent
of total loans outstanding at end of year		0.88	%		1.01	%		1.02	%

A-16

Table 10 presents the allocation of the allowance for credit losses on loans at December 31, 2024.

Table 10 - Allocation of Allowance for Credit Losses on Loans
(Dollars in thousands)
	December 31, 2024		Percent of Total Loans In Category to Total Loans Outstanding			December 31, 2023		Percent of Total Loans In Category to Total Loans Outstanding			December 31, 2022		Percent of Total Loans In Category to Total Loans Outstanding
Construction and land development	$	3,385		11	%		3,913		12	%		1,415		11	%
Single-family residential		3,386		34	%		3,484		34	%		3,085		33	%
Commercial		2,322		41	%		2,317		39	%		3,207		39	%
Multifamily and farmland		246		6	%		268		6	%		164		6	%
Commercial		446		5	%		812		6	%		657		8	%
Farm		1		0	%		2		0	%		-		0	%
Consumer		134		1	%		150		1	%		204		1	%
All other		75		2	%		95		2	%		1,762		2	%
Total allowance for credit losses on loans	$	9,995		100	%		11,041		100	%		10,494		100	%

Non-performing Assets. Non-performing assets were $4.8 million or 0.29% of total assets at December 31, 2024, compared to $3.9 million or 0.24% of total assets December 31, 2023. Non-accrual loans over $250,000 are individually evaluated for specific reserves. Non-performing assets include $3.7 million in residential mortgage loans, $463,000 in commercial mortgage loans, $257,000 in other loans, and $369,000 in other real estate owned at December 31, 2024, compared to $3.3 million in residential mortgage loans, $76,000 in commercial mortgage loans, and $464,000 in other loans at December 31, 2023. The Bank had no other real estate owned at December 31, 2023. The Bank had no repossessed assets as of December 31, 2024 and 2023.

At December 31, 2024, the Bank had non-performing loans, defined as non-accrual and accruing loans past due more than 90 days, of $4.4 million or 0.39% of total loans. Non-performing loans at December 31, 2023 were $3.9 million or 0.36% of total loans.

Management continually monitors the loan portfolio to ensure that all loans potentially having a material adverse impact on future operating results, liquidity or capital resources have been classified as non-performing. Should economic conditions deteriorate, the inability of distressed customers to service their existing debt could cause higher levels of non-performing loans. Management expects the future level of non-accrual loans to continue to be in-line with the level of non-accrual loans at December 31, 2024 and 2023.

It is the general policy of the Bank to stop accruing interest income when a loan is placed on non-accrual status and any interest previously accrued but not collected is reversed against current income. Generally, a loan is placed on non-accrual status when it is over 90 days past due and there is reasonable doubt that all principal will be collected.

Deposits. The Bank primarily uses deposits to fund its loan and investment portfolios. The Bank offers a variety of deposit accounts to individuals and businesses. Deposit accounts include checking, savings, money market and time deposits. Deposits were $1.48 billion as of December 31, 2024, compared to $1.39 billion as of December 31, 2023. Core deposits, a non-GAAP measure, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations of $250,000 or less, were $1.34 billion at December 31, 2024, compared to $1.24 billion at December 31, 2023. Management believes it is useful to calculate and present core deposits because of the positive impact this low cost funding source provides to the Bank’s overall cost of funds and profitability.

Certificates of deposit in amounts of more than $250,000 totaled $145.9 million at December 31, 2024, compared to $148.9 million at December 31, 2023. Other time deposits totaled $195.2 million at December 31, 2024, compared to $190.2 million at December 31, 2023.

Table 11 is a summary of the maturity distribution of time deposits in amounts of more than $250,000 as of December 31, 2024.

Table 11 - Maturities of Time Deposits over $250,000
(Dollars in thousands)	2024
Three months or less	$	43,504
Over three months through six months		99,032
Over six months through twelve months		3,146
Over twelve months		257
Total	$	145,939

A-17

Estimated uninsured deposits totaled $396.5 million, or 26.71% of total deposits, at December 31, 2024, compared to $382.1 million, or 27.45% of total deposits, at December 31, 2023. Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance limits. The Bank did not have any significant deposit concentrations based on the North American Industry Classification System at December 31, 2024 and 2023. The Bank has two customer relationships that had deposits totaling $117.0 million, or 7.88% of total deposits, at December 31, 2024, and $106.9 million, or 7.68% of total deposits, at December 31, 2023.

Borrowed Funds. The Bank has access to various short-term borrowings, including the purchase of federal funds and borrowing arrangements from the FHLB and other financial institutions. There were no FHLB borrowings outstanding at December 31, 2024 and 2023. Average FHLB borrowings for 2024 and 2023 were zero. Additional information regarding FHLB borrowings is provided in Note 7 to the Consolidated Financial Statements.

The Bank had no borrowings from the FRB at December 31, 2024 and 2023. FRB borrowings are collateralized by a blanket assignment on all qualifying loans that the Bank owns which are not pledged to the FHLB.

Securities sold under agreements to repurchase were zero at December 31, 2024, compared to $86.7 million at December 31, 2023. The decrease in securities sold under agreements to repurchase is due to customers transferring funds from securities sold under agreements to repurchase to deposits held via the IntraFi network’s Insured Cash Sweep (“ICS”) program during the year ended December 31, 2024.

Junior subordinated debentures were $15.5 million at December 31, 2024 and December 31, 2023.

Contractual Obligations and Off-Balance Sheet Arrangements. The Company’s contractual obligations include junior subordinated debentures, as well as certain payments under current lease agreements. Other commitments include commitments to extend credit.

The Company enters into derivative contracts to manage various financial risks. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. Derivative contracts are written in amounts referred to as notional amounts, which only provide the basis for calculating payments between counterparties and are not a measure of financial risk. Therefore, the derivative amounts recorded on the balance sheet do not represent the amounts that may ultimately be paid under these contracts. Further discussions of derivative instruments are included above in the section entitled “Asset Liability and Interest Rate Risk Management” beginning on page A-12 and in Note 1 to the Consolidated Financial Statements. There were no derivatives at December 31, 2024 or 2023.

Capital Resources. Shareholders’ equity was $130.6 million, or 7.90% of total assets, at December 31, 2024, compared to $121.0 million, or 7.40% of total assets, at December 31, 2023.

Average shareholders’ equity as a percentage of total average assets was 7.85%, 7.24% and 7.45% for 2024, 2023 and 2022, respectively. The return on average shareholders’ equity was 12.59% at December 31, 2024, as compared to 13.37% and 13.01% at December 31, 2023 and December 31, 2022, respectively. Total cash dividends paid on common stock were $5.0 million, $5.1 million and $4.9 million during 2024, 2023 and 2022, respectively.

The Board of Directors, at its discretion, can issue up to 5,000,000 shares of preferred stock. The Board is authorized to determine the number of shares, voting powers, designations, preferences, limitations and relative rights.

In the first quarter of 2023, the Board of Directors authorized a stock repurchase program, whereby up to $2.0 million was allocated to repurchase the Company’s common stock. In the fourth quarter of 2023, the Board of Directors authorized an additional $2.0 million to be allocated to repurchase the Company’s common stock, which increased the total amount authorized in 2023 to $4.0 million. The Company repurchased approximately $4.0 million, or 181,022 shares of its common stock, under this stock repurchase program through March 31, 2024, when the program expired.

In June of 2024, the Board of Directors authorized a stock repurchase program, whereby up to $2.0 million may be allocated to repurchase the Company’s common stock. Any purchases under the Company’s stock repurchase program may be made periodically as permitted by securities laws and other legal requirements in the open market or in privately-negotiated transactions. The timing and amount of any repurchase of shares will be determined by the Company’s management, based on its evaluation of market conditions and other factors. The stock repurchase program may be suspended at any time or from time-to-time without prior notice. The Company had not repurchased any shares of its common stock under this stock repurchase program as of December 31, 2024.

A-18

In 2013, the FRB approved its final rule on the Basel III capital standards, which implement changes to the regulatory capital framework for banking organizations. The Basel III capital standards, which became effective January 1, 2015, include new risk-based capital and leverage ratios, which were phased in from 2015 to 2019. The new minimum capital level requirements applicable to the Company and the Bank under the final rules are as follows: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total risk based capital ratio of 8% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 4% (unchanged from previous rules). An additional capital conservation buffer was added to the minimum requirements for capital adequacy purposes beginning on January 1, 2016 and was phased in through 2019 (increasing by 0.625% on January 1, 2016 and each subsequent January 1, until it reached 2.5% on January 1, 2019). This resulted in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under the final rules, institutions would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained earnings that could be utilized for such actions.

Under the regulatory capital guidelines, financial institutions are currently required to maintain a total risk-based capital ratio of 8.0% or greater, with a Tier 1 risk-based capital ratio of 6.0% or greater and a common equity Tier 1 capital ratio of 4.5% or greater, as required by the Basel III capital standards referenced above. Tier 1 capital is generally defined as shareholders’ equity and trust preferred securities less all intangible assets and goodwill. Tier 1 capital includes $15.0 million in trust preferred securities at December 31, 2024 and December 31, 2023. The Company’s Tier 1 capital ratio was 14.47% and 13.94% at December 31, 2024 and December 31, 2023, respectively. Total risk-based capital is defined as Tier 1 capital plus supplementary capital. Supplementary capital, or Tier 2 capital, consists of the Company’s allowance for credit losses, not exceeding 1.25% of the Company’s risk-weighted assets. Total risk-based capital ratio is therefore defined as the ratio of total capital (Tier 1 capital and Tier 2 capital) to risk-weighted assets. The Company’s total risk-based capital ratio was 15.34% and 14.96% at December 31, 2024 and December 31, 2023, respectively. The Company’s common equity Tier 1 capital consists of common stock and retained earnings. The Company’s common equity Tier 1 capital ratio was 13.29% and 12.75% at December 31, 2024 and December 31, 2023, respectively. Financial institutions are also required to maintain a leverage ratio of Tier 1 capital to total average assets of 4.0% or greater. The Company’s Tier 1 leverage capital ratio was 10.88% and 10.51% at December 31, 2024 and December 31, 2023, respectively.

The Bank’s Tier 1 risk-based capital ratio was 14.35% and 13.83% at December 31, 2024 and December 31, 2023, respectively. The total risk-based capital ratio for the Bank was 15.22% and 14.85% at December 31, 2024 and December 31, 2023, respectively. The Bank’s common equity Tier 1 capital ratio was 14.35% and 13.83% at December 31, 2024 and December 31, 2023, respectively. The Bank’s Tier 1 leverage capital ratio was 10.71% and 10.35% at December 31, 2024 and December 31, 2023, respectively.

A bank is considered to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a common equity Tier 1 capital ratio of 6.5% or greater and a leverage ratio of 5.0% or greater. Based upon these guidelines, the Bank was considered to be “well capitalized” at December 31, 2024.

A-19

PEOPLES BANCORP OF NORTH CAROLINA, INC.
Consolidated Financial Statements
December 31, 2024, 2023 and 2022
INDEX
	PAGE(S)
Reports of Independent Registered Public Accounting Firm on the Consolidated Financial Statements	A-20- A-24
Financial Statements
Consolidated Balance Sheets at December 31, 2024 and 2023	A-25
Consolidated Statements of Earnings for the years ended December 31, 2024, 2023 and 2022	A-26
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2024, 2023 and 2022	A-27
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2024, 2023 and 2022	A-28
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022	A-29 - A-30
Notes to Consolidated Financial Statements	A-31 - A-63

A-20

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors

Peoples Bancorp of North Carolina, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Peoples Bancorp of North Carolina, Inc. (the “Company”) as of December 31, 2024, the related consolidated statements of earnings, comprehensive income (loss), changes in shareholders’ equity and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments to the 2023 and 2022 financial statements to retrospectively apply the change in accounting for segment reporting, as described in Note 16. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2023 and 2022 financial statements of the Company other than with respect to these adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2023 and 2022 financial statements taken as a whole.

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 audits.

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 audits 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.

Our audits 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 include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits 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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.  The communication of the critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

A-21

Allowance for Credit Losses on Loans

As further described in Notes 1 and 3 to the consolidated financial statements, the Company’s loan portfolio and the associated allowance for credit losses (“ACL”) were $1.14 billion and $10.0 million as of December 31, 2024, respectively. The ACL measures expected credit losses on a collective pool basis when similar risk characteristics exist. The Company calculates the ACL using a Weighted Average Remaining Maturity (“WARM”) methodology. The calculation of the ACL also includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience.  These qualitative adjustments may increase or reduce reserve levels and include adjustments for: local, state and national economic outlook; levels and trends of delinquencies; trends in volume, mix and size of loans; seasoning of the loan portfolio; experience of staff; concentrations of credit; and interest rate risk.

We identified the allowance for credit losses, and more specifically the qualitative factor adjustments applied in the allowance, as a critical audit matter. The principal consideration for our determination of the qualitative factor adjustments as a critical audit matter is the high degree of judgment and subjectivity relating to management’s identification and measurement of the qualitative factors. Therefore, applying audit procedures required a higher degree of auditor judgment and subjectivity due to the nature and extent of audit evidence and effort required to address this matter.

The primary audit procedures we performed to address this critical audit matter included:

· Obtained an understanding of the Company’s process for establishing the ACL, including the identification, basis for development and related adjustments of the qualitative factor components of the ACL.

· Evaluated the reasonableness of management’s application of qualitative factors to the ACL, including the comparison of factors considered by management to third party or internal sources, where applicable, as well as evaluated the appropriateness of the qualitative factor adjustments.

· Evaluated the mathematical accuracy of the ACL, including the mathematical application of the qualitative adjustments on the loan segments and the reasonableness of assumptions and judgments used in the forecast components.

/s/ Forvis Mazars, LLP

We have served as the Company’s auditor since 2024.

Charlotte, North Carolina

March 12, 2025

A-22

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Peoples Bancorp of North Carolina, Inc.

Opinion on the Financial Statements

We have audited, before the effects of the adjustments to retrospectively apply the changes in the Company's disclosures about segments and related information in Note 16, the accompanying consolidated balance sheet of Peoples Bancorp of North Carolina, Inc. and its subsidiaries (the Company) as of December 31, 2023, the related consolidated statements of earnings, comprehensive income (loss), changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). The 2023 financial statements before the effects of the adjustments described in Note 16 are not presented herein. In our opinion, before the effects of the adjustments to retrospectively apply the changes in the Company's disclosures about segments and related information in Note 16, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to retrospectively apply the changes in the Company's disclosures about segments and related information in Note 16 and, accordingly we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

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 audits. 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.

A-23

We conducted our audits 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. Our audits 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 audits 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, PLLC

We served as the Company’s auditor from 2015 to 2023.

Raleigh, North Carolina

March 7, 2024

A-24

PEOPLES BANCORP OF NORTH CAROLINA, INC.
Consolidated Balance Sheets
December 31, 2024 and December 31, 2023
(Dollars in thousands)
	December 31,			December 31,
Assets	2024			2023
	(Audited)			(Audited)
Cash and due from banks	$	30,919			32,819
Interest-bearing deposits		28,347			49,556
Cash and cash equivalents		59,266			82,375
Investment securities available for sale		388,003			391,924
Other investments		2,728			2,874
Total securities		390,731			394,798
Mortgage loans held for sale		1,367			686
Loans		1,138,404			1,093,066
Less allowance for credit losses		(9,995	)		(11,041	)
Net loans		1,128,409			1,082,025
Premises and equipment, net		14,847			16,702
Cash surrender value of life insurance		17,675			18,134
Other real estate		369			-
Right of use lease asset		4,013			4,731
Accrued interest receivable and other assets		35,285			36,459
Total assets	$	1,651,962			1,635,910
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	$	402,254			432,687
Interest-bearing demand, MMDA & savings		741,363			620,244
Time, over $250,000		145,939			148,904
Other time		195,175			190,210
Total deposits		1,484,731			1,392,045
Securities sold under agreements to repurchase		-			86,715
Junior subordinated debentures		15,464			15,464
Lease liability		4,136			4,832
Accrued interest payable and other liabilities		17,068			15,838
Total liabilities		1,521,399			1,514,894
Commitments and Contingencies
Shareholders' equity:
Preferred stock, no par value; authorized 5,000,000 shares; no shares issued and outstanding		-			-
Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,457,646 shares at December 31, 2024 and 5,534,499 shares at December 31, 2023		48,658			50,625
Common stock held by deferred compensation trust, at cost; 158,580 shares at December 31, 2024 and 163,702 shares at December 31, 2023		(1,757	)		(1,910	)
Deferred compensation		1,757			1,910
Retained earnings		121,062			109,756
Accumulated other comprehensive loss		(39,157	)		(39,365	)
Total shareholders' equity		130,563			121,016
Total liabilities and shareholders' equity	$	1,651,962			1,635,910
See accompanying Notes to Consolidated Financial Statements.

A-25

PEOPLES BANCORP OF NORTH CAROLINA, INC.
Consolidated Statements of Earnings
For the Years Ended December 31, 2024, 2023 and 2022
(Dollars in thousands, except per share amounts)
	2024			2023			2022
	(Audited)			(Audited)			(Audited)
Interest income:
Interest and fees on loans	$	62,920			55,507			43,077
Interest on due from banks		2,796			2,216			2,223
Interest on investment securities:
U.S. Government sponsored enterprises		9,979			9,365			4,150
States and political subdivisions		2,779			2,949			4,075
Other		2,259			1,825			906
Total interest income		80,733			71,862			54,431
Interest expense:
Now, MMDA & savings deposits		10,237			6,731			2,019
Time deposits		14,316			7,916			562
Junior subordinated debentures		1,116			1,079			529
Other		985			1,417			213
Total interest expense		26,654			17,143			3,323
Net interest income		54,079			54,719			51,108
Provision for (recovery of) credit losses		(285	)		1,566			1,472
Net interest income after provision for credit losses		54,364			53,153			49,636
Non-interest income:
Service charges		5,653			5,496			5,290
Other service charges and fees		685			697			734
Gain ( loss) on sale of securities, net		5			(2,488	)		-
Mortgage banking income		357			301			393
Insurance and brokerage commissions		989			929			945
Appraisal management fee income		11,691			9,592			11,663
Gain (loss) on sale of premises and equipment		-			184			(85	)
Miscellaneous		8,335			8,203			7,749
Total non-interest income		27,715			22,914			26,689
Non-interest expense:
Salaries and employee benefits		28,209			26,640			26,130
Occupancy		8,686			7,962			8,048
Professional fees		2,316			1,716			1,915
Advertising		791			750			693
Debit card expense		1,391			1,255			1,224
FDIC insurance		764			745			461
Appraisal management fee expense		9,263			7,559			9,264
Other		9,730			9,517			8,295
Total non-interest expense		61,150			56,144			56,030
Earnings before income taxes		20,929			19,923			20,295
Income tax expense		4,576			4,377			4,172
Net earnings	$	16,353			15,546			16,123
Basic net earnings per share	$	3.08			2.87			2.94
Diluted net earnings per share	$	2.98			2.77			2.85
Cash dividends declared per share	$	0.92			0.91			0.87
See accompanying Notes to Consolidated Financial Statements.

A-26

PEOPLES BANCORP OF NORTH CAROLINA, INC.
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2024, 2023 and 2022
(Dollars in thousands)
	2024			2023		2022
Net earnings	$	16,353			15,546		16,123
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale		275			8,199		(61,919	)
Reclassification adjustment for (gains) losses on securities available for sale included in net earnings, net		(5	)		2,488		-
Total other comprehensive income (loss), before income taxes		270			10,687		(61,919	)
Income tax expense (benefit) related to other comprehensive income (loss):
Unrealized holding gain (losses) on securities available for sale		63			1,884		(14,226	)
Reclassification adjustment for (gains) losses on securities available for sale included in net earnings		(1	)		571		-
Total income tax expense (benefit) related to other comprehensive income (loss)		62			2,455		(14,226	)
Total other comprehensive income (loss), net of tax		208			8,232		(47,693	)
Total comprehensive income (loss)	$	16,561			23,778		(31,570	)
See accompanying Notes to Consolidated Financial Statements.

A-27

PEOPLES BANCORP OF NORTH CAROLINA, INC.
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 2024, 2023 and 2022
(Dollars in thousands)
													Common Stock
													Held By			Accumulated
	Common			Common									Deferred			Other
	Stock			Stock			Retained			Deferred			Compensation			Comprehensive
	Shares			Amount			Earnings			Compensation			Trust			Income (Loss)			Total
Balance, December 31, 2021		5,661,569		$	53,305			88,968			1,992			(1,992	)		96			142,369
Common stock repurchase		(26,200	)		(710	)		-			-			-			-			(710	)
Cash dividends declared on common stock ($0.87 per share)		-			-			(4,935	)		-			-			-			(4,935	)
Restricted stock units exercised		1,461			41			-			-			-			-			41
Equity incentive plan, net		-			-			-			189			(189	)		-			-
Net earnings		-			-			16,123			-			-			-			16,123
Change in accumulated other comprehensive loss, net of tax		-			-			-			-			-			(47,693	)		(47,693	)
Balance, December 31, 2022		5,636,830		$	52,636			100,156			2,181			(2,181	)		(47,597	)		105,195
Adoption of new accounting standard, net of tax		-			-			(838	)		-			-			-			(838	)
Common stock repurchase		(102,522	)		(1,997	)		-			-			-			-			(1,997	)
Cash dividends declared on common stock ($0.91 per share)		-			-			(5,108	)		-			-			-			(5,108	)
Restricted stock units exercised		191			6			-			-			-			-			6
Excise tax on stock repurchase		-			(20	)		-			-			-			-			(20	)
Equity incentive plan, net		-			-			-			(271	)		271			-			-
Net earnings		-			-			15,546			-			-			-			15,546
Change in accumulated other comprehensive income, net of tax		-			-			-			-			-			8,232			8,232
Balance, December 31, 2023		5,534,499		$	50,625			109,756			1,910			(1,910	)		(39,365	)		121,016
Common stock repurchase		(78,500	)		(1,998	)		-			-			-			-			(1,998	)
Cash dividends declared on common stock ($0.92 per share)		-			-			(5,047	)		-			-			-			(5,047	)
Restricted stock units exercised		1,647			51			-			-			-			-			51
Excise tax on stock repurchase		-			(20	)		-			-			-			-			(20	)
Equity incentive plan, net		-			-			-			(153	)		153			-			-
Net earnings		-			-			16,353			-			-			-			16,353
Change in accumulated other comprehensive income, net of tax		-			-			-			-			-			208			208
Balance, December 31, 2024		5,457,646		$	48,658			121,062			1,757			(1,757	)		(39,157	)		130,563
See accompanying Notes to Consolidated Financial Statements.

A-28

PEOPLES BANCORP OF NORTH CAROLINA, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2024, 2023 and 2022
(Dollars in thousands)
	2024			2023			2022
Cash flows from operating activities:
Net earnings	$	16,353			15,546			16,123
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation, amortization and accretion, net		2,890			3,126			6,031
Provision for (recovery of) credit losses		(285	)		1,566			1,472
Deferred income taxes		1,031			(453	)		(541	)
Gain on sale of held for sale mortgage loans		(287	)		(225	)		(349	)
(Gain) loss on sale of investment securities, net		(5	)		2,488			-
Write-down of other real estate		31			-			-
(Gain) loss on sale and writedowns of premises and equipment,net		362			(184	)		85
Restricted stock units expense		212			187			249
Proceeds from sales of loans held for sale		19,149			16,415			23,008
Origination of loans held for sale		(19,543	)		(16,665	)		(19,233	)
Change in:
Cash surrender value of life insurance		(470	)		(431	)		(403	)
Right of use lease asset		718			755			1,222
Other assets		80			(310	)		(3,506	)
Lease liability		(696	)		(723	)		(1,673	)
Other liabilities		1,018			1,688			131
Net cash provided by operating activities		20,558			22,780			22,616
Cash flows from investing activities:
Purchases of investment securities available for sale		(29,052	)		(9,615	)		(149,738	)
Proceeds from sales, calls and maturities of investment securities available for sale		14,723			52,038			7,875
Proceeds from paydowns of investment securities available for sale		17,671			18,250			37,400
Proceeds from paydowns of other investment securities		201			150			1,162
Purchase of FHLB Stock		(10	)		(323	)		(105	)
Net change in loans		(46,499	)		(60,765	)		(148,072	)
Purchases of premises and equipment		(587	)		(1,948	)		(4,563	)
Proceeds from sale of premises and equipment		-			1,460			-
Proceeds from bank owned life insurance		929			-			65
Net cash used by investing activities		(42,624	)		(753	)		(255,976	)
Cash flows from financing activities:
Net change in deposits		92,686			(43,170	)		22,467
Net change in securities sold under agreement to repurchase		(86,715	)		39,027			10,594
Proceeds from FRB borrowings		1			1			1
Repayments of FRB borrowings		(1	)		(1	)		(1	)
Proceeds from Fed Funds Purchased		162			43,426			162
Repayments of Fed Funds Purchased		(162	)		(43,426	)		(162	)
Restricted stock units exercised		51			-			41
Excise tax on stock repurchased		(20	)		-			-
Common stock repurchased		(1,998	)		(1,997	)		(710	)
Cash dividends paid on common stock		(5,047	)		(5,108	)		(4,935	)
Net cash (used) provided by financing activities		(1,043	)		(11,248	)		27,457
Net change in cash and cash equivalents		(23,109	)		10,779			(205,903	)
Cash and cash equivalents at beginning of period		82,375			71,596			277,499
Cash and cash equivalents at end of period	$	59,266			82,375			71,596

A-29

PEOPLES BANCORP OF NORTH CAROLINA, INC.
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 2024, 2023 and 2022
(Dollars in thousands)
	2024		2023			2022
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	28,079		16,487			3,284
Income taxes	$	4,538		4,448			4,659
Noncash investing and financing activities:
Change in unrealized gain (loss) on investment securities available for sale, net	$	208		8,232			(47,693	)
Transfer of loans to other real estate	$	400		-			-
Restricted stock units issued	$	-		6			-
Excise tax on stock repurchased	$	-		(20	)		-
Initial recognition of lease right of use asset and lease liability	$	-		370			1,726
Allowance for credit losses recorded upon adoption of ASU 326, net of tax	$	-		(838	)		-
See accompanying Notes to Consolidated Financial Statements.

A-30

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

Organization

Peoples Bancorp of North Carolina, Inc. (the “Company”) has served as the holding company to Peoples Bank (the “Bank”) since 1999. The Company is primarily regulated by the Board of Governors of the Federal Reserve System, and serves as the one-bank holding company for the Bank.

The Bank commenced business in 1912 upon receipt of its banking charter from the North Carolina Commissioner of Banks (the “Commissioner”). The Bank is primarily regulated by the Commissioner and the Federal Deposit Insurance Corporation (the “FDIC”) and undergoes periodic examinations by these regulatory agencies. The Bank, whose main office is in Newton, North Carolina, provides a full range of commercial and consumer banking services primarily in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake counties in North Carolina.

Peoples Investment Services, Inc. (“PIS”) is a wholly owned subsidiary of the Bank and began operations in 1996 to provide investment and trust services through agreements with an outside party.

Real Estate Advisory Services, Inc. (“REAS”) is a wholly owned subsidiary of the Bank and began operations in 1997 to provide real estate appraisal and property management services to individuals and commercial customers of the Bank.

Community Bank Real Estate Solutions, LLC (“CBRES”) is a wholly owned subsidiary of the Bank and began operations in 2009 as a “clearing house” for appraisal services for community banks. Other banks are able to contract with CBRES to find and engage appropriate appraisal companies.

PB Real Estate Holdings, LLC (“PBREH”) is a wholly owned subsidiary of the Bank and began operation in 2015. PBREH acquires, manages and disposes of real property, other collateral and other assets obtained in the ordinary course of collecting debts previously contracted.

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary, the Bank, along with the Bank’s wholly owned subsidiaries, PIS, REAS, CBRES and PBREH. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accounting principles followed by the Company, and the methods of applying these principles, conform with accounting principles generally accepted in the United States of America (“GAAP”) and with general practices in the banking industry. In preparing the financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ significantly from these estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for credit losses and valuation of real estate acquired in connection with or in lieu of foreclosure on loans.

Business Segments

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management has determined that the Company has two significant operating segment: Banking Operations and CBRES, as discussed more fully in Note 16. In determining the appropriateness of segment definition, the Company considers the criteria of Accounting Standards Codification (“ASC”) 280, Segment Reporting.

Cash and Cash Equivalents

Cash, due from banks, interest-bearing deposits and federal funds sold are considered cash and cash equivalents (original maturity date less than 90 days) for cash flow reporting purposes.

Investment Securities

The Company uses three classifications for its investment securities: trading, available for sale, or held to maturity. Trading securities are bought and held principally for sale in the near term. Held to maturity securities are those securities for which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held to maturity are classified as available for sale. At December 31, 2024 and 2023, the Company classified all of its investment securities as available for sale.

A-31

Available for sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of shareholders’ equity until realized.

Management evaluates investment securities for credit losses on a quarterly basis. A decline in the market value of any investment below cost that is deemed a credit loss is charged to earnings for the decline in value deemed to be credit related. The decline in value attributed to non-credit related factors is recognized in comprehensive income.

Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Realized gains and losses for securities classified as available for sale are included in earnings on a trade date basis and are derived using the specific identification method for determining the cost of securities sold.

Other Investments

Other investments include equity securities with no readily determinable fair value. These investments are carried at cost. Management evaluates other investments for credit losses on a quarterly basis.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity are reported at the principal amount outstanding, net of the allowance for credit losses. Interest on loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. The recognition of certain loan origination fee income and certain loan origination costs is deferred when such loans are originated and amortized over the life of the loan.

Accrual of interest is discontinued on a loan when management believes, after considering economic conditions and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. Interest previously accrued but not collected is reversed against current period earnings.

Allowance for Credit Losses (ACL)

The allowance for credit losses reflects management’s assessment and estimate of the risks associated with extending credit and its evaluation of the quality of the loan portfolio. The Bank periodically analyzes the loan portfolio in an effort to review asset quality and to establish an allowance that management believes will be adequate in light of anticipated risks and loan losses. In assessing the adequacy of the allowance, size, quality and risk of loans in the portfolio are reviewed.

The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company calculates the allowance for credit losses using a Weighted Average Remaining Maturity (“WARM”) methodology. The general forecast function in the model was set for all pools that projects the next four quarters to have similar loss rates to that experienced by the Bank in the period between December 2018 and February 2020, followed by a reversion to the long-term average over four quarters.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for: local, state and national economic outlook; levels and trends of delinquencies; trends in volume, mix and size of loans; seasoning of the loan portfolio; experience of staff; concentrations of credit; and interest rate risk.

The portion of the ACL balance attributable to qualitative factors was $5.2 million at December 31, 2024 and December 31, 2023. The risk factors are weighted as follows: Local, State and National Economic Outlook – 30%, Concentrations of Credit – 5%, Interest Rate Risk – 5%, Trends in Terms of Volume, Mix and Size of Loans – 15%, Seasoning of the Loan Portfolio – 10%, Experience of Staff – 10%, and Levels and Trends of Delinquencies – 25%. No changes to the risk status of any of the risk factors was made during year ended 2024.

A-32

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. There were no loans individually evaluated as of December 31, 2024, and two loans totaling $432,000 were individually evaluated as of December 31, 2023, which were fully reserved for at December 31, 2023.

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments represents the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

Since the adoption of CECL on January 1, 2023, the allowance for credit losses represents management’s estimate of credit losses for the remaining estimated life of the Bank’s financial assets, including loan receivables and some off-balance sheet credit exposures. Estimating the amount of the allowance for credit losses requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet. Credit losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

There are many factors affecting the allowance for credit losses; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.

Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. Such agencies may require adjustments to the allowance based on their judgments of information available to them at the time of their examinations. Management believes it has established the allowance for credit losses pursuant to CECL, and has taken into account the views of its regulators and the current economic environment. Management considers the allowance adequate to cover the estimated losses inherent in the Bank’s loan portfolio as of the date of the financial statements. Although management uses the best information available to make evaluations, significant future additions to the allowance may be necessary based on changes in economic and other conditions, thus adversely affecting the operating results of the Company.

Mortgage Banking Activities

Mortgage banking income represents income from the sale of mortgage loans and fees received from borrowers and loan investors related to the Bank’s origination of single-family residential mortgage loans.

The Bank originates certain fixed rate mortgage loans and commits these loans for sale. The commitments to originate fixed rate mortgage loans are derivative contracts. The fair value of these derivative contracts is immaterial and has no effect on the recorded amounts in the financial statements.

Mortgage loans held for sale are carried at the lower of aggregate cost or market value. The cost of mortgage loans held for sale approximates the market value.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any gain or loss is reflected in earnings for that period. The cost of maintenance and repairs that do not improve or extend the useful life of the respective asset is charged to earnings as incurred, whereas significant renewals and improvements are capitalized. The range of estimated useful lives for premises and equipment are generally as follows:

Buildings and improvements	10 - 50 years
Furniture and equipment	3 - 10 years
Leasehold improvements	lease term

A-33

Other Real Estate

Foreclosed assets include all assets received in full or partial satisfaction of a loan. Foreclosed assets are initially recorded at fair value less estimated selling costs and subsequently carried at the lower of carrying value or fair value less selling costs. Any write-downs at the time of foreclosure are charged to the allowance for credit losses. Subsequent to foreclosure, valuations are periodically performed by management, and a valuation allowance is established if fair value less estimated selling costs declines below carrying value. Costs relating to the development and improvement of the property are capitalized. Revenues and expenses from operations are included in other expenses. Changes in the valuation allowance are included in write-down of other real estate.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, the recognition of future tax benefits, such as net operating loss carryforwards, is required to the extent that the realization of such benefits is more likely than not to occur. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities results in a deferred tax asset, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realizability of a deferred tax asset, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.

Tax effects from an uncertain tax position can be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Previously recognized tax positions that no longer meet the more likely than not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company assessed the impact of this guidance and determined that it did not have a material impact on the Company’s financial position, results of operations or disclosures. The Company did not have any uncertain tax positions at December 31, 2024 and 2023.

Revenue Recognition

The majority of the Company’s revenue is derived primarily from interest income from receivables (loans) and securities. Other revenues are derived from fees received in connection with deposit accounts, investment advisory, and appraisal services. Through the Company’s wholly-owned subsidiary, PIS, the Company contracts with a registered investment advisor to perform investment advisory services on behalf of the Company’s customers. The Company receives commissions from this third party investment advisor based on the volume of business that the Company’s customers do with such investment advisor. The Company utilizes third parties to contract with the Company’s customers to perform debit and credit card clearing services. These third parties pay the Company commissions based on the volume of transactions that they process on behalf of the Company’s customers. Through the Company’s wholly-owned subsidiary, REAS, the Company provides property appraisal services for negotiated fee amounts on a per appraisal basis. Through the Company’s wholly-owned subsidiary, CBRES, the Company provides appraisal management services. Appraisal management fee income and expense from CBRES are reported on separate line items under non-interest income and non-interest expense. None of the Company’s revenue is derived from contracts in which services are transferred over time. Revenue is recognized as the services are provided to customers. The Company has no contracts in which customers are billed in advance for services to be performed. There are no significant financing components in the Company’s contracts. Excluding deposit and appraisal service revenues which are primarily billed at a point in time as a fee for services incurred, all other contracts contain variable consideration in that fees earned are derived from market values of accounts which determine the amount of consideration to which the Company is entitled. The variability is resolved when the services are provided. The contracts do not include obligations for returns, refunds, or warranties. The contracts are specific to the amounts owed to the Company for services performed during a period should the contracts be terminated. Revenue is recognized as services are billed to the customers.

A-34

Advertising Costs

Advertising costs are expensed as incurred.

Stock-Based Compensation

The Company has an Omnibus Stock Ownership and Long Term Incentive Plan that was approved by shareholders on May 7, 2009 (the “2009 Plan”) whereby certain stock-based rights, such as stock options, restricted stock, restricted stock units, performance units, stock appreciation rights or book value shares, were granted to eligible directors and employees. The 2009 Plan expired on May 7, 2019 but still governs the rights and obligations of the parties for grants previously made thereunder. No new awards may be made after May 7, 2019.

The Company granted 16,583 restricted stock units under the 2009 Plan at a grant date fair value of $16.34 per share during the first quarter of 2015. The Company granted 5,544 restricted stock units under the 2009 Plan at a grant date fair value of $16.91 per share during the first quarter of 2016. The Company granted 4,114 restricted stock units under the 2009 Plan at a grant date fair value of $25.00 per share during the first quarter of 2017. The Company granted 3,725 restricted stock units under the 2009 Plan at a grant date fair value of $31.43 per share during the first quarter of 2018. The Company granted 5,290 restricted stock units under the 2009 Plan at a grant date fair value of $28.43 per share during the first quarter of 2019. The number of restricted stock units granted and grant date fair values for the restricted stock units granted in 2015 through 2017 have been restated to reflect the 10% stock dividend that was paid in the fourth quarter of 2017. The Company recognizes compensation expense on the restricted stock units over the vesting period (four years from the grant date for the 2015, 2016, 2017, 2018 and 2019 grants). The amount of expense recorded each period reflects the changes in the Company’s stock price during such period. As of December 31, 2024, the Company did not have any unrecognized compensation expense related to the restricted stock unit grants under the 2009 Plan.

The Company also has an Omnibus Stock Ownership and Long Term Incentive Plan that was approved by shareholders on May 7, 2020 (the “2020 Plan”) whereby certain stock-based rights, such as stock options, restricted stock, restricted stock units, performance units, stock appreciation rights or book value shares, may be granted to eligible directors and employees. A total of 300,000 shares were reserved for possible issuance under the 2020 Plan when it was adopted. As of December 31, 2024, a total of 268,100 shares out of the initial 300,000 shares reserved remain available for future issuance under the 2020 Plan. No new awards may be made after May 7, 2030 (ten years from the 2020 Plan effective date).

The Company granted 7,635 restricted stock units under the 2020 Plan at a grant date fair value of $17.08 per share during the second quarter of 2020. The Company granted 7,060 restricted stock units under the 2020 Plan at a grant date fair value of $22.04 per share during the first quarter of 2021. The Company granted 5,385 restricted stock units under the 2020 Plan at a grant date fair value of $27.99 per share during the first quarter of 2022. The Company granted 5,370 restricted stock units under the 2020 Plan at a grant date fair value of $32.58 per share during the first quarter of 2023. The Company granted 6,450 restricted stock units under the 2020 Plan at a grant date fair value of $29.52 per share during the first quarter of 2024. The Company recognizes compensation expense on the restricted stock units over the vesting period (four years from the grant date for 2020, 2021, 2022 and 2023 grants). As of December 31, 2024, the total unrecognized compensation expense related to the restricted stock unit grants under the 2020 Plan was $282,000.

The Company recognized compensation expense for restricted stock units granted under the 2009 Plan and 2020 Plan of $212,000, $187,000 and $249,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

Self Funded Insurance

The Company has a self-funded health insurance plan, which is administered by a third party provider (“TPP”). The TPP provides a monthly estimate of the cost of incurred but not reported (“IBNR”) claims. The Company’s unpaid claim liability for IBNR claims of $300,000 and $3600,000 at December 31, 2024 and 2023, respectively, is separately classified on the balance sheet within Other Liabilities.

The Company has a stop-loss insurance policy to mitigate the risk of high self-funded health insurance claim amounts. This policy has a specific stop loss limit that covers individual claims in excess of $135,000 and an aggregating specific stop loss limit that covers aggregate claims in excess of $200,000. Due to large self-funded health insurance claims in process at December 31, 2024, the Company had an additional $1.3 million separately classified on the balance sheet within Other Liabilities at December 31, 2024, which was partially offset by a $968,000 stop loss insurance receivable separately classified on the balance sheet within Other Assets at December 31, 2024.

A-35

Comprehensive Income

The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale.

The following table presents the changes in accumulated other comprehensive loss for the year ended December 31, 2024, 2023 and 2022:

	Year Ended December 31,
(dollars in thousands)	2024			2023			2022
Beginning balance	$	(39,365	)		(47,597	)		96
Other comprehensive income (loss) before reclassifications, net		212			6,315			(47,693	)
Amounts reclassified from accumulated other comprehensive (gain) loss, net		(4	)		1,917			-
Net current period other comprehensive income (loss)		208			8,232			(47,693	)
Ending balance	$	(39,157	)		(39,365	)		(47,597	)

Net Earnings Per Share

Net earnings per common share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per common share. The average market price during the year is used to compute equivalent shares.

The reconciliations of the amounts used in the computation of both “basic earnings per common share” and “diluted earnings per common share” for the years ended December 31, 2024, 2023 and 2022 are as follows. There are no anti-dilutive shares to be excluded.

For the year ended December 31, 2024
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	16,353		5,300,964	$	3.08
Effect of dilutive securities:
Restricted stock units - unvested		-		20,682
Shares held in deferred comp plan by deferred compensation trust				161,141
Diluted earnings per share	$	16,353		5,482,787	$	2.98

For the year ended December 31, 2023
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	15,546		5,424,890	$	2.87
Effect of dilutive securities:
Restricted stock units - unvested		-		18,971
Shares held in deferred comp plan by deferred compensation trust				166,353
Diluted earnings per share	$	15,546		5,610,214	$	2.77

A-36

For the year ended December 31, 2022
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	16,123		5,480,123	$	2.94
Effect of dilutive securities:
Restricted stock units - unvested		-		15,467
Shares held in deferred comp plan by deferred compensation trust				165,599
Diluted earnings per share	$	16,123		5,661,189	$	2.85

Recent Accounting Pronouncements

The following table provide a summary of Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”) that the Company has recently adopted.

ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2023-07 Segment Reporting (Topic 280)	The ASU provides amendments to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses	Annual periods after 12/15/23 and interim periods after 12/15/24	The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position.  The adoption of this guidance had an immaterial impact on disclosures.

The following table provides a summary of ASU’s issued by FASB that the Company has not adopted as of December 31, 2024, which may impact the Company’s financial statements.

ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2023-09 Income Taxes (Topic 740)	The ASU provides amendments to  improve the transparency of income tax disclosures.	January 1, 2025	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position.  The adoption of this guidance is expected to have an immaterial impact on disclosures.
ASU 2024-01 Compensation—Stock Compensation (Topic 718)	The ASU adds an illustrative example (with four fact patterns) on how an entity would apply Accounting Standards Codification (ASC) 718 scope guidance.	January 1, 2025	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2024-02 Codification Improvements Amendments to Remove References to Concepts Statements	The ASU removes references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references are a substitute for actual wording from a Concepts Statement. In most cases, the ASU is not intended to result in significant accounting changes for most entities.	January 1, 2025	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)	The ASU requires disaggregated disclosure of income statement expenses for public business entities (PBEs).	Annual reporting periods after 12/15/26	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position.  The adoption of this guidance is expected to have an immaterial impact on disclosures.

Other accounting standards that have been issued or proposed by FASB or other standards-setting bodies are not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Reclassification

Certain amounts in the 2023 and 2022 consolidated financial statements have been reclassified to conform to the 2024 presentation.

A-37

(2) Investment Securities

Investment securities available for sale at December 31, 2024 and 2023 are as follows:

(Dollars in thousands)
	December 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasuries	$	7,981		-		724		7,257
U.S. Government sponsored enterprises		9,243		-		511		8,732
GSE - Mortgage-backed securities		248,837		162		23,207		225,792
Private label mortgage-backed securities		43,118		74		1,425		41,767
State and political subdivisions		129,659		-		25,204		104,455
Total	$	438,838		236		51,071		388,003

(Dollars in thousands)
	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasuries	$	10,974		-		830		10,144
U.S. Government sponsored enterprises		11,111		-		596		10,515
GSE - Mortgage-backed securities		257,705		185		22,988		234,902
Private label mortgage-backed securities		33,317		16		2,063		31,270
State and political subdivisions		129,922		-		24,829		105,093
Total	$	443,029		201		51,306		391,924

The current fair value and associated unrealized losses on investments in debt securities with unrealized losses at December 31, 2024 and 2023 are summarized in the tables below, with the length of time the individual securities have been in a continuous loss position.

(Dollars in thousands)
	December 31, 2024
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasuries	$	-		-		7,257		724		7,257		724
U.S. government sponsored enterprises		-		-		8,732		511		8,732		511
GSE -Mortgage-backed securities		20,458		669		197,497		22,538		217,955		23,207
Private label mortgage-backed securities		4,010		9		21,727		1,416		25,737		1,425
State and political subdivisions		-		-		104,455		25,204		104,455		25,204
Total	$	24,468		678		339,668		50,393		364,136		51,071

(Dollars in thousands)
	December 31, 2023
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasuries	$	-		-		10,144		830		10,144		830
U.S. government sponsored enterprises		-		-		10,515		596		10,515		596
GSE -Mortgage-backed securities		24,167		546		203,234		22,442		227,401		22,988
Private label mortgage-backed securities		3,416		43		23,095		2,020		26,511		2,063
State and political subdivisions		-		-		105,093		24,829		105,093		24,829
Total	$	27,583		589		352,081		50,717		379,664		51,306

A-38

At December 31, 2024, unrealized losses in the investment securities portfolio relating to debt securities totaled $51.1 million. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the December 31, 2024 tables above, both of the U.S. Treasury securities, all 108 of the securities issued by state and political subdivisions contained unrealized losses, all seven of the securities issued by U.S. Government sponsored enterprises (“GSE”), 114 of the 119 GSE mortgage-backed securities, and 11 of the 16 private label mortgage-backed securities contained unrealized losses. The Company did not have any reserves on securities at December 31, 2024, as no credit related losses were identified in the Company’s December 31, 2024 analysis. At December 31, 2023, unrealized losses in the investment securities portfolio relating to debt securities totaled $51.3 million. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the December 31, 2023 tables above, all three of the U.S. Treasury securities, all 108 of the securities issued by state and political subdivisions contained unrealized losses, all seven of the securities issued by GSE, 114 of the 121 GSE mortgage-backed securities, and 12 of the 14 private label mortgage backed securities contained unrealized losses. The Company did not have an allowance for credit losses on available for sale securities at December 31, 2023, as no credit related losses were identified in the Company’s December 31, 2023 analysis.

The amortized cost and estimated fair value of investment securities available for sale, other than GSE mortgage-backed securities, at December 31, 2024, are shown below by contractual maturity. Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

December 31, 2024
(Dollars in thousands)
	Amortized Cost		Fair Value
Due within one year	$	7,999		7,991
Due from one to five years		32,911		29,586
Due from five to ten years		76,298		61,674
Due after ten years		72,793		62,960
GSE-Mortgage-backed securities		248,837		225,792
Total	$	438,838		388,003

During 2024, proceeds from sales of securities available for sale were $11.7 million and resulted in gross gains of $33,000 and gross losses of $28,000. During 2023, proceeds from sales of securities available for sale were $51.0 million and resulted in gross losses of $2.7 million and gross gains of $177,000. No securities available for sale were sold during 2022.

Securities with a fair value of approximately $40.0 million and $132.0 million at December 31, 2024 and 2023, respectively, were pledged to secure public deposits and for other purposes as required by law.

Taxable interest income on investment securities was $14.6 million and $13.4 million for the years ended December 31, 2024 and 2023, respectively. Non-taxable interest income on investment securities was $425,000 and $765,000 for the years ended December 31, 2024 and 2023, respectively.

A-39

(3) Loans

Major classifications of loans at December 31, 2024 and 2023 are summarized as follows:

(Dollars in thousands)
	December 31, 2024			December 31, 2023
Real estate loans:
Construction and land development	$	122,328			136,401
Single-family residential		384,509			372,825
Commercial		471,444			425,820
Multifamily and farmland		69,671			63,042
Total real estate loans		1,047,952			998,088
Loans not secured by real estate:
Commercial		63,837			70,544
Farm		401			550
Consumer		6,475			6,966
All other		19,739			16,918
Total loans		1,138,404			1,093,066
Less allowance for credit losses		(9,995	)		(11,041	)
Total net loans	$	1,128,409			1,082,025

The above table includes deferred costs, net of deferred fees, totaling $714,000 and $807,000 at December 31, 2024 and December 31, 2023, respectively.

The Bank makes loans and extensions of credit primarily within the Catawba Valley region of North Carolina, which encompasses Catawba, Alexander, Iredell and Lincoln counties and also in Mecklenburg, Wake, Rowan and Forsyth counties of North Carolina. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate, the value of which is dependent upon the real estate market. Risk characteristics of the major components of the Bank’s loan portfolio are discussed below:

· Construction and land development loans – The risk of loss is largely dependent on the initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral.

· Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.

· Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property.

· Commercial loans – Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business.

· Multifamily and farmland loans – Decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.

Loans are considered past due if the required principal and interest payments have not been received within 30 days of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Generally, a loan is placed on non-accrual status when it is over 90 days past due and there is reasonable doubt that all principal will be collected. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A-40

The following tables present an age analysis of past due loans, by loan type, as of December 31, 2024 and 2023:

December 31, 2024
(Dollars in thousands)
	Loans 30-89 Days Past Due		Nonaccrual Loans		Total Past Due Loans		Total Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development	$	131		37		168		122,160		122,328		-
Single-family residential		5,434		3,720		9,154		375,355		384,509		-
Commercial		87		426		513		470,931		471,444		-
Multifamily and farmland		-		-		-		69,671		69,671		-
Total real estate loans		5,652		4,183		9,835		1,038,117		1,047,952		-
Loans not secured by real estate:
Commercial		360		248		608		63,229		63,837		-
Farm		-		-		-		401		401		-
Consumer		33		9		42		6,433		6,475		-
All other		-		-		-		19,739		19,739		-
Total loans	$	6,045		4,440		10,485		1,127,919		1,138,404		-

December 31, 2023
(Dollars in thousands)
	Loans 30-89 Days Past Due		Nonaccrual Loans		Total Past Due Loans		Total Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development	$	5		45		50		136,351		136,401		-
Single-family residential		3,761		3,302		7,063		365,762		372,825		-
Commercial		13		-		13		425,807		425,820		-
Multifamily and farmland		-		76		76		62,966		63,042		-
Total real estate loans		3,779		3,423		7,202		990,886		998,088		-
Loans not secured by real estate:
Commercial		125		463		588		69,956		70,544		-
Farm		-		1		1		549		550		-
Consumer		63		-		63		6,903		6,966		-
All other		-		-		-		16,918		16,918		-
Total loans	$	3,967		3,887		7,854		1,085,212		1,093,066		-

The following table presents the Bank’s non-accrual loans as of December 31, 2024 and 2023:

	December 31, 2024
	Nonaccrual Loans		Nonaccrual Loans		Total
	With No		With		Nonaccrual
(Dollars in thousands)	Allowance		Allowance		Loans
Real estate loans:
Construction and land development	$	37		-		37
Single-family residential		3,720		-		3,720
Commercial		426		-		426
Multifamily and farmland		-		-		-
Total real estate loans		4,183		-		4,183
Loans not secured by real estate:
Commercial		248		-		248
Consumer		9		-		9
Total	$	4,440		-		4,440

A-41

	December 31, 2023
	Nonaccrual Loans		Nonaccrual Loans		Total
	With No		With		Nonaccrual
(Dollars in thousands)	Allowance		Allowance		Loans
Real estate loans:
Construction and land development	$	45		-		45
Single-family residential		3,302		-		3,302
Multifamily and farmland		76		-		76
Total real estate loans		3,423		-		3,423
Loans not secured by real estate:
Commercial		31		432		463
Consumer		1		-		1
Total	$	3,455		432		3,887

No interest income was recognized on non-accrual loans for the years ended December 31, 2024 and 2023.

The following table represents the accrued interest receivables written off by reversing interest income during the years ended December 31, 2024 and 2023:

(Dollars in thousands)
	For the Year Ended		For the Year Ended
	December 31, 2024		December 31, 2023
Real estate loans:
Single-family residential	$	39		33
Commercial		9		-
Total real estate loans		48		33
Loans not secured by real estate:
Commercial		8		12
Consumer		2		1
Total	$	58		46

A loan may be individually evaluated for determining the allowance for credit losses when it is determined that it does not share similar risk characteristics with other assets. Non-accrual loans with an outstanding balance of $250,000 or greater are individually evaluated and totaled $1.6 million at December 31, 2024. Nonaccrual loans evaluated collectively as a pool totaled $2.8 million at December 31, 2024. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans require an analysis of the collateral. The fair value of the collateral is discounted by estimated liquidation costs. If the discounted fair value of the collateral is greater than the amortized loan balance, no allowance is required. Otherwise the difference between the balance and the collateral is charged off if deemed uncollectible.

The following table details the amortized cost of collateral dependent loans and any related allowance at December 31, 2024.

	December 31, 2024
			Allowance for
(Dollars in thousands)	Amortized Cost		Credit Losses
Real estate loans:
Construction and land development	$	37		-
Single-family residential		3,720		-
Commercial		426		-
Multifamily and farmland		-		-
Total real estate loans		4,183		-
Loans not secured by real estate:
Commercial		248		-
Consumer		-		-
Total	$	4,431		-

The following table details the amortized cost of non-accrual loans and any related allowance at December 31, 2023.

	December 31, 2023
			Allowance for
(Dollars in thousands)	Amortized Cost		Credit Losses
Real estate loans:
Construction and land development	$	-		-
Single-family residential		-		-
Commercial		-		-
Multifamily and farmland		-		-
Total real estate loans		-		-
Loans not secured by real estate:
Commercial		432		432
Consumer		-		-
Total	$	432		432

A-42

The following tables provide a breakdown of collateral dependent loans by collateral type and collateral coverage at December 31, 2024 and 2023. These tables also show non-accrual loans not considered to be collateral dependent at December 31, 2024 and 2023.

	December 31, 2024
									Financial Assets Not Considered
(Dollars in thousands)	Residential		Developed		Commercial		Business		Collateral
	Property		Land		Property		Assets		Dependent		Total
Real estate loans:
Construction and land development	$	-		37		-		-		-		37
Single-family residential		3,720		-		-		-		-		3,720
Commercial		-		-		426		-		-		426
Multifamily and farmland		-		-		-		-		-		-
Total real estate loans		3,720		37		426		-		-		4,183
Loans not secured by real estate:
Commercial		-		-		-		248		-		248
Consumer		-		-		-		-		9		9
Total	$	3,720		37		426		248		9		4,440
Collateral Value	$	9,648		88		944		272

	December 31, 2023
									Financial Assets Not Considered
(Dollars in thousands)	Residential		Developed		Multifamily		Business		Collateral
	Property		Land		Property		Assets		Dependent		Total
Real estate loans:
Construction and land development	$	-		-		-		-		-		-
Single-family residential		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Multifamily and farmland		-		-		-		-		-		-
Total real estate loans		-		-		-		-		-		-
Loans not secured by real estate:
Commercial		-		-		-		350		82		432
Consumer		-		-		-		-		-		-
Total	$	-		-		-		350		82		432
Collateral Value	$	-		-		-		350

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

A change to the allowance for credit losses is evaluated based on the nature of the modification. Occasionally, the Bank modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Bank may modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

The following tables show the amortized cost basis at December 31, 2024 and 2023 of the loans to borrowers experiencing financial difficulty that were modified during the years ended December 31, 2024 and 2023, disaggregated by loan class and type of concession granted.

(Dollars in thousands)
	Amortized Cost Basis at December 31, 2024		% of Loan Class			Modification Type	Financial Effect
Loan class:
Single-family residential	$	229		0.06	%	Interest rate reduction and term extension	Adjustable rate loan converted to fixed rate loan and HELOC converted to amortizing term loan
Total	$	229

(Dollars in thousands)
	Amortized Cost Basis at December 31, 2023		% of Loan Class			Modification Type	Financial Effect
Loan class:
Single-family residential	$	149		0.04	%	Term extension	Forbearance agreement on matured home equity line of credit (HELOC) that was modified to 180 month term.
Commercial real estate		669		0.16	%	Term extension	Extended existing amortization from 148 months to 173 months to keep existing payment the same with the current market rate.
Commercial not secured by real estate		350		0.49	%	Term extension	Matured balloon loan converted to amortizing term loan.
Total	$	1,168

One $71,000 commercial loan not secured by real estate that was modified in the year ended December 31, 2024 that were made to borrowers experiencing financial difficulty was written off at December 31, 2024. No loans modified in the year ended December 31, 2023 that were made to borrowers experiencing financial difficulty had been written off at December 31, 2023.

The Bank closely monitors the performance of those loans that are modified because borrowers are experiencing financial difficulty so as to understand the effectiveness of its modification efforts. The following tables show the performance of loans that have been modified in the years ended December 31, 2024 and 2023.

December 31, 2024
(Dollars in thousands)
	Payment Status (Amortized Cost Basis)
	Current		30 - 89 Days Past Due		90 + Days Past Due
Loan type:
Single-family residential	$	229
Total	$	229		-		-

A-43

December 31, 2023
(Dollars in thousands)
	Payment Status (Amortized Cost Basis)
	Current		30 - 89 Days Past Due		90 + Days Past Due
Loan type:
Single-family residential	$	149		-		-
Commercial real estate		669		-		-
Commercial not secured by real estate		350
Total	$	1,168		-		-

The following table presents impaired loans as of and for the year ended December 31, 2022, under the incurred loss methodology:

December 31, 2022
(Dollars in thousands)
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Recorded Investment in Impaired Loans		Related Allowance		Average Outstanding Impaired Loans		YTD Interest Income Recognized
Real estate loans:
Construction and land development	$	110		-		110		110		2		75		8
Single-family residential		14,353		236		13,048		13,284		671		13,951		746
Commercial		1,785		421		1,346		1,767		9		1,916		93
Multifamily and farmland		104		-		91		91		-		96		5
Total impaired real estate loans		16,352		657		14,595		15,252		682		16,038		852
Loans not secured by real estate:
Commercial		116		-		116		116		1		137		8
Consumer		11		-		9		9		-		15		2
Total impaired loans	$	16,479		657		14,720		15,377		683		16,190		862

Impaired loans collectively evaluated for impairment totaled $4.9 million at December 31, 2022 and are included in the tables above. Allowance on impaired loans collectively evaluated for impairment totaled $44,000 at December 31, 2022.

Management uses several measures to assess and monitor the credit risks in the loan portfolio, including a loan grading system that begins upon loan origination and continues until the loan is collected or collectability becomes doubtful. Upon loan origination, the Bank’s originating loan officer evaluates the quality of the loan and assigns one of eight risk grades. The loan officer monitors the loan’s performance and credit quality and makes changes to the credit grade as conditions warrant. When originated or renewed, all loans over a certain dollar amount receive in-depth reviews and risk assessments by the Bank’s Credit Administration. Before making any changes in these risk grades, management considers assessments as determined by the third-party credit review firm (as described below), regulatory examiners and the Bank’s Credit Administration. Any issues regarding the risk assessments are addressed by the Bank’s senior credit administrators and factored into management’s decision to originate or renew the loan. The Bank Board reviews, on a monthly basis, an analysis of the Bank’s reserves relative to the range of reserves estimated by the Bank’s Credit Administration.

As an additional measure, the Bank engages an independent third party to review the underwriting, documentation and risk grading analyses. This independent third party reviews and evaluates loan relationships greater than or equal to $1.5 million as well as a periodic sample of commercial relationships with exposures below $1.5 million, excluding loans in default, and loans in process of litigation or liquidation. The third party’s evaluation and report is shared with management and the Bank Board. 

Management considers certain commercial loans with weak credit risk grades to be individually impaired and measures such impairment based upon available cash flows and the value of the collateral. Allowance or reserve levels are estimated for all other graded loans in the portfolio based on their assigned credit risk grade, type of loan and other matters related to credit risk.

A-44

Management uses the information developed from the procedures described above in evaluating and grading the loan portfolio. This continual grading process is used to monitor the credit quality of the loan portfolio and to assist management in estimating the allowance. The provision for credit losses charged or credited to earnings is based upon management’s judgment of the amount necessary to maintain the allowance at a level appropriate to absorb probable incurred losses in the loan portfolio at the balance sheet date. The amount each quarter is dependent upon many factors, including growth and changes in the composition of the loan portfolio, net charge-offs, delinquencies, management’s assessment of loan portfolio quality, the value of collateral, and other macro-economic factors and trends. The evaluation of these factors is performed quarterly by management through an analysis of the appropriateness of the allowance.

The following tables present changes in the allowance for credit losses for the years ended December 31, 2024, 2023 and 2022. The December 31, 2024 and 2023 tables reflect the CECL methodology and the December 31, 2022 table reflects the Incurred Loss methodology. No loans were individually evaluated as of December 31, 2024.

(Dollars in thousands)
	Real Estate Loans
	Construction and Land Development			Single-Family Residential			Commercial			Multifamily and Farmland			Commercial			Farm			Consumer and All Other			Total
Twelve months ended December 31, 2024
Allowance for credit losses:
Beginning balance	$	3,913			3,484			2,317			268			812			2			245			11,041
Charge-offs		-			(131	)		-			-			(1,134	)		-			(716	)		(1,981	)
Recoveries		-			129			202			-			55			-			165			551
Provision (recovery) for credit losses (1)		(528	)		(96	)		(197	)		(22	)		713			(1	)		515			384
Ending balance	$	3,385			3,386			2,322			246			446			1			209			9,995
Allowance for credit loss-loans	$	3,385			3,386			2,322			246			446			1			209			9,995
Allowance for credit loss unfunded loan commitments		1,096			3			-			-			-			-			2			1,101
Total allowance for credit losses	$	4,481			3,389			2,322			246			446			1			211			11,096
(1) Excludes provision for credit losses related to unfunded commitments. Note 11,"Commitments and Contingencies" in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments.

(Dollars in thousands)
	Real Estate Loans
	Construction and Land Development		Single-Family Residential		Commercial			Multifamily and Farmland			Commercial			Farm		Consumer and All Other			Unallocated			Total
Twelve months ended December 31, 2023
Allowance for credit losses:
Beginning balance	$	1,415		3,085		3,207			164			657			-		214			1,752			10,494
Adjustment for CECL implementation (1)		1,584		64		(986	)		115			(295	)		2		48			(1,752	)		(1,220	)
Charge-offs		-		-		-			-			(129	)		-		(569	)		-			(698	)
Recoveries		-		171		6			-			67			-		147			-			391
Provision (recovery) for credit losses (1)		914		164		90			(11	)		512			-		405			-			2,074
Ending balance	$	3,913		3,484		2,317			268			812			2		245			-			11,041
Allowance for credit loss-loans	$	3,913		3,484		2,317			268			812			2		245			-			11,041
Allowance for credit loss unfunded loan commitments		1,759		8		-			1			2			-		-			-			1,770
Total allowance for credit losses	$	5,672		3,492		2,317			269			814			2		245			-			12,811
(1) Excludes provision for credit losses related to unfunded commitments. Note 11,"Commitments and Contingencies" in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments.

A-45

(Dollars in thousands)
	Real Estate Loans
	Construction and Land Development		Single-Family Residential			Commercial		Multifamily and Farmland		Commercial			Farm		Consumer and All Other			Unallocated			Total
Twelve months ended December 31, 2022
Allowance for loan losses:
Beginning balance	$	1,193		2,877			2,234		150		711			-		110			2,080			9,355
Charge-offs		-		(128	)		-		-		(33	)		-		(591	)		-			(752	)
Recoveries		-		229			9		-		72			-		109			-			419
Provision		222		107			964		14		(93	)		-		586			(328	)		1,472
Ending balance	$	1,415		3,085			3,207		164		657			-		214			1,752			10,494
Allowance for loan losses December 31, 2022
Ending balance: individually evaluated for impairment	$	-		633			6		-		-			-		-			-			639
Ending balance: collectively evaluated for impairment		1,415		2,452			3,201		164		657			-		214			1,752			9,855
Ending balance	$	1,415		3,085			3,207		164		657			-		214			1,752			10,494
Loans at December 31, 2022
Ending balance	$	114,446		342,281			406,750		65,562		81,307			938		21,324			-			1,032,608
Ending balance: individually evaluated for impairment	$	-		9,092			1,388		-		-			-		-			-			10,480
Ending balance: collectively evaluated for impairment	$	114,446		333,189			405,362		65,562		81,307			938		21,324			-			1,022,128

The Bank utilizes several credit quality indicators to manage credit risk in an ongoing manner. The Bank uses an internal risk grade system that categorizes loans into pass, watch or substandard categories.

The Bank uses the following credit quality indicators:

· Pass – Includes loans ranging from excellent quality with a minimal amount of credit risk to loans with higher risk and servicing needs but still are considered to be acceptable. The higher risk loans in this category are not problem credits presently, but may be in the future if the borrower is unable to change its present course.

· Watch – These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date.

· Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any). There is a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

· Doubtful – Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

· Loss – Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future.

A-46

The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of December 31, 2024.

	Term Loans by Origination Year														Revolving
															Loans
(dollars in thousands)													Revolving		Converted to		Total
	2024		2023		2022		2021		2020		Prior		Loans		Term Loans		Loans
December 31, 2024
Real Estate Loans
Construction and land
development
Pass	$	41,171		29,503		34,495		6,836		5,792		4,020		-		-		121,817
Watch		-		-		-		443		-		-		-		-		443
Substandard		-		-		-		-		-		68		-		-		68
Total Construction and
land development	$	41,171		29,503		34,495		7,279		5,792		4,088		-		-		122,328
Single family
Pass	$	22,169		35,865		73,663		43,900		22,363		66,074		113,067		-		377,101
Watch		-		-		-		-		-		1,469		993		-		2,462
Substandard		-		31		1,000		-		124		3,467		324		-		4,946
Total single family	$	22,169		35,896		74,663		43,900		22,487		71,010		114,384		-		384,509
Commercial
Pass	$	56,411		46,589		135,881		71,066		58,223		97,122		2,296		-		467,588
Watch		-		-		-		-		87		2,943		-		-		3,030
Substandard		-		-		-		-		400		426		-		-		826
Total commercial	$	56,411		46,589		135,881		71,066		58,710		100,491		2,296		-		471,444
Multifamily and farmland
Pass	$	998		8,455		20,786		20,638		6,055		12,186		443		-		69,561
Watch		-		-		-		-		-		43		-		-		43
Substandard		-		-		-		-		-		67		-		-		67
Total multifamily and
farmland	$	998		8,455		20,786		20,638		6,055		12,296		443		-		69,671
Total real estate loans	$	120,749		120,443		265,825		142,883		93,044		187,885		117,123		-		1,047,952
Loans not secured by real estate
Commercial
Pass	$	9,153		11,335		6,045		3,107		1,707		11,864		20,032		-		63,243
Watch		-		-		136		19		23		167		1		-		346
Substandard		-		25		223		-		-		-		-		-		248
Total Commercial	$	9,153		11,360		6,404		3,126		1,730		12,031		20,033		-		63,837
Farm
Pass	$	53		195		17		50		-		-		86		-		401
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total farm	$	53		195		17		50		-		-		86		-		401
Consumer
Pass	$	1,777		1,232		666		176		99		64		2,397		-		6,411
Watch		-		-		53		-		-		-		-		-		53
Substandard		-		-		-		-		-		8		3		-		11
Total consumer	$	1,777		1,232		719		176		99		72		2,400		-		6,475
All other
Pass	$	972		-		10,002		376		217		2,878		5,164		-		19,609
Watch		-		-		-		-		-		130		-		-		130
Substandard		-		-		-		-		-		-		-		-		-
Total all other	$	972		-		10,002		376		217		3,008		5,164		-		19,739
Total loans not secured
by real estate	$	11,955		12,787		17,142		3,728		2,046		15,111		27,683		-		90,452
Total loans	$	132,704		133,230		282,967		146,611		95,090		202,996		144,806		-		1,138,404

A-47

The following table presents by credit quality indicator, loan class and year of origination, gross loan charge-offs as of December 31, 2024.

December 31, 2024	Gross Loan Charge-offs by Origination Year														Revolving
															Loans
(dollars in thousands)													Revolving		Converted to		Total
	2024		2023		2022		2021		2020		Prior		Loans		Term Loans		Loans
Real estate loans:
Construction and land development	$	-		-		-		-		-		-		-		-		-
Single-family residential		-		-		126		-		-		6		-		-		132
Commercial		-		-		-		-		-		-		-		-		-
Multifamily and farmland		-		-		-		-		-		-		-		-		-
Total real estate loans		-		-		126		-		-		6		-		-		132
Loans not secured by real estate:
Commercial		-		447		397		74		179		36		-		-		1,133
Consumer		5		37		9		-		1		557		-		-		609
All other		-		-		-		-		-		107		-		-		107
Total gross charge-offs	$	5		484		532		74		180		706		-		-		1,981

A-48

The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of December 31, 2023.

	Term Loans by Origination Year														Revolving
															Loans
(dollars in thousands)													Revolving		Converted to		Total
	2023		2022		2021		2020		2019		Prior		Loans		Term Loans		Loans
December 31, 2023
Real Estate Loans
Construction and land
development
Pass	$	40,034		71,429		10,736		6,692		1,721		3,914		1,337		-		135,863
Watch		-		-		448		-		-		-		-		-		448
Substandard		-		-		-		-		-		90		-		-		90
Total Construction and
land development	$	40,034		71,429		11,184		6,692		1,721		4,004		1,337		-		136,401
Single family
Pass	$	32,333		76,326		47,490		24,813		12,984		64,847		106,962		-		365,755
Watch		-		-		-		-		89		1,389		860		-		2,338
Substandard		-		-		-		-		11		4,342		379		-		4,732
Total single family	$	32,333		76,326		47,490		24,813		13,084		70,578		108,201		-		372,825
Commercial
Pass	$	45,755		109,255		78,645		61,973		29,579		92,753		2,158		-		420,118
Watch		232		-		-		116		-		4,943		-		-		5,291
Substandard		-		-		-		411		-		-		-		-		411
Total commercial	$	45,987		109,255		78,645		62,500		29,579		97,696		2,158		-		425,820
Multifamily and farmland
Pass	$	7,987		13,286		21,512		6,624		3,158		9,851		501		-		62,919
Watch		-		-		-		-		-		47		-		-		47
Substandard		-		-		-		-		-		76		-		-		76
Total multifamily and
farmland	$	7,987		13,286		21,512		6,624		3,158		9,974		501		-		63,042
Total real estate loans	$	126,341		270,296		158,831		100,629		47,542		182,252		112,197		-		998,088
Loans not secured by real estate
Commercial
Pass	$	9,561		14,122		4,841		2,942		2,232		12,030		23,411		-		69,139
Watch		-		-		-		-		57		102		783		-		942
Substandard		31		-		-		-		-		-		-		-		31
Loss		-		82		-		-		-		-		350				432
Total Commercial	$	9,592		14,204		4,841		2,942		2,289		12,132		24,544		-		70,544
Farm
Pass	$	198		42		83		-		1		27		199		-		550
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total farm	$	198		42		83		-		1		27		199		-		550
Consumer
Pass	$	2,262		1,352		404		222		72		58		2,591		-		6,961
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		2		-		-		-		3		-		5
Total consumer	$	2,262		1,352		406		222		72		58		2,594		-		6,966
All other
Pass	$	79		6,401		474		274		599		3,698		5,256		-		16,781
Watch		-		-		-		-		-		74		63		-		137
Substandard		-		-		-		-		-		-		-		-		-
Total all other	$	79		6,401		474		274		599		3,772		5,319		-		16,918
Total loans not secured
by real estate	$	12,131		21,999		5,804		3,438		2,961		15,989		32,656		-		94,978
Total loans	$	138,472		292,295		164,635		104,067		50,503		198,241		144,853		-		1,093,066

A-49

The following table presents by credit quality indicator, loan class and year of origination, gross loan charge-offs as of December 31, 2023.

December 31, 2023	Gross Loan Charge-offs by Origination Year														Revolving
															Loans
(dollars in thousands)													Revolving		Converted to		Total
	2023		2022		2021		2020		2019		Prior		Loans		Term Loans		Loans
Real estate loans:
Construction and land development	$	-		-		-		-		-		-		-		-		-
Single-family residential		-		-		-		-		-		-		-		-		-
Commercial		-		-		-		-		-		-		-		-		-
Multifamily and farmland		-		-		-		-		-		-		-		-		-
Total real estate loans		-		-		-		-		-		-		-		-		-
Loans not secured by real estate:
Commercial		-		49		51		16		-		13		-		-		129
Farm		-		-		-		-		-		-		-		-		-
Consumer		-		41		53		6		1		468		-		-		569
All other		-		-		-		-		-		-		-		-		-
Total gross charge-offs	$	-		90		104		22		1		481		-		-		698

A-50

(4) Premises and Equipment

Major classifications of premises and equipment at December 31, 2024 and 2023 are summarized as follows:

(Dollars in thousands)
	2024			2023
Land	$	4,365			4,373
Buildings and improvements		18,602			19,054
Furniture and equipment		21,600			20,607
Construction in process		103			532
Total premises and equipment		44,670			44,566
Less accumulated depreciation		(29,823	)		(27,864	)
Total net premises and equipment	$	14,847			16,702

The Bank recognized depreciation expense totaling $2.1 million, $2.2 million and $2.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The Bank had a $362,000 write-off of leasehold improvements for the year ended December 31, 2024 due to the closure of Bank’s branch in Cary, North Carolina in 2024, which is included in other non-interest expense. The Bank had $184,000 net gains on the sale of and write-downs on premises and equipment for the year ended December 31, 2023. The Bank had $85,000 net losses on the sale of and write-downs on premises and equipment for the year ended December 31, 2022.

(5) Leases

The Bank leases various office spaces for banking and operational facilities and equipment under operating lease arrangements.

Total rent expense was approximately $817,000, $804,000 and $976,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

As of December 31, 2024, the Bank had operating right of use assets of $4.0 million and operating lease liabilities of $4.1 million. As of December 31, 2023, the Bank had operating right of use assets of $4.7 million and operating lease liabilities of $4.8 million. The Bank maintains operating leases on land and buildings for some of the Bank’s branch facilities and loan production offices. Most leases include one option to renew, with renewal terms extending up to 15 years. The exercise of renewal options is based on the judgment of management as to whether or not the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rates compared to market rates, and the presence of factors that would cause a significant economic penalty to the Bank if the option is not exercised. Leases with a term of 12 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term.

The following table presents lease cost and other lease information as of December 31, 2024 and 2023.

(Dollars in thousands)
	December 31, 2024			December 31, 2023
Operating lease cost	$	840		$	815
Other information:
Cash paid for amounts included in the measurement of lease liabilities		819			787
Operating cash flows from operating leases		-			-
Right-of-use assets obtained in exchange for new lease liabilities - operating leases		-			370
Weighted-average remaining lease term - operating leases		7.91			8.45
Weighted-average discount rate - operating leases		2.80	%		2.73	%

A-51

The following table presents lease maturities as of December 31, 2024 and 2023.

(Dollars in thousands)
Maturity Analysis of Operating Lease Liabilities:	December 31, 2024
2025	$	773
2026		650
2027		612
2028		510
2029		422
Thereafter		1,694
Total		4,661
Less: Imputed Interest		(525	)
Operating Lease Liability	$	4,136

(6) Deposits

The composition of deposits at December 31, 2024 and 2023 is as follows:

	December 31, 2024					December 31, 2023
			Percentage					Percentage
	Amount		of Total			Amount		of Total
Noninterest-bearing demand	$	402,254		27	%	$	432,687		31	%
Interest-bearing demand, MMDA & savings		741,363		50	%		620,244		44	%
Time,  $250,000 and over		147,439		10	%		151,154		11	%
Other time		193,675		13	%		187,960		14	%
Total	$	1,484,731		100	%	$	1,392,045		100	%

At December 31, 2024, the scheduled maturities of time deposits are as follows:

	Time Deposits		Other
(Dollars in thousands)	$250,000 and over		Time Deposits
2025	$	142,536	$	182,425
2026		2,105		7,837
2027		1,041		3,320
2028		257		868
2029		-		725
Thereafter		-		-
Total	$	145,939	$	195,175

The Bank did not have any brokered deposits at December 31, 2024. At December 31, 2023, the Bank had $8.1 million in time deposits purchased through third party brokers.

(7) Federal Home Loan Bank (FHLB) and Federal Reserve Bank Borrowings

The Bank had no borrowings from the FHLB at December 31, 2024 and 2023. FHLB borrowings are collateralized by a blanket assignment on all residential first mortgage loans, home equity lines of credit and loans secured by multi-family real estate that the Bank owns. At December 31, 2024, the carrying value of loans pledged as collateral totaled approximately $232.9 million. The availability under the line of credit with the FHLB was $131.9 million at December 31, 2024.

The Bank is required to purchase and hold certain amounts of FHLB stock in order to obtain FHLB borrowings. No ready market exists for the FHLB stock, and it has no quoted market value. The stock is redeemable at $100 per share subject to certain limitations set by the FHLB. The Bank owned $1.1 million of FHLB stock, included in other investments, at December 31, 2024 and 2023.

As of December 31, 2024 and 2023, the Bank had no borrowings from the Federal Reserve Bank (“FRB”). FRB borrowings are collateralized by a blanket assignment on all qualifying loans that the Bank owns which are not pledged to the FHLB. At December 31, 2024, the carrying value of loans pledged as collateral totaled approximately $637.9 million. Availability under the line of credit with the FRB was $511.9 million at December 31, 2024.

A-52

(8) Junior Subordinated Debentures

In June 2006, the Company formed a second wholly owned Delaware statutory trust, PEBK Capital Trust II (“PEBK Trust II”), which issued $20.0 million of guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures. All of the common securities of PEBK Trust II are owned by the Company. The proceeds from the issuance of the common securities and the trust preferred securities were used by PEBK Trust II to purchase $20.6 million of junior subordinated debentures of the Company. The proceeds received by the Company from the sale of the junior subordinated debentures were used to repay in December 2006 the trust preferred securities issued in December 2001 by PEBK Capital Trust, a wholly owned Delaware statutory trust of the Company, and for general purposes. The debentures represent the sole assets of PEBK Trust II. PEBK Trust II is not included in the consolidated financial statements. The Company redeemed $5.0 million of outstanding trust preferred securities in 2019.

Prior to September 15, 2023, the trust preferred securities accrued and paid interest quarterly at a floating rate of three-month LIBOR plus 163 basis points. The three-month USD LIBOR rate ceased to be published after June 30, 2023. Effective September 15, 2023, the trust preferred securities accrue and pay interest quarterly at a floating rate of three-month Secured Overnight Financing Rate (SOFR) plus 189 basis points, including a 26 basis point credit spread adjustment.

These trust preferred securities are mandatorily redeemable upon maturity of the debentures on September 15, 2036. The Company has the right to redeem the debentures purchased by PEBK Trust II, in whole or in part, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount plus any accrued but unpaid interest.

(9) Income Taxes

The provision for income taxes is summarized as follows:

(Dollars in thousands)
	2024		2023			2022
Current expense
Federal	$	3,081		4,289			4,153
State		464		541			560
		3,545		4,830			4,713
Deferred income tax expense (benefit)
Federal		693		(404	)		(482	)
State		338		(49	)		(59	)
		1,031		(453	)		(541	)
Total income tax	$	4,576		4,377			4,172

The differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to earnings before income taxes are as follows:

(Dollars in thousands)
	2024			2023			2022
Tax expense at statutory rate	$	4,398			4,184			4,262
State income tax, net of federal income tax effect		635			395			395
Interest received related to tax positions		(260	)		-			-
Tax-exempt interest income		(114	)		(182	)		(445	)
Increase in cash surrender value of life insurance		(164	)		(91	)		(71	)
Tax credits		(10	)		(10	)		(11	)
Nondeductible interest and other expense		24			30			24
Other		67			51			18
Total	$	4,576			4,377			4,172

A-53

The following summarizes the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities. The net deferred tax asset is included as a component of other assets at December 31, 2024 and 2023.

(Dollars in thousands)
	2024		2023
Deferred tax assets:
Allowance for credit losses	$	2,485		2,944
Accrued retirement expense		1,215		1,210
Restricted stock		238		249
Interest income on nonaccrual loans		4		5
Lease liability		926		1,110
Unrealized loss on available for sale securities		11,412		11,741
Total gross deferred tax assets		16,280		17,259
Deferred tax liabilities:
Deferred loan fees		160		186
Accumulated depreciation		375		375
Prepaid expenses		296		3
ROU Asset		899		1,087
Partnership income		250		112
Other		9		12
Total gross deferred tax liabilities		1,989		1,775
Net deferred tax asset	$	14,291		15,484

The Company has analyzed the tax positions taken or expected to be taken in its tax returns and has concluded that it has no liability related to uncertain tax positions.

As of December 31, 2024, the Company’s Federal income tax filings for years 2021 through 2023 are open to examination by the Internal Revenue Service. The Company’s North Carolina income tax returns for years 2021 through 2023 are open to examination by the North Carolina Department of Revenue.

(10) Related Party Transactions

The Company conducts transactions with its directors and executive officers, including companies in which they have beneficial interests, in the normal course of business. In accordance with Regulation O of the Federal Reserve, it is the policy of the Bank that loan transactions with directors and officers are made on substantially the same terms as those prevailing at the time made for comparable loans to other persons. The following is a summary of activity for related party loans for 2024 and 2023:

(Dollars in thousands)
	2024			2023
Beginning balance	$	3,569			3,381
Disbursements		6,095			1,976
Repayments		(4,793	)		(1,788	)
Ending balance	$	4,871			3,569

At December 31, 2024 and 2023, the Company had deposit relationships with related parties of approximately $65.5 million and $52.5 million, respectively.

(11) Commitments and Contingencies

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

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

A-54

In most cases, the Bank requires collateral or other security to support financial instruments with credit risk.

(Dollars in thousands)
	Contractual Amount
	2024		2023
Financial instruments whose contract amount represent credit risk:
Commitments to extend credit	$	348,876	$	367,482
Standby letters of credit	$	1,675	$	3,721

Commitments to extend credit are conditional agreements to lend to a customer. Commitments generally have fixed expiration dates and because they may expire without being drawn upon, the total commitment amount of $350.6 million does not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Bank to pay a third party on behalf of a customer. Those letters of credit are primarily issued to businesses in the Bank’s delineated market area. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds real estate, equipment, automobiles and customer deposits as collateral supporting those commitments for which collateral is deemed necessary.

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, when this extension of credit is not unconditionally cancelable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding activity and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $1.1 million and $1.8 million at December 31, 2024 and 2023, respectively, is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the years ended December 31, 2024 and 2023.

(dollars in thousands)	For  twelve months ended
	December 31, 2024			December 31, 2023
Beginning Balance	$	1,770		$	-
Cummulative effect of change in accounting principle		-			2,278
Recovery of credit losses		(669	)		(508	)
Ending balance	$	1,101		$	1,770

(12) Employee and Director Benefit Programs

The Bank has a profit sharing and 401(k) plan for the benefit of substantially all employees subject to certain minimum age and service requirements. Under the 401(k) plan, the Bank matched employee contributions to a maximum of 4.00% of annual compensation in 2022, 2023 and 2024. The Company’s contribution pursuant to this formula was approximately $783,000, $759,000 and $719,000 for the years ended December 31, 2024, 2023 and 2022, respectively. Investments made available under the 401(k) plan are determined by a committee comprised of senior management. No investments in Company stock are available under the 401(k) plan. Contributions to the 401(k) plan are vested immediately.

In December 2001, the Company initiated a retirement benefit plan to provide retirement benefits to key officers and its Board of Directors and to provide death benefits for their designated beneficiaries. Under the postretirement benefit plan, the Company purchased life insurance policies on the lives of the key officers and each director. The increase in cash surrender value of the policies constitutes the Company’s contribution to the postretirement benefit plan each year. Postretirement benefit plan participants are to be paid annual benefits for a specified number of years commencing upon retirement. Expenses incurred for benefits relating to the postretirement benefit plan were approximately $617,000, $430,000 and $369,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

A-55

The following table sets forth the change in the accumulated benefit obligation for the Company’s postretirement benefit plans described above:

(Dollars in thousands)
	2024			2023
Benefit obligation at beginning of period	$	5,268			5,110
Service cost		521			363
Interest cost		101			70
Benefits paid		(464	)		(275	)
Benefit obligation at end of period	$	5,426			5,268

The amounts recognized in the Company’s Consolidated Balance Sheet as of December 31, 2024 and 2023 are shown in the following two tables:

(Dollars in thousands)
	2024		2023
Benefit obligation	$	5,426		5,268
Fair value of plan assets		-		-

(Dollars in thousands)
	2024			2023
Funded status	$	(5,426	)		(5,268	)
Unrecognized prior service cost/benefit		-			-
Unrecognized net actuarial loss		-			-
Net amount recognized	$	(5,426	)		(5,268	)
Unfunded accrued liability	$	(5,426	)		(5,268	)
Intangible assets		-			-
Net amount recognized	$	(5,426	)		(5,268	)

Net periodic benefit cost of the Company’s postretirement benefit plans for the years ended December 31, 2024, 2023 and 2022 consisted of the following:

(Dollars in thousands)
	2024			2023			2022
Service cost	$	521			363			325
Interest cost		101			70			63
Net periodic cost	$	622			433			388
Weighted average discount rate assumption used to determine benefit obligation		5.50	%		5.50	%		5.50	%

A-56

The Company paid postretirement plan benefits totaling $465,000, $275,000 and $289,000 during the years ended December 31, 2024, 2023 and 2022, respectively. Information about the expected benefit payments for the Company’s postretirement benefit plan is as follows:

(Dollars in thousands)
Year ending December 31,
2025	$	361
2026		455
2027		483
2028		491
2029		530
Thereafter		8,666

(13) Regulatory Matters

The Company and the Bank are subject to regulatory capital requirements administered by the 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 Company’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 the 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 Company and the Bank to maintain minimum capital ratios in relation to both on- and off-balance sheet items at various risk weights. Total capital consists of two tiers of capital. Tier 1 capital includes common shareholders’ equity and trust preferred securities less adjustments for intangible assets. Tier 2 capital consists of the allowance for credit losses, up to 1.25% of risk-weighted assets and other adjustments. Management believes, as of December 31, 2024, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2024, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since that notification that management believes have changed the Bank’s category.

In 2013, the Federal Reserve approved its final rule on the Basel III capital standards, which implement changes to the regulatory capital framework for banking organizations. The Basel III capital standards, which became effective January 1, 2015, include new risk-based capital and leverage ratios, which were phased in from 2015 to 2019. The new minimum capital level requirements applicable to the Company and the Bank under the final rules are as follows: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total risk based capital ratio of 8% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 4% (unchanged from previous rules). An additional capital conservation buffer was added to the minimum requirements for capital adequacy purposes beginning on January 1, 2016 and was phased in through 2019. This resulted in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under the final rules, institutions would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained earnings that could be utilized for such actions.

A-57

The Company’s and the Bank’s actual capital amounts and ratios are presented below:

(Dollars in thousands)
	Actual					Minimum Regulatory Capital Ratio					Minimum Ratio plus Capital Conservation Buffer
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2024:
Total Capital (to Risk-Weighted Assets)
Consolidated	$	195,816		15.34	%		102,127		8.00	%		N/A		N/A
Bank		194,314		15.22	%		102,116		8.00	%		134,027		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated		184,720		14.47	%		76,595		6.00	%		N/A		N/A
Bank		183,218		14.35	%		76,587		6.00	%		108,498		8.50	%
Tier 1 Capital (to Average Assets)
Consolidated		184,720		10.88	%		67,896		4.00	%		N/A		N/A
Bank		183,218		10.71	%		68,441		4.00	%		68,441		4.00	%
Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated		169,720		13.29	%		57,446		4.50	%		N/A		N/A
Bank		183,218		14.35	%		57,440		4.50	%		89,351		7.00	%

(Dollars in thousands)
	Actual					Minimum Regulatory Capital Ratio					Minimum Ratio plus Capital Conservation Buffer
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2023:
Total Capital (to Risk-Weighted Assets)
Consolidated	$	188,192		14.96	%		100,636		8.00	%		N/A		N/A
Bank		186,774		14.85	%		100,636		8.00	%		132,085		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated		175,381		13.94	%		75,477		6.00	%		N/A		N/A
Bank		173,963		13.83	%		75,477		6.00	%		106,926		8.50	%
Tier 1 Capital (to Average Assets)
Consolidated		175,381		10.51	%		66,757		4.00	%		N/A		N/A
Bank		173,963		10.35	%		67,254		4.00	%		67,254		4.00	%
Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated		160,381		12.75	%		56,608		4.50	%		N/A		N/A
Bank		173,963		13.83	%		56,608		4.50	%		88,057		7.00	%

(14) Other Operating Income and Expense

Miscellaneous non-interest income for the years ended December 31, 2024, 2023 and 2022 included the following items:

(Dollars in thousands)
	2024		2023		2022
Visa debit card income	$	4,417		4,717		4,901
Bank owned life insurance income		783		432		458
Income on SBIC Investments		1,186		886		1,159
Income on mutual funds held in deferred compensation trust		555		844		183
Other		1,394		1,324		1,048
	$	8,335		8,203		7,749

A-58

Other non-interest expense for the years ended December 31, 2024, 2023 and 2022 included the following items:

(Dollars in thousands)
	2024		2023		2022
ATM expense	$	588		565		629
Data processing		708		758		777
Deposit program expense		306		362		348
Dues and subscriptions		740		698		628
Internet banking expense		1,067		996		949
Office supplies		534		482		532
Telephone		595		664		691
Deferred comp expense		555		844		183
Other		4,637		4,148		3,558
	$	9,730		9,517		8,295

(15) Fair Value of Financial Instruments

The Company is required to disclose fair value information about financial instruments, whether or not recognized at fair value on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company’s financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance.

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

· Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

· Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

· Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Investment Securities Available for Sale

Fair values of investment securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges when available. If quoted prices are not available, fair value is determined using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Fair values for investment securities with quoted market prices are reported in the Level 1 fair value category. Fair value measurements obtained from independent pricing services are reported in the Level 2 fair value category. All other fair value measurements are reported in the Level 3 fair value category.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at lower of aggregate cost or market value. The cost of mortgage loans held for sale approximates the market value. Mortgage loans held for sale are reported in the Level 2 fair value category. Management determined that the valuation technique used at current period end and prior period end are more appropriately classified as Level 2 and has updated in the current period and prior period year end classifications to Level 2.

Loans

The fair value of loans, excluding previously presented individually evaluated loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are reported in the Level 3 fair value category, as the pricing of loans is more subjective than the pricing of other financial instruments.

A-59

Mutual Funds

Mutual funds held in the deferred compensation trust are carried at fair value. Mutual funds held in the deferred compensation trust are included in other assets on the balance sheet and reported in the Level 1 fair value category.

FHLB Borrowings

The fair value of FHLB borrowings is estimated based upon discounted future cash flows using a discount rate comparable to the current market rate for such borrowings. FHLB borrowings are reported in the Level 2 fair value category. Management determined that the valuation technique used at current period end and prior period end are more appropriately classified as Level 2 and has updated in the current period and prior period year end classifications to Level 2.

Commitments to Extend Credit and Standby Letters of Credit

Commitments to extend credit and standby letters of credit are generally short-term in duration and made at variable interest rates. Therefore, both the carrying value and estimated fair value associated with these instruments are immaterial.

Limitations

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

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The tables below present all financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy, as of December 31, 2024 and December 31, 2023.

(Dollars in thousands)
	December 31, 2024
	Fair Value Measurements		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
U.S. Treasuries	$	7,257		-		7,257		-
U.S. Government sponsored enterprises		8,732		-		8,732		-
GSE - Mortgage-backed securities		225,792		-		225,792		-
Private label mortgage-backed securities		41,767		-		41,767		-
State and political subdivisions		104,455		-		104,455		-

(Dollars in thousands)
	December 31, 2023
	Fair Value Measurements		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
U.S. Treasuries	$	10,144		-		10,144		-
U.S. Government sponsored enterprises		10,515		-		10,515		-
GSE - Mortgage-backed securities		234,902		-		234,902		-
Private label mortgage-backed securities		31,270		-		31,270		-
State and political subdivisions		105,093		-		105,093		-

The fair value measurements for individually evaluated loans on a non-recurring basis at December 31, 2024 and December 31, 2023 are presented below. The fair value measurement process uses certified appraisals and other market-based information; however, in many cases, it also requires significant input based on management’s knowledge of, and judgment about, current market conditions, specific issues relating to the collateral and other matters. As a result, all fair value measurements for individually evaluated loans and other real estate are considered Level 3.

A-60

(Dollars in thousands)
	Fair Value December 31, 2024		Fair Value December 31, 2023		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Individually evaluated loans	$	1,646	$	-	Appraised value	Discounts to reflect current market conditions and ultimate collectability	0 - 50%
Other real estate	$	369		-	Appraised value	Discounts to reflect current market conditions and estimated costs to sell	0 - 25%

The carrying amount and estimated fair value of financial instruments at December 31, 2024 and December 31, 2023 are as follows:

(Dollars in thousands)
	Carrying		Fair Value Measurements at December 31, 2024
	Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	59,266		59,266		-		-		59,266
Investment securities available for sale		388,003		-		388,003		-		388,003
Other investments		2,728		-		-		2,728		2,728
Mortgage loans held for sale		1,367		-		1,367		-		1,367
Loans, net		1,128,409		-		-		1,123,864		1,123,864
Mutual funds held in deferred compensation trust		2,726		2,726		-		-		2,726
Liabilities:
Deposits	$	1,484,731		-		1,487,475		-		1,487,475
Junior subordinated debentures		15,464		-		15,464		-		15,464

(Dollars in thousands)
	Carrying		Fair Value Measurements at December 31, 2023
	Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	82,375		82,375		-		-		82,375
Investment securities available for sale		391,924		-		391,924		-		391,924
Other investments		2,874		-		-		2,874		2,874
Mortgage loans held for sale		686		-		686		-		686
Loans, net		1,082,025		-		-		1,071,178		1,071,178
Mutual funds held in deferred compensation trust		2,171		2,171		-		-		2,171
Liabilities:
Deposits	$	1,392,045		-		1,397,351		-		1,397,351
Securities sold under agreements to repurchase		86,715		-		86,715		-		86,715
Junior subordinated debentures		15,464		-		15,464		-		15,464

(16) Reportable Segments

The Company has two reportable segments as described below and in Note 1:

Banking Operations – This segment reflects the consolidated Bank, excluding CBRES. The primary source of revenue for this segment is net interest income.

CBRES – A Bank subsidiary that provides appraisal management services to community banks. The primary source of revenue for this segment is appraisal management fee income.

The Bank’s executive management team, which is comprised of the Bank’s Chief Executive Officer, Chief Financial Officer and executive vice presidents,  is the chief operating decision maker for the Company. The Bank’s executive management team reviews actual net income versus budgeted net income on a quarterly basis to assess segment performance.

A-61

The following table presents financial information for the reportable segments. Financial results by operating segment, including significant expense categories provided to the chief operating decision maker, are detailed below. Certain prior period amounts have been reclassified to conform to the current presentation. The information provided under the caption “Other” represents the parent company, which is not considered to be a reportable segment, is included to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP.

(Dollars in thousands)
	Banking
	Operations			CBRES		Other			Consolidated
As of and for the year ended December 31, 2024
Interest income	$	80,699			-		34			80,733
Interest expense		25,538			-		1,116			26,654
Net interest income		55,161			-		(1,082	)		54,079
Provision for credit losses		(285	)		-		-			(285	)
Noninterest income		16,024			-		-			16,024
Appraisal management fee income		-			11,691		-			11,691
Salaries and employee benefits		27,037			766		406			28,209
Occupancy		8,683			3		-			8,686
Appraisal management fee expense		-			9,263		-			9,263
Noninterest expense		13,908			798		286			14,992
Income tax expense (benefit)		4,749			199		(372	)		4,576
Net income (loss)	$	17,093			662		(1,402	)		16,353
Total assets	$	1,647,020			4,340		602			1,651,962
As of and for the year ended December 31, 2023
Interest income	$	71,830			-		32			71,862
Interest expense		16,066			-		1,077			17,143
Net interest income		55,764			-		(1,045	)		54,719
Provision for credit losses		1,566			-		-			1,566
Noninterest income		13,322			-		-			13,322
Appraisal management fee income		-			9,592		-			9,592
Salaries and employee benefits		25,501			758		381			26,640
Occupancy		7,959			3		-			7,962
Appraisal management fee expense		-			7,559		-			7,559
Noninterest expense		13,059			675		249			13,983
Income tax expense (benefit)		4,591			138		(352	)		4,377
Net income (loss)	$	16,410			459		(1,323	)		15,546
Total assets	$	1,631,767			3,681		462			1,635,910
As of and for the year ended December 31, 2022
Interest income	$	54,416			-		15			54,431
Interest expense		2,796			-		527			3,323
Net interest income		51,620			-		(512	)		51,108
Provision for credit losses		1,472			-		-			1,472
Noninterest income		15,012			14		-			15,026
Appraisal management fee income		-			11,663		-			11,663
Salaries and employee benefits		24,876			917		337			26,130
Occupancy		8,045			3		-			8,048
Appraisal management fee expense		-			9,264		-			9,264
Noninterest expense		11,512			755		301			12,588
Income tax expense (benefit)		4,248			166		(242	)		4,172
Net income (loss)	$	16,479			552		(908	)		16,123
Total assets	$	1,617,212			3,227		488			1,620,927

(17) Peoples Bancorp of North Carolina, Inc. (Parent Company Only) Condensed Financial Statements

Balance Sheets
December 31, 2024 and 2023
(Dollars in thousands)
Assets	2024		2023
Cash	$	425		590
Interest-bearing time deposit		1,000		1,000
Investment in subsidiaries		144,061		134,598
Investment in PEBK Capital Trust II		464		464
Other assets		138		-
Total assets	$	146,088		136,652
Liabilities and Shareholders' Equity
Junior subordinated debentures	$	15,464		15,464
Other liabilities		61		172
Shareholders' equity		130,563		121,016
Total liabilities and shareholders' equity	$	146,088		136,652

A-62

Statements of Earnings
For the Years Ended December 31, 2024, 2023 and 2022
(Dollars in thousands)
Revenues:	2024		2023		2022
Interest and dividend from subsidiary	$	8,534		8,531		6,240
Total revenues		8,534		8,531		6,240
Expenses:
Interest		1,116		1,079		529
Other operating expenses		692		630		639
Total expenses		1,808		1,709		1,168
Income before income tax benefit and equity in undistributed earnings of subsidiaries		6,726		6,822		5,072
Income tax benefit		372		352		242
Income before equity in undistributed earnings of subsidiaries		7,098		7,174		5,314
Equity in undistributed earnings of subsidiaries		9,255		8,372		10,809
Net earnings	$	16,353		15,546		16,123

Statements of Cash Flows
For the Years Ended December 31, 2024, 2023 and 2022
(Dollars in thousands)
	2024			2023			2022
Cash flows from operating activities:
Net earnings	$	16,353			15,546			16,123
Adjustments to reconcile net earnings to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(9,255	)		(8,372	)		(10,809	)
Change in:
Other assets		(138	)		24			81
Other liabilities		(111	)		127			32
Net cash provided by operating activities		6,849			7,325			5,427
Cash flows from investing activities:
Net cash provided by investing activities		-			-			-
Cash flows from financing activities:
Cash dividends paid on common stock		(5,047	)		(5,108	)		(4,935	)
Stock repurchase		(1,998	)		(1,997	)		(710	)
Excise tax on stock repurchase		(20	)		(20	)		-
Proceeds from exercise of restricted stock units		51			6			41
Net cash used by financing activities		(7,014	)		(7,119	)		(5,604	)
Net change in cash		(165	)		206			(177	)
Cash at beginning of year		590			384			561
Cash at end of year	$	425			590			384

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DIRECTORS AND OFFICERS OF THE COMPANY

DIRECTORS

Robert C. Abernethy, Sr. – Chairman

Chairman of the Board, Peoples Bancorp of North Carolina, Inc. and Peoples Bank

President, Secretary and Treasurer, Carolina Glove Company, Inc. (glove manufacturer)

Secretary and Assistant Treasurer, Midstate Contractors, Inc. (paving company)

James S. Abernethy – Vice Chairman

Vice President, Carolina Glove Company, Inc. (glove manufacturer)

President and Assistant Secretary, Midstate Contractors, Inc. (paving company)

Vice President, Secretary and Chairman of the Board of Directors, Alexander Railroad Company

Ashton V. Abernethy

Vice President of Sales, Medusind Behavioral Health

Robert C. Abernethy, Jr.

Executive Vice President, Carolina Glove Company, Inc. (glove manufacturer)

Douglas S. Howard

Vice President and Treasurer, Denver Equipment Company of Charlotte, Inc.

John W. Lineberger, Jr.

Vice President, Lineberger Brothers, Inc. (real estate development)

Gary E. Matthews

President and Director, Matthews Construction Company, Inc. (general contractor)

Director, Conover Metal Products

Billy L. Price, Jr. MD

Practitioner of Internal Medicine, BL Price Jr. Medical Consultants, PLLC

Larry E. Robinson

Chairman of the Board and Chief Executive Officer, The Blue Ridge Distributing Co., Inc. (beer and wine distributor)

Director, United Beverages of North Carolina, LLC (beer distributor)

William Gregory (Greg) Terry

President, Clemson Legacy Designs

President, Collegiate Legacy Designs

Director/Consultant, Drum & Willis-Reynolds Funeral Homes & Crematory                        

Dan Ray Timmerman, Sr.

Chairman of the Board and Chief Executive Officer, Timmerman Manufacturing, Inc. (wrought iron furniture, railings and gates manufacturer)

Dan Ray Timmerman, Jr.

President, Timmerman Manufacturing, Inc. (wrought iron furniture, railings and gates manufacturer)

Benjamin I. Zachary

President, Treasurer, General Manager and Director, Alexander Railroad Company

OFFICERS

William D. Cable, Sr.

President and Chief Executive Officer

Jeffrey N. Hooper

Executive Vice President, Chief Financial Officer, Corporate Treasurer and Assistant Corporate Secretary

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