10-K

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2020

or

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

For the transition period from ___________ to ___________

Commission File Number 000-33411

New Peoples Bankshares, Inc.

(Exact name of registrant as specified in its charter)

Virginia	31-1804543
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
67 Commerce Drive	24260
Honaker, VA	(Zip Code)
(Address of principal executive offices)

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
	None

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

Common Stock - $2 Par Value

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

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

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

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

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

Large accelerated filer ☐                                                                                                     Accelerated filer ☐

Non-accelerated filer ☒                                                                                        Smaller reporting company ☒

                                                                                                                               Emerging growth company ☐

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

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

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

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

The number of shares outstanding of the registrant’s common stock was 23,922,086 as of March 31, 2021.

DOCUMENTS INCORPORATED BY REFERENCE:

Proxy Statement for the 2021 Annual Meeting of Shareholders – Part III

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	16
Item 3.	Legal Proceedings	17
Item 4.	Mine Safety Disclosures	17
PART II		17
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8.	Financial Statements and Supplementary Data	38
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	73
Item 9A.	Controls and Procedures	73
Item 9B.	Other Information	74
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	74
Item 11.	Executive Compensation	74
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	74
Item 13.	Certain Relationships and Related Transactions, and Director Independence	74
Item 14.	Principal Accounting Fees and Services	74
PART IV
Item 15.	Exhibits, Financial Statement Schedules	75
Item 16.	Form 10-K Summary	75
SIGNATURES		76

PART I

Item 1.       Business

General

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

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

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

Our History

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

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

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

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

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

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

Branch Locations

After a period of significant branch expansion between 2000 and 2008, we have since consolidated some of our branch operations to improve efficiency. Currently, in addition to our headquarters in Honaker, Virginia we have 18 full-service branches located in three states: Virginia - Abingdon, Big Stone Gap, Bluefield, Bristol, Castlewood, Chilhowie, Clintwood, Gate City, Grundy, Haysi, Lebanon, Pounding Mill, Tazewell, Weber City and Wise; West Virginia - Princeton (2); and Tennessee – Kingsport. Additionally, we have one limited services branch in Pound, Virginia; a loan production office in Boone, North Carolina; and a former loan production office in Jonesborough, Tennessee which is currently being used as a hub to meet prospective loan customers.

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

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

Our Market Areas

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

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

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

Internet Site

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

Available Information

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

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COVID-19 Pandemic

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

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

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

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

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

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

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

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

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

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

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

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

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

● The capability to electronically sign important documents has been expanded.

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

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

Banking Services

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

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

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

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

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

	December 31,
	2020		2019		2018		2017		2016
Commercial, financial and agricultural		19.28%		14.45%		15.20%		13.35%		11.75%
Real estate – construction		4.35%		5.53%		6.42%		5.80%		5.50%
Real estate – commercial		31.17%		30.30%		25.74%		24.89%		22.05%
Real estate – residential		41.62%		45.61%		48.15%		51.59%		55.97%
Installment loans to individuals		3.58%		4.11%		4.49%		4.37%		4.73%
Total		100.00%		100.00%		100.00%		100.00%		100.00%

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

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

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

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

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

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

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

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

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

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

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

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

Competition

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

Competition in the market area for loans to small businesses and professionals, the Bank’s target market, is intense, and pricing is important. Many of our larger competitors have substantially greater resources and lending limits than we have. They offer certain services, such as extensive and established branch networks and trust services that we do not provide or do not expect to provide in the near future. Moreover, larger institutions operating in the market area have access to borrowed funds at lower costs than are available to us. Deposit competition among institutions in the market area also is strong. As a result, it is possible that we may have to pay above-market rates to attract or retain deposits.

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

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

County or City	% of Market
Scott County, VA		38.60	%
Dickenson County, VA		29.13	%
Russell County, VA		25.15	%
Wise County, VA		10.59	%
Tazewell County, VA		9.14	%
Buchanan County, VA		9.56	%
Mercer County, WV		6.23	%
Smyth County, VA		4.66	%
Washington County, VA		4.34	%
City of Bristol, VA		3.12	%
City of Kingsport, TN		1.98	%

Employees

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

Supervision and Regulation

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

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

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

• banking, managing or controlling banks;  

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

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

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

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

• acquiring substantially all the assets of any bank;  

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

• merging or consolidating with another bank holding company.

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

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

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

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

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

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

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

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

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

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

	Total Risk	Tier 1 Risk	CET1 Risk
	Based Capital	Based Capital	Based Capital	Leverage
	Ratio	Ratio	Ratio	Ratio
Well Capitalized	≥10%	≥ 8%	≥ 6.5%	≥ 5%
Adequately Capitalized	≥ 8%	≥6%	≥4.5%	≥ 4%
Undercapitalized	≥ 8%	≥6%	≥4.5%	≥ 4%
Significantly Undercapitalized	≥ 6%	≥ 4%	≥3%	≥3%
Critically Undercapitalized	Tangible equity to total assets ≤ 2%

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

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

Minimum Leverage Ratio	4.00		%
Minimum CET1 Risk Based Capital Ratio		4.50	%
Capital Conservation Buffer (1)		2.50	%
Minimum Tier CET1 Risk Based Capital Ratio with Capital Conservation Buffer		7.00	%
Minimum Tier 1 Risk Based Capital Ratio		6.00	%
Minimum Tier 1 Risk Based Capital Ratio with Capital Conservation Buffer		8.50	%
Minimum Total Risk Based Capital Ratio		8.00	%
Minimum Total Risk Based Capital Ratio with Capital Conservation Buffer		10.50	%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Item 1A.    Risk Factors

Not required.

Item 1B.    Unresolved Staff Comments

Not applicable.

Item 2.     Properties

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

The Bank owns 14 of its full-service branches, including its headquarters office, plus its one limited-service branch. The locations of these branches are described in Item 1. In 2017, the Bank sold its Abingdon, Bristol, Gate City and Castlewood, Virginia properties and in connection with the sale of these four properties, entered into commercial lease agreements for the properties, which allowed the Bank to continue to service customers from these locations. During the third quarter of 2019, the Bank sold its Lebanon, Virginia property, and in connection with this sale, entered into a commercial lease agreement which allows the Bank to continue to service customers from this location. For additional discussion of these leases see Note 17, Leasing Activities, in Notes to the Consolidated Financial Statements contained in Item 8 of this form 10-K. Aside from the retail branch offices, we own a building in Bristol, Virginia that is being renovated as a full-service branch with a planned opening in the third quarter of 2021. Additionally, the bank owns two operations buildings, one housing its network operations and another that serves as our call center and ITM network operations center. In November 2020, we entered into a short-term lease on a building in Boone, North Carolina that serves as a loan production office.

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

The Bank owns a location in Dungannon, Virginia that is currently being leased out, but was formerly used as a branch until its closure during 2010. Two other closed branches (Bluewell, West Virginia and Jonesville, Virginia) that are vacant may be used for future banking offices again. A third vacant former branch office in Bristol, Virginia had been under consideration as a future banking office, but this is likely to change due to its proximity to the office we are renovating. A fourth former branch office in Norton, Virginia was transferred to other real estate owned in 2019 and is being marketed for sale. With the opening of an office in Kingsport, Tennessee in the third quarter of 2020, we closed a nearby location and transferred customer accounts to the new Kingsport office. As a result of assessing our branch network, as part of the overall efficiency project undertaken in 2019 and 2020, offices in Pound and Weber City, Virginia are scheduled to close in the second quarter of 2021, with those accounts being transferred to nearby offices.

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

Item 3.     Legal Proceedings

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

Item 4.     Mine Safety Disclosures

Not applicable.

PART II

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

(a)        Market Information

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

The most recent sales price of which management is aware was $2.00 per share on March 24, 2021.

(b)           Holders

On March 24, 2021, there were approximately 4,321 shareholders of record.

(c)          Dividends

In order to preserve capital we have not paid cash dividends to our shareholders. Any declaration of dividends in the future will depend on our earnings, capital requirements, growth strategies, and compliance with regulatory mandates principally at the Bank level since the Company’s primary source of income is dividends which it would receive from the Bank. We are subject to certain dividend restrictions and capital requirements imposed by the Federal Reserve Bank as well as Virginia banking statutes and regulations. We do not anticipate paying a dividend on our common stock in the near future as the Company continues to have a retained deficit. We expect to retain earnings to build capital and position the Company to pay a dividend to its shareholders as soon as practicable. See Note 16 Dividend Limitation on Subsidiary Bank and Note 21 Capital to the consolidated financial statements contained in Item 8 of this form 10-K.

Item 6.        Selected Financial Data

Not required.

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Item 7.        Management’s Discussion and Analysis of Financial Condition and Results of Operations  Caution About Forward Looking Statements

We make forward looking statements in this annual report that are subject to risks and uncertainties. These forward looking statements include statements regarding our profitability, liquidity, and allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. The forward-looking information is based on various factors and was derived using numerous assumptions.  Important factors that may cause actual results to differ from projections include:

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

● any required increase in our regulatory capital ratios;

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

● deterioration of asset quality;

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

● fluctuations of real estate values in our markets;

● our ability to attract and retain talent;

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

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

● the successful management of interest rate risk;

● the successful management of liquidity;

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

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

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

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

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

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

● technology utilized by us;

● our ability to successfully manage cyber security;

● our reliance on third-party vendors and correspondent banks;

● changes in generally accepted accounting principles;

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

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

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

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General

The following commentary discusses major components of our business and presents an overview of our consolidated financial position at December 31, 2020 and 2019 as well as results of operations for the years ended December 31, 2020 and 2019. This discussion should be reviewed in conjunction with the consolidated financial statements and accompanying notes and other statistical information presented elsewhere in this Form 10-K.

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

Critical Accounting Policies

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

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

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

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

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

Cyber Security

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

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

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In December 2020, the federal banking agencies issued a notice of proposed rulemaking that would require banking organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident” or a “notification incident.” The proposed rule also would require specific and immediate notifications by bank service providers that become aware of similar incidents.

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

Recent Events

Since December 31, 2019 COVID-19 has adversely affected, and will continue to adversely affect, economic activity globally, nationally and locally. Market interest rates have declined significantly. In early 2020, the Federal Open Market Committee reduced the target federal funds rate twice by a total of 150 basis points (bps). As a result of these actions the target federal funds rate now stands at 0.00% - 0.25% and the prime interest rate stands at 3.25%.

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

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

As part of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the Small Business Administration (SBA) was authorized to guarantee Paycheck Protection Program (PPP) loans used by borrowers for payroll and other permitted purposes. The SBA has provided a 100% guarantee and paid originators a processing fee ranging from 1% to 5%, based on the loan amount. We funded a total of $44.5 million of these loans for our customers through August 2020, when the funding period closed, and received $1.6 million in net fees from the SBA, which is being recognized as income over the terms of these loans. As of December 31, 2020, $994 thousand of these fees had been recognized in income. At December 31, 2020, $34.8 million of PPP loans remain. It is anticipated the SBA will forgive the majority of these loans. Through March 31, 2021, 407 loans have received forgiveness payments from the SBA totaling $24.7 million.

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

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

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

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

Overview

The Company’s consolidated net income for the year ended December 31, 2020 was $2.9 million, or basic income per share of $0.12 as compared to a net income of $2.1 million, or basic income per share of $0.09, for the year ended December 31, 2019. This is an increase of $831 thousand, or $0.03 per share. This increase was driven primarily by a reduction of $2.0 million in non-interest expense and an increase of $167 thousand in net interest income, offset by a reduction of $505 thousand in non-interest income and an increase of $250 thousand in provision for loan losses. The $2.0 million reduction in non-interest expense is a 6.9% decrease and was driven by an $878 thousand decrease in salaries and benefits and a $1.1 million decrease in other operating expenses. The salaries and benefits reduction is a result of the restructure announced in May of 2020. The other operating expenses reduction is a result of renegotiated contracts and reductions in expenses related to loan collections and foreclosed assets. A moratorium on foreclosures during most of 2020 drove the reductions in loan collections and foreclosed asset expenses. The increase in net interest income resulted from a $919 thousand decline in interest income which was more than mitigated by a $1.1 million reduction in interest expense. Economic conditions during 2020 drove reductions in market interest rates which negatively affected our interest income and allowed us to reduce our deposit rates.

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

The Company’s key performance indicators are as follows:

	December 31,
	2020			2019			2018
Return on average assets		0.39	%		0.29	%		0.14	%
Return on average equity		5.18	%		3.89	%		1.83	%
Average equity to average assets ratio		7.51	%		7.46	%		7.43	%

Highlights from the year 2020 include:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net Interest Income and Net Interest Margin

The Company’s primary source of income is net interest income, which increased $167 thousand, or 0.7% in 2020 compared to 2019. While we had increases in both loans and overnight balances in interest-bearing deposits in other banks, the growth was not sufficient to offset the impact of decreases in interest rates, resulting in a decrease in interest income of $919 thousand. However, total interest expense decreased by $1.1 million, more than mitigating the decrease in interest income, due primarily to the reduction of interest rates paid on money market accounts, time deposits and trust preferred securities.

The decrease in interest income is due primarily to lower interest rates on loan accounts, which accounted for $896 thousand of the $919 thousand total decrease, even though average loan balances increased $23.2 million during 2020. Other contributing items to the decline in interest income was a $597 thousand decrease in interest income from deposits in other banks and a $355 thousand decrease in interest on investments. Although average balances of deposits in other banks grew by $22.1 million, the decline in yield to 0.34% from 2.06% in 2020 compared to 2019 drove the reduction in interest income from these deposits. The decline in interest income received from investments was driven by reductions in both rates and balances. Partially mitigating these decreases was a $933 thousand increase in loan fees, driven primarily by fees earned on PPP loans.

The decrease in interest expense of $1.1 million was driven primarily by a $598 thousand reduction in interest expense paid on money market deposit accounts, with both lower balances and lower rates contributing to the savings. Lower rates paid on trust preferred securities contributed $254 thousand toward reductions in interest expense, as lower market rates reduced the variable rates paid in these securities.

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

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

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

Unless we are able to continue to increase the volume of our interest-earning assets going forward, while controlling our cost of funds, we may continue to experience compression on the net interest margin. New and renewed loans are often being repriced at lower interest rates while we anticipate no increase in interest rates in the foreseeable future, due to the economic impact of the COVID-19 pandemic.

Our future interest rate structure also may be impacted by the pending end of the use of LIBOR as a benchmark interest rate in 2021. We use LIBOR in pricing some of our interest earning assets and liabilities, including our trust preferred securities. At this time it appears that LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR), which is a transparent measure of the cost of borrowing cash overnight collateralized by Treasury securities. Because no there is not yet a consensus as to what rate or rates may become acceptable alternatives to LIBOR, however, we cannot predict the effect of any such alternatives on the value of LIBOR-based variable-rate loans, as well as LIBOR-based securities, trust preferred securities, or other securities or financial arrangements. Regardless of whether SOFR or some other benchmark rate replaces LIBOR, we do not anticipate that the change will have a material impact on our ability to negotiate and price earning assets and liabilities. However, the transition to alternative reference rate for new contracts, or the implementation of a substitute index or indices for the calculation of interest rates under the Company’s existing loan agreements with borrowers or other financial arrangements, could change the Company’s market risk profile, interest margin, interest spread and pricing models, may cause the Company to incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept a substitute index or indices, and may result in disputes or litigation with customers or other counter-parties over the appropriateness or comparability to LIBOR of the substitute index or indices.

Nonaccrual loan balances increased $391 thousand during 2020 to $5.5 million at December 31, 2020, which negatively affect interest income as these loans are nonearning assets. Interest income and cash receipts on impaired loans are handled differently depending on whether or not the loan is on nonaccrual status. If the impaired loan is not on nonaccrual status, the interest income on the loan is computed using the effective interest method. When doubt about the collectability of a loan exists, it is the Bank’s policy to stop accruing interest on that loan under the following circumstances: (a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when conditions indicate that payment of principal and interest can no longer be expected, or (c) when any such loan becomes delinquent for 90 days and is not both well secured and in the process of collection. All interest accrued but not collected on loans that are placed on nonaccrual is charged off and reversed against interest income in the current period. In the case of a nonaccrual loan that is well secured and in the process of collection, the interest accrued but not collected is not reversed. Interest received on these loans is accounted for on the cash basis or cost-recovery method until qualifying for return to accrual. Generally, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, six consecutive timely payments are made, and prospects for future contractual payments are reasonably assured.

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

Net Interest Margin Analysis

Average Balances, Income and Expense, and Yields and Rates

(Dollars in thousands)

	For the Year Ended								For the Year Ended								For the Year Ended
	December 31, 2020								December 31, 2019								December 31, 2018
	Average			Income/		Yields/			Average			Income/		Yields/			Average			Income/		Yields/
	Balance			Expense		Rates			Balance			Expense		Rates			Balance			Expense		Rates
ASSETS
Loans (1), (2), (3)	$	578,979		$	28,638		4.95	%	$	555,733		$	28,601		5.15	%	$	526,007		$	26,375		5.01	%
Federal funds sold		244			1		0.36	%		254			5		2.15	%		160			4		2.50	%
Interest bearing deposits		61,083			208		0.34	%		38,994			805		2.06	%		19,644			379		1.93	%
Other investments (3)		48,072			1,189		2.47	%		58,726			1,544		2.63	%		68,706			1,714		2.49	%
Total Earning Assets		688,378			30,036		4.37	%		653,707			30,955		4.74	%		614,517			28,472		4.63	%
Less: Allowance for loans losses		(6,512	)							(5,309	)							(5,551	)
Non-earning assets		61,411								60,673								66,648
Total Assets	$	743,277								709,071								675,614
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand – Interest bearing	$	45,302		$	70		0.16	%	$	35,364		$	65		0.18	%	$	37,896		$	55		0.15	%
Savings and money market		148,320			360		0.25	%		154,500			980		0.63	%		131,292			368		0.28	%
Time deposits		252,074			3,854		1.53	%		260,452			4,060		1.56	%		257,262			2,921		1.14	%
Other Borrowings		5,000			68		1.34	%		5,985			78		1.30	%		9,610			148		1.54	%
Trust Preferred Securities		16,496			541		3.23	%		16,496			796		4.83	%		16,496			773		4.69	%
Total interest bearing liabilities		467,192			4,893		1.05	%		472,797			5,979		1.26	%		452,556			4,265		0.94	%
Non-interest bearing deposits		210,831			—		—	%		174,944			—		—	%		164,923			—		—	%
Total cost of funds		678,023			4,893		0.72	%		647,741			5,979		0.92	%		617,479			4,265		0.69	%
Other liabilities		9,428								8,470								7,906
Total Liabilities		687,451								656,211								625,385
Stockholders’ Equity		55,823								52,880								50,229
Total Liabilities and Stockholders’ Equity	$	743,274								709,091								675,614
Net Interest Income				$	25,143							$	24,976							$	24,207
Net Interest Margin							3.65	%							3.82	%							3.94	%
Net Interest Spread							3.32	%							3.48	%							3.69	%

(1) Non-accrual loans have been included in the average balance of loans outstanding.

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

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

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Net interest income is affected by changes in both average interest rates and average volumes of interest-earning assets and interest-bearing liabilities. The following table sets forth the amounts of the total changes in interest income and expense which can be attributed to rate (change in rate multiplied by old volume) and volume (change in volume multiplied by old rate) for the periods indicated.

	Volume and Rate Analysis (Dollars in thousands)
	2020 Compared to 2019									2019 Compared to 2018
	Increase (Decrease)									Increase (Decrease)
	Volume Effect			Rate Effect			Change in Interest Income/ Expense			Volume Effect			Rate Effect			Change in Interest Income/ Expense
Interest Income:
Loans	$	1,959		$	(1,922	)	$	37		$	1,491		$	734		$	2,226
Federal funds sold		—			(4	)		(4	)		2			(1	)		1
Interest bearing deposits		301			(898	)		(597	)		373			53			426
Other investments		(198	)		(157	)		(355	)		(249	)		79			(170	)
Total Earning Assets		2,062			(2,981	)		(919	)		1,617			865			2,483
Interest Bearing Liabilities:
Demand		20			(15	)		5			(4	)		14			10
Savings and money market		(208	)		(412	)		(620	)		65			547			612
Time deposits		(104	)		(102	)		(206	)		36			1,103			1,139
Other borrowings		(13	)		3			(10	)		(56	)		(14	)		(70	)
Trust Preferred Securities		—			(255	)		(255	)		—			23			23
Total Interest Bearing Liabilities		(305	)		(781	)		(1,086	)		41			1,673			1,714
Change in Net Interest Income	$	2,367		$	(2,200	)	$	167		$	1,576		$	(807	)	$	769

Loans

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

Loans receivable outstanding are summarized as follows:

	Loan Portfolio
	December 31,
(Dollars in thousands)	2020		2019		2018		2017		2016
Commercial, financial and agricultural	$	110,973	$	81,291	$	83,135	$	68,506	$	55,073
Real estate – construction		25,031		31,130		35,119		29,763		25,755
Real estate – commercial		179,381		170,436		140,862		127,688		103,331
Real estate – residential		239,549		256,560		263,442		264,640		262,282
Installment loans to individuals		20,632		23,127		24,538		22,411		22,188
Total	$	575,566	$	562,544	$	547,096	$	513,008	$	468,629

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Our loan maturities as of December 31, 2020 are shown in the following table:

	Maturities of Loans
(Dollars in thousands)	Less than One Year		One to Five Years		After Five Years		Total
Commercial, financial and agricultural	$	19,649	$	70,420	$	20,904	$	110,973
Real estate – construction		5,428		6,019		13,584		25,031
Real estate – commercial		15,835		63,881		99,665		179,381
Real estate – residential		8,416		32,712		198,421		239,549
Installment loans to individuals		4,345		14,624		1,663		20,632
Total	$	53,673	$	187,656	$	334,237	$	575,566
Loans with fixed rates	$	48,732	$	179,146	$	132,992	$	360,870
Loans with variable rates		4,941		8,510		201,245		214,696
Total	$	53,673	$	187,656	$	334,237	$	575,566

Provision for Loan Losses

The methodology we use to calculate the allowance for loan losses is considered a critical accounting policy. The adequacy of the allowance for loan losses is based upon management’s judgment and analysis. The following factors are included in our evaluation of determining the adequacy of the allowance: risk characteristics of the loan portfolio, current and historical loss experience, concentrations, and internal and external factors such as general economic conditions. As a result of the severe economic downturn during the first quarter of 2020 related to the pandemic, we reassessed our allowance for loan losses methodology and adjusted qualitative factors for the potential future impact on our loan portfolio, which has resulted in additional provisions to the allowance.

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

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

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

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

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

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

All loans classified as substandard, doubtful or loss are individually reviewed for impairment in accordance with Accounting Standards Codification (ASC) 310-10-35. In evaluating impairment, a current appraisal is generally used to determine if the collateral is sufficient. Appraisals are typically less than a year old and must be independently reviewed to be relied upon. If the appraisal is not current, we perform a useful life review of the appraisal to determine if it is reasonable. If this review determines that the appraisal is not reasonable, then a new appraisal is ordered. Loans considered impaired decreased to $5.1 million with $2.5 million requiring a valuation allowance of $1.1 million at December 31, 2020 as compared to $5.6 million with $919 thousand requiring a valuation allowance of $323 thousand at December 31, 2019. Management is aggressively working to reduce the impaired credits at minimal loss.

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

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

Non-Accrual, Past Due, and Restructured Loans

(Dollars in thousands)

	December 31,
	2020			2019			2018			2017			2016
Non-accruing loans
Commercial, financial and agricultural	$	554		$	943		$	1,719		$	1,868		$	1,086
Real estate – construction		57			45			157			470			319
Real estate – commercial		2,225			1,601			784			2,035			3,403
Real estate – residential		2,700			2,544			3,702			3,143			8,521
Installment loans to individuals		12			23			7			48			76
Total Non-accruing loans		5,548			5,156			6,369			7,564			13,405
Loans past due 90 days or more and still accruing		—			—			—			—			—
Troubled debt restructurings (accruing)		1,452			3,650			4,909			4,932			7,310
Total	$	7,000		$	8,806		$	11,278		$	12,496		$	20,715
Percent of total loans		1.22	%		1.57	%		2.06	%		2.44	%		4.42	%

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

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

Analysis of the Allowance for Loan Losses

(Dollars in thousands)  

	For the Years Ended December 31,
Activity	2020			2019			2018			2017			2016
Beginning Balance	$	5,368		$	5,336		$	6,196		$	6,072		$	7,493
Provision charged to expense		2,300			2,050			252			450			(500	)
Advances made on loans with off balance sheet provision		—			—			—			—			—
Loan Losses:
Commercial, financial and agricultural		(386	)		(1,812	)		(675	)		(64	)		(67	)
Real estate – construction		—			—			(96	)		(1	)		(5	)
Real estate – commercial		(65	)		(192	)		(334	)		(179	)		(557	)
Real estate – residential		(165	)		(336	)		(290	)		(714	)		(738	)
Installment loans to individuals		(85	)		(114	)		(75	)		(147	)		(83	)
Total loan losses		(701	)		(2,454	)		(1,470	)		(1,105	)		(1,450	)
Recoveries:
Commercial, financial and agricultural		74			92			157			519			172
Real estate – construction		—			34			11			—			26
Real estate – commercial		57			16			73			193			220
Real estate – residential		38			232			73			48			87
Installment loans to individuals		55			62			44			19			24
Total recoveries		224			436			358			779			529
Net charge offs		(477	)		(2,018	)		(1,112	)		(326	)		(921	)
Balance at End of Period	$	7,191		$	5,368		$	5,336		$	6,196		$	6,072
Net charge offs as a % of average loans		0.08	%		0.36	%		0.21	%		0.07	%		0.20	%

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

The allocation of the allowance for loan losses is based on our judgment of the relative risk associated with each type of loan. We have allocated 32% of the allowance to commercial real estate loans, which constituted 31.17% of our loan portfolio at December 31, 2020. This allocation increased when compared to the 23% in 2019 due primarily to the risks to businesses associated with the COVID-19 pandemic. We have allocated 34% of the allowance to commercial loans, which constituted 19.28% of our loan portfolio at December 31, 2020. This allocation percentage decreased compared to December 31, 2019 due to guarantees provided by the SBA on PPP loans, which resulted in their being excluded from the allowance assessment of commercial loans.

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

We have allocated 3% of the allowance to real estate construction loans, which constituted 4.35% of our loan portfolio at December 31, 2020. Construction loans are secured by real estate with values that are dependent upon market and economic conditions. Values may not always be easily ascertainable as evidenced by the current market conditions. These loans are made consistent with appraisal policies and real estate lending policies which detail maximum loan-to-value ratios and maturities.

We have allocated 29% of the allowance to residential real estate loans, which constituted 41.62% of our loan portfolio at December 31, 2020. Our allocation decreased as a percentage of the allowance for loan losses due to the $6.9 million decrease in residential real estate loans during 2020.

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

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

Allocation of the Allowance for Loan Losses

December 31, 2016 through December 31, 2020

(Dollars in thousands)  

	December 31, 2020								December 31, 2019								December 31, 2018
	Amount		% of ALLL			%of Loans			Amount		% of ALLL			%of Loans			Amount		% of ALLL			%of Loans
Commercial	$	2,424		34	%		19.28	%	$	1,932		36	%		14.45	%	$	775		15	%		15.20	%
R/E–const.		233		3	%		4.35	%		158		3	%		5.53	%		202		4	%		6.42	%
R/E–comm.		2,281		32	%		31.17	%		1,248		23	%		30.30	%		1,386		26	%		25.75	%
R/E-res.		2,102		29	%		41.62	%		1,840		34	%		45.61	%		2,526		47	%		48.15	%
Installment		151		2	%		3.58	%		188		4	%		4.11	%		172		3	%		4.49	%
Unallocated		—		0	%					2		0	%					275		5	%
Total	$	7,191		100	%		100.00	%	$	5,368		100	%		100.00	%	$	5,336		100	%		100.00	%
	December 31, 2017								December 31, 2016
	Amount			% of ALLL			% of Loans			Amount		% of ALLL			% of Loans
Commercial	$	1,098		18	%		13.35	%	$	622		10	%		11.75	%
R/E-const.		191		3	%		5.80	%		346		6	%		5.50	%
R/E-comm.		1,989		32	%		24.89	%		1,625		27	%		22.05	%
R/E-res.		2,506		41	%		51.59	%		2,617		43	%		55.97	%
Installment		156		2	%		4.37	%		123		2	%		4.73	%
Unallocated		256		4	%					739		12	%
Total	$	6,196		100	%		100.00	%	$	6,072		100	%		100.00	%

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Other Real Estate Owned

Other real estate owned decreased $59 thousand, or 1.8%, to $3.3 million at December 31, 2020 from $3.4 million at December 31, 2019. All properties are available for sale by commercial and residential realtors under the direction of our Special Assets division. Our aim is to reduce the level of OREO in order to reduce the level of nonperforming assets at the Bank, while keeping in mind the impact to earnings and capital. In 2020 and 2019, pricing adjustments were made to make certain properties more marketable, which, in some cases, reduced the price below the fair value of the property (which is based on an appraisal less estimated disposition costs). During 2020, we recorded OREO writedowns of $132 thousand as compared to $214 thousand during 2019.

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

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

Investment Securities

Total investment securities decreased $2.2 million, or 4.4%, to $48.4 million at December 31, 2020 from $50.6 million at December 31, 2019. All securities are classified as available-for-sale for liquidity purposes. Sales of securities during 2020 totaled $1.1 million, with $4 thousand in gains realized. No securities were sold during 2019. However, paydowns on mortgage backed securities totaled $11.0 million. Purchases of securities totaled $9.6 million during 2020. Investment securities with a carrying value of $6.8 million and $6.9 million at December 31, 2020 and 2019, respectively, were pledged to secure public deposits and for other purposes required by law.

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

Investment Securities Portfolio

(Dollars in thousands)  

	2020				2019				2018
December 31, Available for Sale	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Government Agencies	$	13,852	$	14,107	$	15,703	$	15,633	$	19,755	$	19,389
Taxable municipals		5,157		5,345		4,389		4,442		4,428		4,313
Corporate bonds		5,893		6,048		5,408		5,523		5,422		5,320
Mortgage backed securities		22,565		22,906		25,077		25,051		31,366		30,385
Total Securities AFS	$	47,467	$	48,406	$	50,577	$	50,649	$	60,971	$	59,407

The fair value of our investment portfolio is substantially affected by changes in interest rates, which could result in realized losses if we need to sell the securities and recognize the loss in a rising interest rate environment due to Federal Reserve actions, U.S. fiscal policies or other factors affecting market interest rates. At December 31, 2020, we had a net unrealized gain in our investment portfolio totaling $938 thousand as compared to $72 thousand at December 31, 2019. We have reviewed our investment portfolio and no investment security is deemed to have other than temporary impairment. We monitor our portfolio regularly and use it to maintain liquidity, manage interest rate risk and enhance earnings.

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The amortized cost, fair value and weighted average yield of investment securities at December 31, 2020 are shown in the following schedule by contractual maturity and do not reflect principal paydowns for amortizing securities. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Maturities of Securities
					Weighted
(Dollars are in thousands)	Amortized		Fair		Average
Securities Available for Sale	Cost		Value		Yield
Due in one year or less	$	540	$	546		2.11	%
Due after one year through five years		6,664		6,795		3.42	%
Due after five years through ten years		9,487		9,754		2.68	%
Due after ten years		30,776		31,311		1.77	%
Total	$	47,467	$	48,406		2.19	%

Bank Owned Life Insurance

At December 31, 2020 and 2019, we had an aggregate total cash surrender value of $4.7 million and $4.6 million, respectively, on life insurance policies covering former key officers.

Total income for the policies during 2020 and 2019 was $77 thousand and $63 thousand, respectively.

Deposits

Total deposits were $668.0 million at December 31, 2020, an increase of $46.5 million, or 7.5%, from $621.5 million at December 31, 2019. Most of the increase was driven by non-interest bearing demand deposits, which grew $52.9 million, or 31.0%, to $223.7 million during 2020, a result of PPP loan disbursements and federal stimulus payments received by deposit customers. Interest bearing demand deposits grew by $12.5 million, or 33.7%, to $49.7 million. Due to the large influx of non-interest bearing balances, we allowed attrition of time deposit balances, which decreased by $23.4 million and allowed us to reduce our average cost of funds.

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

Time deposits of $100,000 or more equaled approximately 17.0% of deposits at the end of 2020 and 19.5% of deposits at the end of 2019.

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

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

Maturities of Time Deposits of $100 Thousand and More
(Dollars in thousands)
December 31, 2020
Three months or less	$	18,228
Over three months through six months		24,880
Over six months through twelve months		19,888
Over one year		50,587
Total	$	113,583

Noninterest Income

For the year ended December 31, 2020, noninterest income declined $505 thousand, or 5.8%, to $8.1 million, or 1.10% of average assets, from $8.6 million, or 1.22% of average assets, for the same period in 2019. After excluding the $803 thousand gain on the sale and leaseback of our Lebanon, Virginia office recorded in 2019, noninterest income increased $298 thousand, due primarily to an increase of $300 thousand in card processing and interchange income, plus a $220 thousand bonus received during the first quarter of 2020 from a service provider for renewing and extending our service agreement.

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

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

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

Noninterest Expense

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

Salaries and employee benefits decreased $878 thousand, or 6.2%, to $13.2 million in 2020 compared to $14.1 million 2019, even with the impact of the restructuring costs. In May 2020, we announced a restructuring which included a combination of eliminated positions, retirements or resignations representing 12% of the workforce. The estimated annual pre-tax savings resulting from this restructuring is $1.6 million. Affected employees received transitional support, including severance payments, assistance to aid in maintaining health insurance, and support in applying for unemployment benefits.

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

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Other operating expenses decreased $1.1 million, or 14.0%, to $6.7 million in 2020 from $7.8 million in 2019, due largely to reductions in expenses related to other real estate owned, loan collection, ATM processing, data circuits and telephone, which decreased $328 thousand, $227 thousand, $357 thousand, $47 thousand, and $67 thousand, respectively. Even with $132 thousand of write-downs, OREO costs benefited from $60 thousand of gains recognized on the sale of a foreclosed property. Loan collection costs reflect the impact of loan forbearance combined with the moratorium on foreclosures during most of 2020. Data circuits and telecommunication expenses benefited from contracts renegotiated in 2019. These savings offset non-recurring consulting costs of $265 thousand, plus other related out-of-pocket costs. The Commonwealth of Virginia ended the moratorium on foreclosures in September of 2020. We have since resumed foreclosures and anticipate these costs will rise.

Occupancy and equipment expenses remained essentially unchanged at $4.5 million in both 2020 and 2019. Depreciation expense decreased $122 thousand, or 5.3%, to $2.2 million in 2020 compared to 2019, due to the aging out of some of our equipment. Increases in utilities, property taxes, depreciation and repairs and maintenance related to our new Kingsport, Tennessee office negated the reductions in other depreciation expense. While a portion of this site’s operating costs are offset by rental income, we anticipate increasing tenant occupancy during 2021.

Our efficiency ratio, a non-GAAP measure, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, improved to 81.10% in 2020 compared to 86.23% in 2019. The decrease in this ratio is a result of improvements in both noninterest income and noninterest expense discussed above. We continue to seek opportunities to operate more efficiently through the use of technology, improving processes, reducing nonperforming assets and increasing productivity.

Income Taxes and Deferred Tax Assets

Income taxes were $1.1 million in 2020, compared to $522 thousand in 2019. The effective tax rates were 27.6%, and 20.2% for 2020 and 2019, respectively. The effective tax rate for the periods differed from the federal statutory rate of 21.0% principally due to tax-exempt income from loans as well as earnings from bank owned life insurance, as well as the impact of the recapture of operating loss carryforwards and applicable credits. The higher effective tax rate in 2020 when compared to 2019 is the result of the increase in pre-tax earnings in relation to the various tax preference items.

Deferred tax assets represent the future tax benefit of future deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. The Company has evaluated positive and negative evidence to assess the realizability of its deferred taxes. Based on the evidence, including taxable income projections, the Company believes it is more likely than not that its deferred tax assets will be realizable. Accordingly, the Company did not include a valuation allowance against its deferred tax assets as of December 31, 2020 or 2019.

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

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

Capital Resources

Our total capital at the end of 2020 was $58.2 million compared to $54.6 million at the end of 2019. The increase was $3.6 million, or 6.6%. Book value per common share was $2.43 at December 31, 2020 compared to $2.28 at December 31, 2019.

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

34

The Bank is characterized as “well capitalized” under the “prompt corrective action” regulations pursuant to Section 38 of the FDIA. The capital adequacy ratios for the Bank are set forth below along with the minimum ratios to be considered “well capitalized” under such regulations:

Capital Adequacy Ratios

				December 31,
	Well-Capitalized
	Regulatory
	Threshold			2020			2019
Tier 1 leverage		5.00	%		9.49	%		9.43	%
Common equity tier 1		6.50	%		15.16	%		13.72	%
Tier 1 risk-based capital		8.00	%		15.16	%		13.72	%
Total risk-based capital		10.00	%		16.41	%		14.83	%

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

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

No cash dividends have been paid historically and we do not anticipate paying cash dividends as long as the Company continues to have a retained deficit. Earnings will continue to be retained to build capital and position the Company to pay a dividend to its shareholders as soon as practicable.

Liquidity

We closely monitor our liquidity and our liquid assets in the form of cash, due from banks, federal funds sold and unpledged available-for-sale investments. Collectively, those balances were $134.0 million at December 31, 2020, up from $93.9 million at December 31, 2019. As discussed previously in this Form 10-K, this increase is a direct result of increases in our customers’ deposit balances. A surplus of short-term assets are maintained at levels management deems adequate to meet potential liquidity needs.

At December 31, 2020, all of our investments are classified as available-for-sale, providing an additional source of liquidity in the amount of $48.4 million, which is net of the $6.8 million of securities pledged as collateral. This will serve as a source of liquidity while yielding a higher return when compared to other short term investment options, such as federal funds sold and overnight deposits with the Federal Reserve Bank of Richmond. Total investment securities decreased $2.2 million, or 4.4%, during 2020 from $50.6 million at December 31, 2019.

Our loan to deposit ratio was 86.16% at December 31, 2020 and 90.52% at year-end 2019.

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

35

We have used our line of credit with FHLB to issue letters of credit totaling $12.0 million to the Treasury Board of Virginia for collateral on public funds. No draws on the letters of credit have been issued. The letters of credit are considered draws on our FHLB line of credit. An additional $169.9 million was available on December 31, 2020 on the $187.0 million line of credit, of which $136.7 million is secured by a blanket lien on our residential real estate loans.

While we have access to the brokered deposits market, we have no brokered deposits at December 31, 2020 or 2019. As of December 31, 2020, we have $9.6 million in reciprocal CDARS time deposits, compared to $11.2 million at December 31, 2019.

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

With the on-balance sheet liquidity and other external sources of funding, we believe the Bank has adequate liquidity and capital resources to meet our requirements and needs for the foreseeable future. However, liquidity can be further affected by a number of factors such as, counterparty willingness or ability to extend credit, regulatory actions and customer preferences, some of which are beyond our control. With the economic downturn resulting from the COVID-19 pandemic, we have heightened our monitoring of our liquidity position, specifically cash on hand in order to meet customer demands related to usage of stimulus funds. Additionally, the Federal Reserve has taken actions to bolster liquidity in the markets.

Financial Instruments with Off-Balance-Sheet Risk

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

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

A summary of the contract amount of the Bank’s exposure to off-balance-sheet risk as of December 31, 2020 and 2019 is as follows:

(Dollars in thousands)	2020		2019
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	57,334	$	59,552
Standby letters of credit		2,031		2,582

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

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may not actually be drawn upon to the total extent to which the Bank is committed.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.

36

Interest Sensitivity

At December 31, 2020, we had a negative cumulative gap rate sensitivity ratio of 26.46% for the one year re-pricing period, compared to 31.36% at December 31, 2019. A negative cumulative gap generally indicates that net interest income would improve in a declining interest rate environment as liabilities re-price more quickly than assets. Conversely, net interest income would likely decrease in periods during which interest rates are increasing. The below table is based on contractual maturities and does not take into consideration prepayment speeds of investment securities and loans, nor does it consider decay rates for non-maturity deposits. When considering these prepayment speed and decay rate assumptions, along with our ability to control the repricing of a significant portion of the deposit portfolio, we are in a position to increase interest income in a rising interest rate environment. With the decreases in market rates experienced in 2020, we believe our current interest risk profile is increasing, but remains acceptable. Furthermore, we are implementing strategies to maintain the current profile, or moderate the adverse impact to our current interest rate risk profile, for what could be a sustained medium- to long-term low interest rate environment, despite a recent interest rate rise on the benchmark 10 year treasury during the first months of 2021.

Interest Sensitivity Analysis

December 31, 2020

(In thousands of dollars)

				91-365			1 - 3			4-5						Over 15
	1 - 90 Days			Days			Years			Years			6-15 Years			years			Total
Uses of funds:
Loans	$	56,633		$	35,233		$	148,653		$	118,123		$	134,401		$	82,912		$	575,955
Federal funds sold		222			—			—			—			—			—			222
Deposits w ith banks		76,105			—			—						—			—			76,105
Investments		6,531			2,741			3,502			1,315			17,806			16,511			48,406
Bank ow ned life insurance		4,653			—			—			—			—			—			4,653
Total earning assets	$	144,144		$	37,974		$	152,155		$	119,438		$	152,207		$	99,423		$	705,341
Sources of funds:
Int Bearing DDA		49,652			—			—			—			—			—			49,652
Savings & MMDA		160,186			—			—			—			—			—			160,186
Time Deposits		45,277			92,106			67,267			29,799			—			—			234,449
Trust Preferred Securities		16,496			—			—			—			—			—			16,496
Federal funds purchased		—																		—
Other Borrow ings		—			5,000			—			—			—			—			5,000
Total interest bearing liabilities	$	271,611		$	97,106		$	67,267		$	29,799		$	—		$	—		$	465,783
Discrete Gap	$	(127,467	)	$	(59,132	)	$	84,888		$	89,639		$	152,207		$	99,423		$	239,558
Cumulative Gap	$	(127,467	)	$	(186,599	)	$	(101,711	)	$	(12,072	)	$	140,135		$	239,558
Cumulative Gap as % of Total
Earning Assets		-18.07	%		-26.46	%		-14.42	%		-1.71	%		19.87	%		33.96	%

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Not required.

37

Item 8.    Financial Statements and Supplementary Data

FINANCIAL STATEMENTS

CONTENTS
	Page
Report of Independent Registered Public Accounting Firm	39
Consolidated Balance Sheets December 31, 2020 and 2019	41
Consolidated Statements of Income – Years Ended December 31, 2020 and 2019	42
Consolidated Statements of Comprehensive Income – Years Ended December 31, 2020 and 2019	43
Consolidated Statements of Stockholders’ Equity – Years Ended December 31, 2020 and 2019	44
Consolidated Statements of Cash Flows – Years Ended December 31, 2020 and 2019	45
Notes to Consolidated Financial Statements	46

38

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of New Peoples Bankshares, Inc. and its subsidiaries

Opinion on the Financial Statements

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

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our 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.

Critical Audit Matters

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

elliottdavis.com

39

Allowance for Loan Losses

As described in Note 6 and Note 7 to the Company’s financial statements, the Company’s loan portfolio and associated allowance for loan losses (the “Allowance”) totaled approximately $575.6 million and $7.2 million, respectively, at December 31, 2020. As described in Note 1 and Note 7 to the financial statements, the Company’s Allowance is an estimate of probable credit losses as of the balance sheet date and considers both unimpaired and impaired loans. Management’s determination of the allowance for loan losses related to the Company’s loan portfolio segment is generally based on the credit risk ratings and historical loss experience of individual borrowers, supplemented, as necessary, by credit judgment to address observed changes in trends and conditions, and other relevant environmental and economic factors such as concentrations of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of net charge-offs (qualitative factor adjustments).

Auditing the Company’s Allowance involved a high degree of subjectivity due to the judgment involved in management’s identification and measurement of qualitative factor adjustments included in the estimate of the allowance for loan losses.

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

● We evaluated the relevance and the reasonableness of assumptions related to evaluation of the loan portfolio, current economic conditions, and other risk factors used in development of the qualitative factors for collectively evaluated loans.

● We evaluated the reasonableness of assumptions and data used by the Company in developing the qualitative factors by comparing these data points to internally developed and third-party sources, and other audit evidence gathered.

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

/s/ Elliott Davis, LLC

We have served as the Company’s auditor since 2011.

Greenville, South Carolina

April 8, 2021

40

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2020 AND 2019

(in thousands except share data)

	2020			2019
ASSETS
Cash and due from banks	$	16,023		$	13,998
Interest-bearing deposits with banks		76,105			35,897
Federal funds sold		222			252
Total Cash and Cash Equivalents		92,350			50,147
Investment securities available-for-sale		48,406			50,649
Loans held for sale		389			2
Loans receivable		575,566			562,544
Allowance for loan losses		(7,191	)		(5,368	)
Net Loans		568,375			557,176
Bank premises and equipment, net		22,174			22,242
Other real estate owned		3,334			3,393
Accrued interest receivable		2,392			2,115
Deferred taxes, net		3,126			4,576
Right-of-use assets – operating leases		5,439			5,835
Other assets		10,317			10,238
Total Assets	$	756,302		$	706,373
LIABILITIES
Deposits
Noninterest bearing		223,725			170,782
Interest-bearing		444,287			450,695
Total Deposits		668,012			621,477
Borrowed funds		21,496			21,496
Lease liabilities – operating leases		5,439			5,835
Accrued interest payable		436			694
Accrued expenses and other liabilities		2,742			2,269
Total Liabilities		698,125			651,771
Commitments and Contingent Liabilities (Notes 19 and 20)
STOCKHOLDERS’ EQUITY
Common stock - $2.00 par value; 50,000,000 shares authorized;
23,922,086 and 23,922,086 shares issued and outstanding at
December 31, 2020 and 2019, respectively		47,844			47,844
Additional paid-in capital		14,570			14,570
Retained deficit		(4,979	)		(7,869	)
Accumulated other comprehensive income		742			57
Total Stockholders’ Equity		58,177			54,602
Total Liabilities and Stockholders’ Equity	$	756,302		$	706,373

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

41

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(in thousands except share and per share data)

INTEREST AND DIVIDEND INCOME	2020		2019
Loans including fees	$	28,638	$	28,601
Federal funds sold		1		5
Interest-earning deposits with banks		208		805
Investments		1,048		1,388
Dividends on equity securities (restricted)		141		156
Total Interest and Dividend Income		30,036		30,955
INTEREST EXPENSE
Deposits		4,284		5,105
Borrowed funds		609		874
Total Interest Expense		4,893		5,979
NET INTEREST INCOME		25,143		24,976
PROVISION FOR LOAN LOSSES		2,300		2,050
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		22,843		22,926
NONINTEREST INCOME
Service charges and fees		3,217		3,605
Card Processing and interchange income		3,314		3,014
Insurance and investment fees		716		663
Net gain on sales of available-for-sale securities		4		—
Gain on sale and leaseback transaction		—		803
Other noninterest income		896		567
Total Noninterest Income		8,147		8,652
NONINTEREST EXPENSES
Salaries and employee benefits		13,228		14,106
Occupancy and equipment expenses		4,536		4,514
Data processing and telecommunications		2,497		2,541
Other operating expenses		6,736		7,836
Total Noninterest Expenses		26,997		28,997
INCOME BEFORE INCOME TAXES		3,993		2,581
INCOME TAX EXPENSE		1,103		522
NET INCOME	$	2,890	$	2,059
Income Per Share
Basic and Diluted	$	0.12	$	0.09
Average Weighted Shares of Common Stock
Basic and Diluted		23,922,086		23,922,086

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

42

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(Dollars in thousands)           

	2020			2019
NET INCOME	$	2,890		$	2,059
Other comprehensive income:
Investment securities activity:
Unrealized gains arising during the year		871			1,636
Reclassification adjustment for net gains included in net income		(4	)		—
Other comprehensive gains on investment securities		867			1,636
Related tax expense		(182	)		(343	)
TOTAL OTHER COMPREHENSIVE INCOME		685			1,293
TOTAL COMPREHENSIVE INCOME	$	3,575		$	3,352

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

43

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(in thousands including share data)

	Shares of Common Stock		Common Stock		Additional Paid-in Capital		Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance, December 31, 2018		23,922	$	47,844	$	14,570	$	(9,928	)	$	(1,236	)	$	51,250
Net income		—		—		—		2,059			—			2,059
Other comprehensive income, net of tax		—		—		—		—			1,293			1,293
Balance, December 31, 2019		23,922	$	47,844	$	14,570	$	(7,869	)	$	57		$	54,602
Net income		—		—		—		2,890			—			2,890
Other comprehensive income, net of tax		—		—		—		—			685			685
Balance, December 31, 2020		23,922	$	47,844	$	14,570	$	(4,979	)	$	742		$	58,177

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

44

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(Dollars are in thousands)

	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,890		$	2,059
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,189			2,311
Provision for loan losses		2,300			2,050
Income on bank owned life insurance		(77	)		(63	)
Gain on sale of mortgage loans		(174	)		(138	)
Gain on sale and leaseback transactions		—			(803	)
Loss on sale or disposal of premises and equipment		19			1
Gain on sale of securities available-for-sale		(4	)		—
(Gain) Loss on sale of foreclosed real estate and repossessed assets		(58	)		123
Loans originated for sale		(11,948	)		(7,937	)
Proceeds from sales of loans originated for sale		11,735			12,432
Adjustment of carrying value of foreclosed real estate and repossessed assets		165			214
Net amortization/accretion of bond premiums/discounts		419			528
Deferred tax expense		1,103			556
Net change in:
Interest receivable		(277	)		(181	)
Other assets		77			265
Accrued interest payable		(258	)		107
Accrued expenses and other liabilities		473			24
Net Cash Provided by Operating Activities		8,574			11,548
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans		(14,199	)		(19,632	)
Purchase of securities available-for-sale		(9,584	)		(790	)
Proceeds from sale of investment securities available-for-sale		1,025			—
Proceeds from repayments and maturities of securities available-for-sale		11,254			10,657
Net purchase of equity securities (restricted)		(22	)		(14	)
Payments for the purchase of premises and equipment		(2,141	)		(1,550	)
Proceeds from sale and leaseback transactions		—			550
Proceeds from sale of premises and equipment		1			9
Proceeds from insurance claims on other real estate owned		—			19
Proceeds from sales of other real estate owned		760			1,322
Net Cash Used in Investing Activities		(12,906	)		(9,429	)
CASH FLOWS FROM FINANCING ACTIVIES
Net change in short term borrowings		—			(5,630	)
Net change in non-interest bearing deposits		52,943			6,484
Net change in interest bearing deposits		(6,408	)		19,001
Net Cash Provided by Financing Activities		46,535			19,855
Net increase in cash and cash equivalents		42,203			21,974
Cash and Cash Equivalents, Beginning of the Year		50,147			28,173
Cash and Cash Equivalents, End of the Year	$	92,350		$	50,147
Supplemental Disclosure of Cash Paid During the Year for:
Interest	$	5,151		$	5,872
Taxes	$	(166	)	$	(34	)
Supplemental Disclosure of Non Cash Transactions:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—		$	1,232
Transfer of loans to loans held for sale	$	—		$	4,359
Loan made to finance sale of premises and equipment	$	—		$	752
Other real estate acquired in settlement of foreclosed loans	$	1,128		$	811
Loans made to finance sale of foreclosed real estate	$	428		$	2,360
Transfer of premises and equipment to other real estate	$	—		$	683
Change in unrealized gains on securities available for sale	$	867		$	1,637

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

45

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1         NATURE OF OPERATIONS

Nature of Operations – New Peoples Bankshares, Inc. (New Peoples) is a financial holding company whose principal activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the Bank). The Bank is organized and incorporated under the laws of the Commonwealth of Virginia. As a state chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System. The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern West Virginia, and northeastern Tennessee and, most recently, western North Carolina. These services include commercial and consumer loans along with traditional deposit products such as checking and savings accounts.

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

NOTE 2         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation - The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (Hereinafter, collectively referred to as the Company, we, us, or our). All significant intercompany balances and transactions have been eliminated. In accordance with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial statements.

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles of the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses and the determination of the deferred tax asset and related valuation allowance are based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

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

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

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

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

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

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

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

Significant Group Concentrations of Credit Risk – The Company identifies a concentration as any obligation, direct or indirect, of the same or affiliated interests which represent 25% or more of the Company’s capital structure, or $14.4 million as of December 31, 2020. Most of the Company’s activities are with customers located within southwest Virginia, southern West Virginia, northeastern Tennessee region and western North Carolina. Certain concentrations may pose credit risk. The Company does not have any significant concentrations to any one industry or customer.

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

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

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

Other Real Estate Owned – Other real estate owned represents properties acquired through foreclosure or deeds taken in lieu of foreclosure. At the time of acquisition, these properties are recorded at fair value less estimated costs to sell. Expenses incurred in connection with operating these properties and subsequent write-downs, if any, are charged to operations. Subsequent to foreclosure, management periodically considers the adequacy of the reserve for losses on the property. Gains and losses on the sales of these properties are credited or charged to income in the year of the sale.

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

Type	Estimated useful life
Buildings	39 years
Paving and landscaping	15 years
Computer equipment and software	3 to 5 years
Vehicles	5 years
Furniture and other equipment	5 to 10 years

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

Income Taxes – Deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. The Company provides a valuation allowance on its net deferred tax assets where it is more likely than not such assets will not be realized. At December 31, 2020 and 2019, the Company had no valuation allowance on its net deferred tax assets.

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

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

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

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

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

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

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

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

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

NOTE 3         INCOME PER SHARE

Basic income per share computations are based on the weighted average number of shares outstanding during each year. Dilutive earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the years ended December 31, 2020 and 2019, there were no dilutive potential common shares. Basic and diluted net income per common share calculations follows:

(Amounts in thousands, except	For the years ended
share and per share data)	December 31,
	2020		2019
Net income	$	2,890	$	2,059
Weighted average shares outstanding		23,922,086		23,922,086
Weighted average dilutive shares outstanding		23,992,086		23,992,086
Basic and diluted income per share	$	0.12	$	0.09

NOTE 4         DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS

The Bank had federal funds sold and cash on deposit with other commercial banks amounting to $76.3 million and $36.1 million at December 31, 2020 and 2019, respectively. Deposit amounts at other commercial banks may, at times, exceed federally insured limits.

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

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The Bank has a total of $20.0 million in unsecured fed funds lines of credit facilities from three correspondent banks that were available at both December 31, 2020 and 2019. Of these total commitments, all were available at December 31, 2020 and 2019. As a condition for $5.0 million of one of the unsecured fed funds line of credit, the Bank maintains a minimum deposit balance of $200 thousand with this correspondent bank. As of December 31, 2020 and 2019, the Bank was in compliance with this requirement.

NOTE 5         INVESTMENT SECURITIES

The amortized cost and estimated fair value of securities (all available-for-sale) as of December 31, 2020 and December 31, 2019 are as follows:

			Gross		Gross		Approximate
	Amortized		Unrealized		Unrealized		Fair
(Dollars are in thousands)	Cost		Gains		Losses		Value
December 31, 2020
U.S. Government Agencies	$	13,852	$	322	$	67	$	14,107
Taxable municipals		5,157		188		—		5,345
Corporate bonds		5,893		186		31		6,048
Mortgage backed securities		22,565		388		47		22,906
Total Securities available for sale	$	47,467	$	1,084	$	145	$	48,406
December 31, 2019
U.S. Government Agencies	$	15,703	$	57	$	127	$	15,633
Taxable municipals		4,389		54		1		4,442
Corporate bonds		5,408		115		—		5,523
Mortgage backed securities		25,077		111		137		25,051
Total Securities available for sale	$	50,577	$	337	$	265	$	50,649

The following table details unrealized losses and related fair values in the available-for-sale portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2020 and December 31, 2019.

	Less than 12 Months				12 Months or More				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars are in thousands)		Value		Losses		Value		Losses		Value		Losses
December 31, 2020
U.S. Government Agencies	$	1,479	$	12	$	3,829	$	55	$	5,308	$	67
Taxable municipals		—		—		—		—		—		—
Corporate bonds		1,219		31		—		—		1,219		31
Mtg. backed securities		7,517		44		218		3		7,735		47
Total Securities AFS	$	10,215	$	87	$	4,047	$	58	$	14,262	$	145
December 31, 2019
U.S. Government Agencies	$	6,788	$	46	$	4,516	$	81	$	11,304	$	127
Taxable municipals		1,049		1		—		—		1,049		1
Corporate bonds		—		—		—		—		—		—
Mtg. backed securities		1,586		4		12,002		133		13,588		137
Total Securities AFS	$	9,423	$	51	$	16,518	$	214	$	25,941	$	265

At December 31, 2020, the available-for-sale portfolio included 42 investments for which the fair market value was less than amortized cost. At December 31, 2019, the available-for-sale portfolio included 100 investments for which the fair market value was less than amortized cost. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based on the Company’s analysis, the Company concluded that no securities had other-than-temporary impairment at December 31, 2020 or December 31, 2019.

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Investment securities with a carrying value of $6.8 million and $6.9 million at December 31, 2020 and 2019, respectively, were pledged to secure public deposits and for other purposes required by law.

During the year ended December 31, 2020, $1.0 million of securities were sold, realizing $4 thousand in gains. No investment securities were sold during 2019.

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

					Weighted
(Dollars are in thousands)	Amortized		Fair		Average
Securities Available for Sale	Cost		Value		Yield
Due in one year or less	$	540	$	546		2.11	%
Due after one year through five years		6,664		6,795		3.42	%
Due after five years through ten years		9,487		9,754		2.68	%
Due after ten years		30,776		31,311		1.77	%
Total	$	47,467	$	48,406		2.19	%

The Bank, as a member of the Federal Reserve Bank and the Federal Home Loan Bank of Atlanta (FHLB), is required to hold stock in each. The Bank also owns stock in CBB Financial Corp., which is a correspondent of the Bank. These equity securities, which are included in Other Assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $2.6 million as of both December 31, 2020 and 2019. The stock has no quoted market value and no ready market exists.

NOTE 6         LOANS

Loans receivable outstanding at December 31, are summarized as follows:

(Dollars are in thousands)	2020		2019
Real estate secured:
Commercial	$	179,381	$	170,436
Construction and land development		25,031		31,130
Residential 1-4 family		222,980		242,922
Multifamily		16,569		13,638
Farmland		18,368		20,790
Total real estate loans		462,329		478,916
Commercial		86,010		53,994
Agriculture		4,450		4,797
Consumer installment loans		20,632		23,127
All other loans		2,145		1,710
Total loans	$	575,566	$	562,544

Included in commercial loans at December 31, 2020, are $34.8 million of PPP loans that are guaranteed by the SBA. Fees paid by SBA ranged from 1% to 5% of the amount borrowed, with 5% paid on loans up to $350 thousand, 3% on loans between $350 thousand and $2 million, and 1% on loans over $2 million. During 2020, 645 loans totaling $28.8 million with original balances of $350 thousand or less were originated, along with the origination of 23 loans totaling $15.7 million, with original balances between $350 thousand and $2 million. As a result of these originations, fees totaling $1.9 million ($1.6 million, net of fees allocated to a third party service provider) were received related to the origination of these loans, of which $994 thousand was earned in 2020. Also included in total loans above are net deferred fees, including unearned PPP loan fees in 2020, of $496 thousand and net deferred costs of $378 thousand, at December 31 2020 and 2019, respectively. Income from net deferred fees and costs is recognized as income over the lives of the respective loans as a yield adjustment. If loans repay prior to scheduled maturities any unamortized fee or cost is recognized at that time.

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Loans receivable on nonaccrual status at December 31, are summarized as follows:

(Dollars are in thousands)	2020		2019
Real estate secured:
Commercial	$	2,225	$	1,601
Construction and land development		57		45
Residential 1-4 family		2,700		2,544
Farmland		101		531
Total real estate loans		5,083		4,721
Commercial		453		390
Consumer installment and other loans		12		45
Total loans receivable on nonaccrual status	$	5,548	$	5,156

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

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

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

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 The following table presents information concerning the Company’s investment in loans considered impaired as of December 31, 2020 and December 31, 2019:

As of December 31, 2020 (Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate secured:
Commercial	$	1,680	$	16	$	385	$	386	$	—
Construction and land development		89		18		99		376		—
Residential 1-4 family		1,788		53		1,662		1,898		—
Multifamily		—		—		—		—		—
Farmland		550		59		391		560		—
Commercial		59		—		—		—		—
Agriculture		—		—		—		—		—
Consumer installment loans		4		—		5		6		—
All other loans		—		—		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		707		—		1,566		1,678		574
Construction and land development		—		—		—		—		—
Residential 1-4 family		150		3		337		365		72
Multifamily		—		—		—		—		—
Farmland		212		9		208		220		2
Commercial		214		12		429		437		404
Agriculture		—		—		—		—		—
Consumer installment loans		—		—		—		—		—
All other loans		—		—		—		—		—
Total	$	5,453	$	170	$	5,082	$	5,926	$	1,052

As of December 31, 2019 (Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate secured:
Commercial	$	2,017	$	100	$	2,416	$	2,478	$	—
Construction and land development		91		7		70		346		—
Residential 1-4 family		1,944		55		1,263		1,460		—
Multifamily		29		1		—		—		—
Farmland		1,143		47		778		970		—
Commercial		578		11		128		178		—
Agriculture		—		—		—		1		—
Consumer installment loans		2		—		—		—		—
All other loans		—		—		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		470		1		363		379		70
Construction and land development		—		—		—		—		—
Residential 1-4 family		302		—		55		60		44
Multifamily		—		—		—		—		—
Farmland		221		11		216		228		9
Commercial		507		7		286		886		200
Agriculture		—		—		—		—		—
Consumer installment loans		3		—		—		—		—
All other loans		—		—		—		—		—
Total	$	7,307	$	240	$	5,575	$	6,986	$	323

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An age analysis of past due loans receivable is below. At December 31, 2020 and 2019, there were no loans over 90 days past due that were accruing.

As of December 31, 2020 (Dollars are in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
Real estate secured:
Commercial	$	969	$	—	$	—	$	969	$	178,412	$	179,381
Construction and land development		64		—		—		64		24,967		25,031
Residential 1-4 family		5,717		615		690		7,022		215,958		222,980
Multifamily		—		—		—		—		16,569		16,569
Farmland		57		—		—		57		18,311		18,368
Total real estate loans		6,807		615		690		8,112		454,217		462,329
Commercial		214		—		—		214		85,796		86,010
Agriculture		7		1		—		8		4,442		4,450
Consumer installment Loans		214		22		—		236		20,396		20,632
All other loans		—		—		—		—		2,145		2,145
Total loans	$	7,242	$	638	$	690	$	8,570	$	566,996	$	575,566

As of December 31, 2019 (Dollars are in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
Real estate secured:
Commercial	$	502	$	125	$	262	$	889	$	169,547	$	170,436
Construction and land development		50		18		18		86		31,044		31,130
Residential 1-4 family		3,700		1,096		710		5,506		237,416		242,922
Multifamily		262		—		—		262		13,376		13,638
Farmland		111		47		152		310		20,480		20,790
Total real estate loans		4,625		1,286		1,142		7,053		471,863		485,916
Commercial		406		—		323		729		53,265		53,994
Agriculture		244		—		21		265		4,532		4,797
Consumer installment Loans		98		24		23		145		22,982		23,127
All other loans		—		—		—		—		1,710		1,710
Total loans	$	5,373	$	1,310	$	1,509	$	8,192	$	554,352	$	562,544

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

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

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

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

Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. There were no loans classified as doubtful at December 31, 2020, and one loan with a balance of $286 thousand at December 31, 2019.

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

As of December 31, 2020 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Real estate secured:
Commercial	$	171,212	$	6,112	$	2,057	$	—	$	179,381
Construction and land development		23,168		1,806		57		—		25,031
Residential 1-4 family		218,947		1,304		2,729		—		222,980
Multifamily		16,337		232		—		—		16,569
Farmland		17,019		1,249		100		—		18,368
Total real estate loans		446,683		10,703		4,943		—		462,329
Commercial		81,846		3,711		453		—		86,010
Agriculture		4,255		195		—		—		4,450
Consumer installment loans		20,615		5		12		—		20,632
All other loans		2,145		—		—		—		2,145
Total	$	555,544	$	14,614	$	5,408	$	—	$	575,566

As of December 31, 2019 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Real estate secured:
Commercial	$	165,570	$	3,265	$	1,601	$	—	$	170,436
Construction and land development		30,747		360		23		—		31,130
Residential 1-4 family		239,210		1,207		2,505		—		242,922
Multifamily		13,638		—		—		—		13,638
Farmland		18,779		1,480		531		—		20,790
Total real estate loans		467,944		6,312		4,660		—		478,916
Commercial		51,086		2,504		118		286		53,994
Agriculture		4,753		4		40		—		4,797
Consumer installment loans		23,087		12		28		—		23,127
All other loans		1,710		—		—		—		1,710
Total	$	548,580	$	8,832	$	4,846	$	286	$	562,544

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NOTE 7   ALLOWANCE FOR LOAN LOSSES

The following tables present activity in the allowance for loan losses for the year ended December 30, 2020 and 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented as of December 30, 2020 and 2019.  

	Real estate secured
				Construction																Consumer
				and Land		Residential														and All
(Dollars are in thousands)	Commercial			Development		1-4 family			Multifamily		Farmland			Commercial			Agriculture			Other			Unallocated			Total
Year ended December 31,
2020
Beginning balance	$	1,248		$	158	$	1,736		$	104	$	109		$	1,789		$	27		$	195		$	2		$	5,368
Charge-offs		(65	)		—		(165	)		—		(42	)		(329	)		(15	)		(85	)		—			(701	)
Recoveries		57			—		38			—		33			40			1			55			—			224
Provision		1,041			75		342			47		(3	)		775			27			(2	)		(2	)		2,300
Ending balance	$	2,281		$	233	$	1,951		$	151	$	97		$	2,275		$	40		$	163		$	—		$	7,191
Allowance for loan losses at December 31, 2020
Individually evaluated for impairment	$	574		$	—	$	72		$	—	$	2		$	404		$	—		$	—		$	—		$	1,052
Collectively evaluated for impairment		1,707			233		1,879			151		95			1,871			40			163			—			6,139
	$	2,281		$	233	$	1,951		$	151	$	97		$	2,275		$	40		$	163		$	—		$	7,191
Loans at December 31, 2020 Individually evaluated for impairment	$	1,951		$	99	$	1,999		$	—	$	599		$	429		$	—		$	5		$	—		$	5,082
Collectively evaluated for impairment		177,430			24,932		220,981			16,569		17,769			85,581			4,450			22,772			—			570,484
	$	179,381		$	25,031	$	222,980		$	16,569	$	18,368		$	86,010		$	4,450		$	22,777		$	—		$	575,566

	Real estate secured
				Construction																		Consumer
				and Land			Residential															and All
(Dollars are in thousands)	Commercial			Development			1-4 family			Multifamily			Farmland			Commercial			Agriculture			Other			Unallocated			Total
Year ended December 31,
2019
Beginning balance	$	1,386		$	202		$	2,437		$	89		$	287		$	448		$	37		$	175		$	275		$	5,336
Charge-offs		(192	)		—			(336	)		—			(33	)		(1,762	)		(17	)		(114	)		—			(2,454	)
Recoveries		16			34			202			30			29			61			2			62			—			436
Provision		38			(78	)		(567	)		(15	)		(174	)		3,042			5			72			(273	)		2,050
Ending balance	$	1,248		$	158		$	1,736		$	104		$	109		$	1,789		$	27		$	195		$	2		$	5,368
Allowance for loan losses at December 31, 2019
Individually evaluated for impairment	$	70		$	—		$	44		$	—		$	9		$	200		$	—		$	—		$	—		$	323
Collectively evaluated for impairment		1,178			158			1,692			104			100			1,589			27			195			2			5,045
	$	1,248		$	158		$	1,736		$	104		$	109		$	1,789		$	27		$	195		$	2		$	5,368
Loans at December 31, 2019 Individually evaluated for impairment	$	2,779		$	70		$	1,318		$	—		$	994		$	414		$	—		$	—		$	—		$	5,575
Collectively evaluated for impairment		167,657			31,060			241,604			13,638			19,796			53,580			4,797			24,837			—			556,969
	$	170,436		$	31,130		$	242,922		$	13,638		$	20,790		$	53,994		$	4,797		$	24,837		$	—		$	562,544

In determining the amount of our allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases to our provision. Due to the underlying SBA guarantee provided for PPP loans, these accounts were not included in either the portfolio segment or impairment calculations at December 31, 2020. Additionally, due to uncertainties presented by the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors were revised accordingly. This revision included reviewing our internal scoring related to loan modifications and extensions, and external factors, specifically, unemployment and other economic factors.

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NOTE 8   TROUBLED DEBT RESTRUCTURINGS

At December 31, 2020, loans classified as troubled debt restructurings totaled $4.0 million compared to $4.3 million at December 31, 2019. The following table presents information related to loans modified as troubled debt restructurings during the years ended December 31, 2020 and 2019.

	December 31, 2020						December 31, 2019
(Dollars are in thousands)	# of Loans		Pre-Mod. Recorded Investment		Post-Mod. Recorded Investment		# of Loans		Pre-Mod. Recorded Investment		Post-Mod. Recorded Investment
Real estate secured:
Commercial		3	$	190	$	190		1	$	150	$	150
Construction and land Development		—		—		—		—		—		—
Residential 1-4 family		27		1,236		1,236		—		—		—
Multifamily		—		—		—		—		—		—
Farmland		—		—		—		1		305		305
Total real estate loans		30		1,426		1,426		2		455		455
Commercial		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Consumer installment loans		2		7		7		—		—		—
All other loans		—		—		—		—		—		—
Total		32	$	1,433	$	1,433		2	$	455	$	455

As discussed in Note 6, during the year ended December 31, 2020 modifications were granted on 786 loans with a gross aggregate balance of $119.6 million, under the provisions of the CARES Act. The characteristics of these modifications are considered short-term and did not result in a reclassification of the loans as troubled debt restructurings, as the accounts met the requirements stated in the CARES Act and had not been subject to prior modification.

During the year ended December 31, 2020, the Company modified the terms of thirty-two loans for which the modification was considered to be a troubled debt restructuring. The interest rate was not modified on these loans; however, the payment terms or maturity date were changed. During the year ended December 31, 2019, the Company modified the terms of two loans for which the modification was considered to be a troubled debt restructuring. The interest rate was not modified on these loans; however, the payment terms and maturity date were changed.      

Three loans totaling $142 thousand, modified as troubled debt restructurings during 2020, have since failed to perform in accordance with the revised terms and have been placed, or remained in nonaccrual status at December 31, 2020. Two loans modified as troubled debt restructurings defaulted during the year ended December 31, 2019. Generally, a troubled debt restructuring is considered to be in default once it becomes 90 days or more past due following a modification.

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

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NOTE 9   BANK PREMISES AND EQUIPMENT

Depreciation expense for 2020 and 2019 was $2.2 million and $2.3 million, respectively. Bank premises and equipment at December 31, 2020 and 2019 are summarized as follows:

(Dollars are in thousands)	2020			2019
Land	$	7,796		$	7,485
Buildings and improvements		17,287			16,227
Furniture and equipment		16,900			16,253
Construction in progress		1,025			1,003
		43,008			40,968
Less accumulated depreciation		(20,834	)		(18,726	)
Bank Premises and Equipment	$	22,174		$	22,242

As presented in Note 17 Leasing Activities, in September 2019, the Bank entered into a sale and leaseback transaction for its branch office located in Lebanon, Virginia.

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

NOTE 10 INCOME TAXES

The Company files a consolidated federal income tax return. The following summarizes the provision for income taxes and the related deferred tax components for the years ended December 31, 2020 and 2019.

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

(Dollars are in thousands)	2020		2019
Pre-tax book income
Domestic	$	3,993	$	2,581
Total pre-tax book income	$	3,993	$	2,581

Income tax expense is summarized as follows for the years ended December 31:

(Dollars are in thousands)	2020			2019
Current income tax expense (benefit)
Federal	$	(200	)	$	(35	)
State		—			—
Total current income tax expense (benefit)		(200	)		(35	)

Deferred income tax expense
Federal		1,304			557
State		(1	)		—
Total deferred income tax expense		1,303			557
Income tax expense	$	1,103		$	522

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The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rate of 21% for years ending December 31, 2020 and 2019, respectively:

(Dollars are in thousands)	2020			2019
Income tax expense (benefit) at the applicable federal rate74	$	839		$	542
Permanent differences resulting from:
Nondeductible expenses		8			10
Tax exempt interest income		(7	)		(11	)
Bank owned life insurance		(16	)		(13	)
Other adjustments		279			(6	)
Income tax expense	$	1,103		$	522

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

(Dollars are in thousands)	2020		2019
Deferred Tax Assets
Allowance for loan losses	$	1,568	$	1,127
Deferred compensation		92		90
Nonaccrual loan interest		490		439
Other real estate owned		83		127
Amortization of core deposits		18		28
Amortization of goodwill		90		144
Capitalized interest and repair expense		23		23
Net operating loss carryforward		2,172		3,631
AMT carryforward		—		320
Other		33		—
Total Assets, gross		4,569		5,929
Valuation allowance		—		—
Total Assets, net		4,569		5,929
Deferred Tax Liabilities
Accelerated depreciation		869		937
Accrued employee benefits		—		11
Unrealized gain on securities available for sale		197		15
Prepaid expenses		22		59
Deferred loan costs		355		331
Total Liabilities, gross		1,443		1,353
Net Deferred Tax Asset	$	3,126	$	4,576

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

At December 31, 2020 and 2019, the Company had no unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to increase significantly over the next twelve months. The company recognizes interest and penalties as a component of income tax expense.

The Company and Bank are subject to U. S. federal income tax, a capital based franchise tax in the Commonwealth of Virginia; and income and excise taxes in West Virginia and Tennessee, respectively, based on earnings realized from business activities within each state. Years prior to 2017 are no longer subject to examination by taxing authorities.

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NOTE 11 TIME DEPOSITS

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

2021	$	137,383
2022		44,170
2023		23,097
2024		11,283
2025		18,516
After five years		—
Total	$	234,449

NOTE 12 RELATED PARTY TRANSACTIONS

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

	For the years ended December 31,
(Dollars in thousands)	2020			2019
Beginning balance	$	2,457		$	2,553
New loans and advances on lines		4,567			1,925
Payments and other reductions		(2,837	)		(2,021	)
Ending balance	$	4,187		$	2,457

Total related party deposits held at the Bank were $21.5 million and $42.8 million at the end of years 2020 and 2019, respectively.

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

NOTE 13 RETIREMENT PLANS

The Company has established a qualified defined contribution plan that covers all full time employees. The Company matches employee contributions up to a maximum of 3% of their salary. The Company contributed $258 thousand and $299 thousand to the defined contribution plan for 2020 and 2019, respectively.

The Bank maintains a salary continuation plan for key executives which was established in 2002 and is funded by single premium life insurance policies. Expenses related to the plan were $17 thousand and $4 thousand for the years ended December 31, 2020 and 2019, respectively.

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NOTE 14 OTHER REAL ESTATE OWNED

The following table summarizes the activity in other real estate owned for the years ended December 31, 2020 and 2019:

	2020			2019
(Dollars are in thousands)
Balance, beginning of year	$	3,393		$	5,937
Additions		1,128			811
Transfers from premises and equipment		—			683
Proceeds from sales		(687	)		(1,322	)
Proceeds from insurance claims		—			(19	)
Loans made to finance sales		(428	)		(2,360	)
Adjustment of carrying value		(132	)		(214	)
Gains (losses) from sales		60			(123	)
Balance, end of year	$	3,334		$	3,393

NOTE 15 BANK OWNED LIFE INSURANCE

At December 31, 2020 and 2019, we had an aggregate total cash surrender value of $4.7 million and $4.6 million, respectively, on life insurance policies covering current and former key officers

Total income for the policies during 2020 and 2019 was $77 thousand and $63 thousand, respectively.

NOTE 16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK

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

NOTE 17 LEASING ACTIVITIES

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

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

As of December 31, 2020, the Bank leases five branch offices. The lease agreements have maturity dates ranging from May 2032 to September 2034. It is assumed that there are currently no circumstances in which the leases would be terminated prior to expiration. The weighted average remaining life of the lease terms at December 31, 2020, was 11.89 years.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to the lease term for each transaction. This methodology is expected to be used for any other subsequent lease agreements. The weighted average discount rate for the leases at December 31, 2020 was 3.16%.

The Company’s operating lease costs for the years ended December 31, 2020 and 2019, as a result of the transactions discussed above, was $552 thousand and $505 thousand, respectively.

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

2021	$	511
2022		530
2023		544
2024		546
2025		550
Thereafter		3978
Total lease payments		6,659
Less imputed interest		1,220
Total	$	5,439

NOTE 18 BORROWED FUNDS

The following table presents the breakdown of borrowed funds as of December 31, 2020 and 2019 (Dollars in thousands):

	FHLB Revolving Advances (a)			Federal Funds Lines (b)			FHLB Term Loans Short-Term (c)			FHLB Term Loans Long-Term (d)			NPB Capital Trust I (e)			NPB Capital Trust 2 (e)			Total
Balance December 31, 2020	$	—		$	—		$	5,000		$	—		$	11,341		$	5,155		$	21,496
Highest balance at any month-end		—			—			5,000			5,000			11,341			5,155
Average weighted balance		—			—			2,555			2,445			11,341			5,155			21,496
Average interest rate:
Paid during the year		—	%		—	%		1.36	%		1.36	%		3.55	%		2.70	%		2.84	%
At year-end		—	%		—	%		1.34	%		—	%		2.84	%		2.01	%		2.29	%
Balance December 31, 2019	$	—		$	—		$	—		$	5,000		$	11,341		$	5,155		$	21,496
Highest balance at any month-end		—			—			2,000			5,000			11,341			5,155
Average weighted balance		—			10			975			5,000			11,341			5,155			22,481
Average interest rate:
Paid during the year		—	%		3.32	%		1.26	%		1.36	%		5.09	%		4.25	%		3.89	%
At year-end		—	%		—	%		—	%		1.34	%		4.59	%		3.76	%		3.64	%

(a) - The Bank has the ability to borrow up to an additional $169.9 million from the FHLB under a line of credit which is secured by a blanket lien on residential real estate loans. The Bank had no overnight borrowings subject to daily rate changes from the FHLB at December 31, 2020 or 2019.

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

(b) - Federal funds lines consist of $20.0 million in unsecured federal funds line of credit facilities with correspondent banks as of both December 31, 2020 and 2019, exclusive of any outstanding balance.

(c) - At December 31, 2020, short term FHLB advances consisted of one $5.0 million advance with a fixed rate of 1.34%.

(d) - At December 31, 2020 there were no long term FHLB advances. Long term FHLB advances totaled $5 million at December 31, 2019

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

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

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

Following are maturities of borrowed funds at December 31, 2020 (dollars in thousands):

2021	$	5,000
2022		—
2023		—
2024		—
2025		—
2026 and thereafter		16,496
	$	21,496

NOTE 19 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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

Financial instruments whose contract amount represents credit risk at December 31 were as follows:

	2020		2019
(Dollars in thousands)
Commitments to extend credit	$	57,334	$	59,552
Standby letters of credit		2,031		2,582

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

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

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NOTE 20        LEGAL CONTINGENCIES

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

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

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

NOTE 21        CAPITAL

Capital Requirements and Ratios

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

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

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

The Bank’s actual capital amounts and ratios are presented in the following table as of December 31, 2020 and 2019, respectively.

	Actual					Minimum Capital Requirement					Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars are in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2020:
Total Capital to Risk Weighted Assets	$	77,133		16.41	%	$	37,603		8.0	%	$	47,028		10.0	%
Tier 1 Capital to Risk Weighted Assets		71,241		15.16	%		28,202		6.0	%		37,603		8.0	%
Tier 1 Capital to Average Assets		71,241		9.49	%		29,989		4.0	%		37,545		5.0	%
Common Equity Tier 1 Capital to Risk Weighted Assets		71,241		15.16	%		30,036		4.5	%		30,552		6.5	%
December 31, 2019:
Total Capital to Risk Weighted Assets	$	72,109		14.83	%	$	38,910		8.0	%	$	48,637		10.0	%
Tier 1 Capital to Risk Weighted Assets		66,741		13.72	%		29,182		6.0	%		38,910		8.0	%
Tier 1 Capital to Average Assets		66,741		9.43	%		28,313		4.0	%		35,391		5.0	%
Common Equity Tier 1 Capital to Risk Weighted Assets		66,741		13.72	%		21,887		4.5	%		31,614		6.5	%

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Accordingly, as of December 31, 2020 and 2019, the Bank was well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since such dates that management believes have changed the Bank’s category.

The Bank is also subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The final rules require the Bank to comply with the following minimum capital ratios: (i) a Common Equity Tier 1 capital to risk-weighted assets ratio of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum Common Equity Tier 1 capital to risk-weighted assets ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least, 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The Bank’s capital conservation buffer was 8.20% at December 31, 2020. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a Common Equity Tier 1 capital to risk-weighted assets ratio above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. As of both December 31, 2020 and 2019, the Common Equity Tier 1 Capital to Risk-weighted Assets ratio, the Tier 1 Capital to Risk-weighted Assets ratio, the Total Capital to Risk-weighted Assets ratio, and the Tier 1 Capital to Average Assets ratio of the Bank, all exceeded the minimum requirements.

NOTE 22      FAIR VALUES

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Fair Value Measurements and Disclosures also establish fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an exchange market, as well as U. S. Treasury, other U. S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

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

Level 3: Significant unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities Available for Sale — Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s available for sale securities, totaling $48.4 million and $50.6 million at December 31, 2020 and 2019, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service.

Loans - The Company does not record loans at fair value on a recurring basis. Real estate serves as collateral on a substantial majority of the Company’s loans. When a loan is considered impaired, a specific reserve may be established. Loans, which are deemed to be impaired and require a reserve, are primarily valued on a non-recurring basis at the fair value of the underlying real estate collateral. Where there is no observable market price, such fair values are obtained using independent appraisals, which management evaluates to determine whether or not the fair value of the collateral is further impaired below the appraised value and adjusts for estimated costs of disposition. The Company records impaired loans as nonrecurring Level 3 assets. The aggregate amount of impaired loans carried at fair value was $4.0 million and $5.3 million at December 31, 2020 and 2019, respectively.

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Foreclosed Assets – Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Foreclosed assets are carried at the lower of their carrying value or fair value. Fair value is based upon observable market prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When observable market prices are not available, management determines the fair value of the foreclosed asset using independent third party appraisals, evaluated to determine whether or not the property is further impaired below the appraised value, and adjusts for estimated costs of disposition. The Company records foreclosed assets as nonrecurring Level 3. The aggregate carrying amounts of foreclosed assets were $3.3 million and $3.4 million at December 31, 2020 and 2019, respectively.

Assets and liabilities measured at fair value are as follows as of December 31, 2020 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	—	$	14,107	$	—
Taxable municipals		—		5,345		—
Corporate bonds		—		6,048		—
Mortgage backed securities		—		22,906		—
(On a non-recurring basis) Other real estate owned		—		—		3,334
Impaired loans:
Real estate secured:
Commercial		—		—		1,377
Construction and land development		—		—		99
Residential 1-4 family		—		—		1,927
Multifamily		—		—		—
Farmland		—		—		597
Commercial		—		—		25
Agriculture		—		—		—
Consumer installment loans		—		—		5
All other loans		—		—		—
Total	$	—	$	48,406	$	7,364

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Assets and liabilities measured at fair value are as follows as of December 31, 2019 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	—	$	15,633	$	—
Taxable municipals		—		4,442		—
Corporate bonds		—		5,523		—
Mortgage backed securities		—		25,051		—
(On a non-recurring basis) Other real estate owned		—		—		3,393
Impaired loans:
Real estate secured:
Commercial		—		—		2,709
Construction and land development		—		—		70
Residential 1-4 family		—		—		1,274
Multifamily		—		—		—
Farmland		—		—		985
Commercial		—		—		214
Agriculture		—		—		—
Consumer installment loans		—		—		—
All other loans		—		—		—
Total	$	—	$	50,649	$	8,645

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of December 31, 2020 and 2019, the significant unobservable inputs used in the fair value measurements were as follows:

(Dollars in thousands)	Fair Value at December 31, 2020			Fair Value at December 31, 2019		Valuation Technique		Significant Unobservable Inputs		General Range of Significant Unobservable Input Values
Impaired Loans		$	4,030	$	5,252		Appraised Value/Discounted Cash Flows/Market Value of Note		Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell		0 – 18%
Other Real Estate Owned		$	3,334	$	3,393		Appraised Value/Comparable Sales/Other Estimates from Independent Sources		Discounts to reflect current market conditions and estimated costs to sell		0 – 18%

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Fair Value of Financial Instruments

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows:

					Fair Value Measurements
(Dollars are in thousands)	Carrying Amount		Fair Value		Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
December 31, 2020
Financial Instruments – Assets
Net Loans	$	568,375	$	564,664	$	—	$	560,634	$	4,030
Financial Instruments – Liabilities
Time Deposits		234,449		237,768		—		237,768		—
Borrowed Funds		21,496		16,788		—		16,788		—
December 31, 2019
Financial Instruments – Assets
Net Loans	$	557,176	$	550,495	$	—	$	545,243	$	5,252
Financial Instruments – Liabilities
Time Deposits		257,406		259,325		—		259,325		—
Borrowed Funds		21,496		18,503		—		18,503		—

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

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

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

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

NOTE 23      REVENUE FROM CONTRACTS WITH CUSTOMERS

All of our revenue from contracts with customers as defined in ASC 606 is recognized within Noninterest Income. The following table presents Noninterest Income by revenue stream for the years ended December 31, 2020 and 2019.

(Dollars are in thousands)	2020		2019
Service charges and fees	$	3,217	$	3,605
Card processing and interchange income		3,314		3,014
Insurance and investment fees		716		663
Gains on sales of available-for-sale securities (1)		4		—
Gain on sale and leaseback transactions (1)		—		803
Other noninterest income		896		567
Total Noninterest Income	$	8,147	$	8,652

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

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

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

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

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

NOTE 24 NONINTEREST EXPENSES

Other operating expenses, included as part of noninterest expenses, consisted of the following for the years ended December 31, 2020 and 2019:

(Dollars are in thousands)	2020		2019
Advertising, sponsorships and donations	$	216	$	315
ATM network expense		1,476		1,832
Legal and professional fees		839		872
Consulting fees		504		829
Loan related expenses		353		581
Printing and supplies		141		146
FDIC insurance premiums		393		222
Other real estate owned expenses, net		307		635
Other operating expenses		2,507		2,404
Total	$	6,736	$	7,836

NOTE 25 SUBSEQUENT EVENTS

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

As disclosed in Note 20 Legal Contingencies, the Bank is a defendant in a complaint filed by a former employee in the United States District Court for the Western District of Virginia on January 1, 2021.

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

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

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NOTE 26        RECENT ACCOUNTING DEVELOPMENTS

The following is a summary of recent authoritative announcements:

In June 2016, per ASU No. 2016-13, ‘Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,’ the Financial Accounting Standards Board (the FASB) issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. Subsequently, per ASU No. 2019-10, implementation for the Company is delayed until reporting periods beginning after December 15, 2022. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

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

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

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

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

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

In March, 2020, the FASB released ASU 2020-04, ‘Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting,’ which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. The amendments in this Update are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in the Update are effective for the Company as of March 12, 2020 through December 31, 2022. The Company is currently in the process of evaluating the impact of adoption of this guidance, but does not expect this amendment to have a material impact on its financial statements.

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

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

In January, 2021, the FASB released ASU 2021-01, ‘Reference Rate Reform (Topic 848),’ which clarifies that certain optional expedients and exceptions in topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition related to reference rate reform. The amendments in this Update are effective immediately for all entities. An entity may elect to apply the amendments in the Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued. The Company does not expect this amendment to have a material effect on its financial statements.

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

NOTE 27 PARENT CORPORATION ONLY FINANCIAL STATEMENTS

CONDENSED BALANCE SHEETS

AS OF DECEMBER 31, 2020 AND 2019

(Dollars in Thousands)

	2020			2019
ASSETS
Due from banks	$	215		$	209
Investment in subsidiaries		72,990			69,463
Other assets		1,669			1,737
Total Assets	$	74,874		$	71,409
LIABILITIES
Accrued interest payable	$	109		$	182
Accrued expenses and other liabilities		92			129
Trust preferred securities		16,496			16,496
Total Liabilities		16,697			16,807
STOCKHOLDERS’ EQUITY
Common stock - $2.00 par value, 50,000,000 shares authorized;   23,922,086 shares issued and outstanding at both December 31, 2020 and 2019		47,844			47,844
Additional paid capital		14,570			14,570
Retained deficit		(4,979	)		(7,869	)
Accumulated other comprehensive income		742			57
Total Stockholders’ Equity		58,177			54,602
Total Liabilities and Stockholders’ Equity	$	74,874		$	71,409

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CONDENSED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(Dollars in thousands)

	2020			2019
Income
Miscellaneous income	$	16		$	26
Dividends from subsidiaries		610			760
Undistributed income of subsidiaries		2,842			2,076
Total income		3,468			2,862
Expenses
Trust preferred securities interest expense		541			796
Professional fees		114			154
Other operating expenses		19			60
Total Expenses		674			1,010
Income before Income Taxes		2,794			1,852
Income Tax Benefit		(96	)		(207	)
Net Income	$	2,890		$	2,059

CONDENSED STATEMENTSOF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(Dollars in thousands)

	2020			2019
Cash Flows From Operating Activities
Net income	$	2,890		$	2,059
Adjustments to reconcile net income to net cash used in  operating activities:
Equity in undistributed earnings of subsidiaries		(2,842	)		(2,076	)
Net decrease (increase) in other assets		67			(173	)
Net (decrease) increase in other liabilities		(109	)		38
Net cash provided by (used in) operating activities		6			(152	)
Net increase (decrease) in Cash and Cash Equivalents		6			(152	)
Cash and Cash Equivalents, Beginning of year		209			361
Cash and Cash Equivalents, End of Year	$	215		$	209
Supplemental Disclosure of Cash Paid During the Year for:
Interest	$	614		$	811
Taxes	$	(166	)	$	(34	)

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NOTE 28 SELECTED QUARTERLY INFORMATION (UNAUDITED)

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

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

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

None.

Item 9A.Controls and Procedures

Management’s Report on Internal Control over Financial Reporting

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

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

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Management assessed the effectiveness of New Peoples’ internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control - Integrated Framework” issued in 2013. Based on this assessment, management concluded that the internal control over financial reporting was effective as of December 31, 2020.

Changes in Internal Control Over Financial Reporting

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

Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that is designed to ensure that material information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of December 31, 2020.

Item 9B.       Other Information

None.

PART III

Item 10.     Directors, Executive Officers and Corporate Governance

The information contained under the captions “Election of Directors,” “Incumbent Directors” “Executive Officers Who Are Not Directors,” “Corporate Governance” and “Delinquent Section 16(a) Reports” in the 2021 Proxy Statement that is required to be disclosed in this Item 10 is incorporated herein by reference.

Item 11.     Executive Compensation

The information contained under the captions “Director Compensation” and “Executive Compensation and Related Party Transactions” in the 2021 Proxy Statement that is required to be disclosed in this Item 11 is incorporated herein by reference.

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

The information contained under the captions “Security Ownership of Management” and “Security Ownership of Certain Beneficial Owners” in the 2021 Proxy Statement that is required to be disclosed in this Item 12 is incorporated herein by reference.

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

The information contained under the caption “Executive Compensation and Related Party Transactions” and “Corporate Governance” in the 2021 Proxy Statement that is required to be disclosed in this Item 13 is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information contained under the caption “Audit Information” in the 2021 Proxy Statement that is required to be disclosed in this Item 14 is incorporated herein by reference.

74

Item 15.    Exhibits and Financial Statement Schedules

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

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

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

Exhibit Number
3.1	Amended Articles of Incorporation of New Peoples Bankshares, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarterly period ended June 30, 2008 filed on August 11, 2008).
3.2	Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to Form 8-K filed August 26, 2020).
4.1	Specimen Common Stock Certificate of New Peoples Bankshares, Inc. (incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarterly period ended June 30, 2012 filed on August 14, 2012).
4.2	Description of New Peoples Bankshares, Inc.’s Securities (incorporated by reference to Exhibit 4.2 to Annual Report on Form 10-K for the fiscal year ended December 31, 2019).
10.1*	Employment Agreement dated December 1, 2016 between New Peoples Bankshares, Inc., New Peoples Bank, Inc., and C. Todd Asbury (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 2, 2016
14	Code of Ethics (incorporated by reference to Exhibit 14 to Annual Report on Form 10-K for the fiscal year ended December 31, 2003).
21	Subsidiaries of the Registrant.
24	Powers of Attorney (contained on signature page).
31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a).
31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a).
32 101	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. The following materials for the Company’s 10-K Report for the year ended December 31, 2020, formatted in XBRL are being furnished, not filed. XBRL Taxonomy Extension Calculation Linkbase Document, XBRL Taxonomy Extension Definitions Linkbase Document, Taxonomy Extension Label Linkbase Document, XBRL Taxonomy Extension Label Linkbase Document.

* Denotes management contract.

(b)       See Item 15(a)(3) above.

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

Item 16.          Form 10-K Summary

None.

75

SIGNATURES

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

	NEW PEOPLES BANKSHARES, INC.
By:	/s/ C. TODD ASBURY
	C. Todd Asbury
	Director, President and Chief Executive Officer
Date:	April 8, 2021

By:	/s/ JOHN J. BOCZAR
	John J. Boczar
	Executive Vice President and Chief Financial Officer
Date:	April 8, 2021

76

POWER OF ATTORNEY

Each of the undersigned hereby appoints C. Todd Asbury and John J. Boczar, and each of them, as attorneys and agents for the undersigned, with full power of substitution, in his name and on his behalf as a director of New Peoples Bankshares, Inc. (the “Registrant”), to act and to execute any and all instruments as such attorneys or attorney deem necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, and any rules, regulations, policies or requirements of the Securities and Exchange Commission (the “Commission”) in respect thereof, in connection with the preparation and filing with the Commission of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Report”), and any and all amendments to such Report, together with such other supplements, statements, instruments and documents as such attorneys or attorney deem necessary or appropriate.

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

Signature Capacity Date

/s/ C. TODD ASBURY	Director, President and	April 8, 2021
C. Todd Asbury	Chief Executive Officer
	(Principal Executive Officer)

/s/ JOHN J. BOCZAR		April 8, 2021
John J. Boczar	Executive Vice President and Chief Financial Officer
	(Principal Financial and
	Accounting Officer)

/s/ TIM BALL	Director	April 8, 2021
Tim Ball

/s/ GINA D. BOGGESS	Director	April 8, 2021
Gina D. Boggess

/s/ J. ROBERT BUCHANAN	Director	April 8, 2021
J. Robert Buchanan

/s/ JOE CARTER	Director	April 8, 2021
Joe Carter

/s/ JOHN D. COX	Director	April 8, 2021
John D. Cox

/s/ CHARLES H. GENT	Director	April 8, 2021
Charles H. Gent

/s/ EUGENE HEARL	Director	April 8, 2021
Eugene Hearl

/s/ HAROLD LYNN KEENE	Chairman, Director	April 8, 2021
Harold Lynn Keene

	Director
Michael G. McGlothlin

	Director
Fred Meade

/s/ B. SCOTT WHITE	Director	April 8, 2021
B. Scott White

77

EX-21

Exhibit 21

Name of Subsidiary	Incorporation
New Peoples Bank, Inc.	State of Virginia
NPB Web Services, Inc.	State of Virginia
NPB Capital Trust I	State of Delaware
NPB Capital Trust 2	State of Delaware

EX-31.1

Exhibit 31.1

CERTIFICATION

I, C. Todd Asbury, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2020 of New Peoples Bankshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  April 8, 2021

/s/ C. TODD ASBURY

C. Todd Asbury

Director, President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, John J. Boczar, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2020 of New Peoples Bankshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  April 8, 2021

/s/ JOHN J. BOCZAR

John J. Boczar

Executive Vice President & Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

The undersigned, as the Chief Executive Officer and Chief Financial Officer, respectively, of New Peoples Bankshares, Inc., certify that, to the best of their knowledge and belief, the Annual Report on Form 10-K for the year ended December 31, 2020, which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of New Peoples Bankshares, Inc. at the dates and for the periods indicated. The foregoing certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaim any obligation to update the foregoing certification except as required by law.

Date:  April 8, 2021	/s/ C. TODD ASBURY
	C. Todd Asbury
	Director, President & Chief Executive Officer

Date:  April 8, 2021	/s/ JOHN J. BOCZAR
	John J. Boczar
	Executive Vice President& Chief Financial Officer

XML

Cover - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Mar. 31, 2021	Jun. 30, 2020
Cover [Abstract]
Entity Registrant Name	NEW PEOPLES BANKSHARES INC
Entity Central Index Key	0001163389
Document Type	10-K
Entity File Number	000-33411
Document Period End Date	Dec. 31, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Interactive Data Current	Yes
Entity Incorporation, State or Country Code	VA
Entity a Well-known Seasoned Issuer	No
Entity a Voluntary Filer	No
Entity Reporting Status Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Entity Public Float			$ 14,465,501
Entity Common Stock, Shares Outstanding		23,922,086
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2020

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
ASSETS
Cash and due from banks	$ 16,023	$ 13,998
Interest-bearing deposits with banks	76,105	35,897
Federal funds sold	222	252
Total Cash and Cash Equivalents	92,350	50,147
Investment securities available-for-sale	48,406	50,649
Loans held for sale	389	2
Loans receivable	575,566	562,544
Allowance for loan losses	(7,191)	(5,368)
Net Loans	568,375	557,176
Bank premises and equipment, net	22,174	22,242
Other real estate owned	3,334	3,393
Accrued interest receivable	2,392	2,115
Deferred taxes, net	3,126	4,576
Right-of-use assets - operating leases	5,439	5,835
Other assets	10,317	10,238
Total Assets	756,302	706,373
Deposits
Noninterest bearing	223,725	170,782
Interest-bearing	444,287	450,695
Total Deposits	668,012	621,477
Borrowed funds	21,496	21,496
Lease liabilities - operating leases	5,439	5,835
Accrued interest payable	436	694
Accrued expenses and other liabilities	2,742	2,269
Total Liabilities	698,125	651,771
Commitments and Contingent Liabilities (Notes 19 and 20)
STOCKHOLDERS' EQUITY
Common stock - $2.00 par value; 50,000,000 shares authorized; 23,922,086 and 23,922,086 shares issued and outstanding at December 31, 2020 and 2019, respectively	47,844	47,844
Additional paid-in capital	14,570	14,570
Retained deficit	(4,979)	(7,869)
Accumulated other comprehensive income	742	57
Total Stockholders' Equity	58,177	54,602
Total Liabilities and Stockholders' Equity	$ 756,302	$ 706,373

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 2.00	$ 2.00
Common stock, authorized	50,000,000	50,000,000
Common stock, issued	23,922,086	23,922,086
Common stock, outstanding	23,922,086	23,922,086

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
INTEREST AND DIVIDEND INCOME
Loans including fees	$ 28,638	$ 28,601
Federal funds sold	1	5
Interest-earning deposits with banks	208	805
Investments	1,048	1,388
Dividends on equity securities (restricted)	141	156
Total Interest and Dividend Income	30,036	30,955
INTEREST EXPENSE
Deposits	4,284	5,105
Borrowed funds	609	874
Total Interest Expense	4,893	5,979
NET INTEREST INCOME	25,143	24,976
PROVISION FOR LOAN LOSSES	2,300	2,050
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	22,843	22,926
NONINTEREST INCOME
Service charges and fees	3,217	3,605
Card Processing and interchange income	3,314	3,014
Insurance and investment fees	716	663
Net gain on sales of available-for-sale securities	4
Gain on sale and leaseback transaction		803
Other noninterest income	896	567
Total Noninterest Income	8,147	8,652
NONINTEREST EXPENSES
Salaries and employee benefits	13,228	14,106
Occupancy and equipment expenses	4,536	4,514
Data processing and telecommunications	2,497	2,541
Other operating expenses	6,736	7,836
Total Noninterest Expenses	26,997	28,997
INCOME BEFORE INCOME TAXES	3,993	2,581
INCOME TAX EXPENSE	1,103	522
NET INCOME	$ 2,890	$ 2,059
Income Per Share
Basic and Diluted (in dollars per share)	$ 0.12	$ 0.09
Average Weighted Shares of Common Stock
Basic and Diluted (in shares)	23,922,086	23,922,086

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Consolidated Statements Of Comprehensive Income Loss
NET INCOME	$ 2,890	$ 2,059
Investment securities activity:
Unrealized gains arising during the year	871	1,636
Reclassification adjustment for net gains included in net income	(4)
Other comprehensive gains on investment securities	867	1,636
Related tax expense	(182)	(343)
TOTAL OTHER COMPREHENSIVE INCOME	685	1,293
TOTAL COMPREHENSIVE INCOME	$ 3,575	$ 3,352

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at beginning at Dec. 31, 2018	$ 47,844	$ 14,570	$ (9,928)	$ (1,236)	$ 51,250
Balance at beginning (in shares) at Dec. 31, 2018	23,922
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income					406
Balance at ending at Mar. 31, 2019					52,026
Balance at beginning at Dec. 31, 2018	$ 47,844	14,570	(9,928)	(1,236)	51,250
Balance at beginning (in shares) at Dec. 31, 2018	23,922
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			2,059		2,059
Other comprehensive loss, net of tax				1,293	1,293
Balance at ending at Dec. 31, 2019	$ 47,844	14,570	(7,869)	57	$ 54,602
Balance at ending (in shares) at Dec. 31, 2019	23,922				23,922,086
Balance at beginning at Mar. 31, 2019					$ 52,026
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income					345
Balance at ending at Jun. 30, 2019					53,179
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income					876
Balance at ending at Sep. 30, 2019					54,206
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income					432
Balance at ending at Dec. 31, 2019	$ 47,844	14,570	(7,869)	57	$ 54,602
Balance at ending (in shares) at Dec. 31, 2019	23,922				23,922,086
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income					$ 46
Balance at ending at Mar. 31, 2020					55,251
Balance at beginning at Dec. 31, 2019	$ 47,844	14,570	(7,869)	57	$ 54,602
Balance at beginning (in shares) at Dec. 31, 2019	23,922				23,922,086
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			2,890		$ 2,890
Other comprehensive loss, net of tax				685	685
Balance at ending at Dec. 31, 2020	$ 47,844	14,570	(4,979)	742	$ 58,177
Balance at ending (in shares) at Dec. 31, 2020	23,922				23,922,086
Balance at beginning at Mar. 31, 2020					$ 55,251
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income					29
Balance at ending at Jun. 30, 2020					55,473
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income					1,424
Balance at ending at Sep. 30, 2020					56,919
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income					1,391
Balance at ending at Dec. 31, 2020	$ 47,844	$ 14,570	$ (4,979)	$ 742	$ 58,177
Balance at ending (in shares) at Dec. 31, 2020	23,922				23,922,086

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 2,890	$ 2,059
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,189	2,311
Provision for loan losses	2,300	2,050
Income on bank owned life insurance	(77)	(63)
Gain on sale of mortgage loans	(174)	(138)
Gain on sale and leaseback transactions		(803)
Loss on sale or disposal of premises and equipment	19	1
Gain on sale of securities available-for-sale	(4)
(Gain) Loss on sale of foreclosed real estate and repossessed assets	(58)	123
Loans originated for sale	(11,948)	(7,937)
Proceeds from sales of loans originated for sale	11,735	12,432
Adjustment of carrying value of foreclosed real estate and repossessed assets	165	214
Net amortization/accretion of bond premiums/discounts	419	528
Deferred tax expense	1,103	556
Net change in:
Interest receivable	(277)	(181)
Other assets	77	265
Accrued interest payable	(258)	107
Accrued expenses and other liabilities	473	24
Net Cash Provided by Operating Activities	8,574	11,548
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans	(14,199)	(19,632)
Purchase of securities available-for-sale	(9,584)	(790)
Proceeds from sale of investment securities available-for-sale	1,025
Proceeds from repayments and maturities of securities available-for-sale	11,254	10,657
Net purchase of equity securities (restricted)	(22)	(14)
Payments for the purchase of premises and equipment	(2,141)	(1,550)
Proceeds from sale and leaseback transactions		550
Proceeds from sale of premises and equipment	1	9
Proceeds from insurance claims on other real estate owned		19
Proceeds from sales of other real estate owned	760	1,322
Net Cash Used in Investing Activities	(12,906)	(9,429)
CASH FLOWS FROM FINANCING ACTIVIES
Net change in short term borrowings		(5,630)
Net change in non-interest bearing deposits	52,943	6,484
Net change in interest bearing deposits	(6,408)	19,001
Net Cash Provided by Financing Activities	46,535	19,855
Net increase in cash and cash equivalents	42,203	21,974
Cash and Cash Equivalents, Beginning of the Year	50,147	28,173
Cash and Cash Equivalents, End of the Year	92,350	50,147
Supplemental Disclosure of Cash Paid During the Year for:
Interest	5,151	5,872
Taxes	(166)	(34)
Supplemental Disclosure of Non Cash Transactions:
Right-of-use assets obtained in exchange for new operating lease liabilities		1,232
Transfer of loans to loans held for sale		4,359
Loan made to finance sale of premises and equipment		752
Other real estate acquired in settlement of foreclosed loans	1,128	811
Loans made to finance sale of foreclosed real estate	428	2,360
Transfer of premises and equipment to other real estate		683
Change in unrealized gains on securities available for sale	$ 867	$ 1,637

XML

NATURE OF OPERATIONS

12 Months Ended

Dec. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF OPERATIONS

NOTE 1         NATURE OF OPERATIONS

Nature of Operations – New Peoples Bankshares, Inc. (New Peoples) is a financial holding company whose principal activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the Bank). The Bank is organized and incorporated under the laws of the Commonwealth of Virginia. As a state chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System. The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern West Virginia, and northeastern Tennessee and, most recently, western North Carolina. These services include commercial and consumer loans along with traditional deposit products such as checking and savings accounts.

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

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation - The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (Hereinafter, collectively referred to as the Company, we, us, or our). All significant intercompany balances and transactions have been eliminated. In accordance with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial statements.

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles of the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses and the determination of the deferred tax asset and related valuation allowance are based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

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

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

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

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

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

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

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

Significant Group Concentrations of Credit Risk – The Company identifies a concentration as any obligation, direct or indirect, of the same or affiliated interests which represent 25% or more of the Company’s capital structure, or $14.4 million as of December 31, 2020. Most of the Company’s activities are with customers located within southwest Virginia, southern West Virginia, northeastern Tennessee region and western North Carolina. Certain concentrations may pose credit risk. The Company does not have any significant concentrations to any one industry or customer.

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

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

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

Other Real Estate Owned – Other real estate owned represents properties acquired through foreclosure or deeds taken in lieu of foreclosure. At the time of acquisition, these properties are recorded at fair value less estimated costs to sell. Expenses incurred in connection with operating these properties and subsequent write-downs, if any, are charged to operations. Subsequent to foreclosure, management periodically considers the adequacy of the reserve for losses on the property. Gains and losses on the sales of these properties are credited or charged to income in the year of the sale.

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

Type	Estimated useful life
Buildings	39 years
Paving and landscaping	15 years
Computer equipment and software	3 to 5 years
Vehicles	5 years
Furniture and other equipment	5 to 10 years

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

Income Taxes – Deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. The Company provides a valuation allowance on its net deferred tax assets where it is more likely than not such assets will not be realized. At December 31, 2020 and 2019, the Company had no valuation allowance on its net deferred tax assets.

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

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

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

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

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

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

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

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

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

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INCOME PER SHARE

12 Months Ended

Dec. 31, 2020

Income Per Share

INCOME PER SHARE

NOTE 3         INCOME PER SHARE

Basic income per share computations are based on the weighted average number of shares outstanding during each year. Dilutive earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the years ended December 31, 2020 and 2019, there were no dilutive potential common shares. Basic and diluted net income per common share calculations follows:

(Amounts in thousands, except	For the years ended
share and per share data)	December 31,
	2020		2019
Net income	$	2,890	$	2,059
Weighted average shares outstanding		23,922,086		23,922,086
Weighted average dilutive shares outstanding		23,992,086		23,992,086
Basic and diluted income per share	$	0.12	$	0.09

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DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS

NOTE 4         DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS

The Bank had federal funds sold and cash on deposit with other commercial banks amounting to $76.3 million and $36.1 million at December 31, 2020 and 2019, respectively. Deposit amounts at other commercial banks may, at times, exceed federally insured limits.

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

The Bank has a total of $20.0 million in unsecured fed funds lines of credit facilities from three correspondent banks that were available at both December 31, 2020 and 2019. Of these total commitments, all were available at December 31, 2020 and 2019. As a condition for $5.0 million of one of the unsecured fed funds line of credit, the Bank maintains a minimum deposit balance of $200 thousand with this correspondent bank. As of December 31, 2020 and 2019, the Bank was in compliance with this requirement.

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INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2020

Investment securities activity:

INVESTMENT SECURITIES

NOTE 5         INVESTMENT SECURITIES

The amortized cost and estimated fair value of securities (all available-for-sale) as of December 31, 2020 and December 31, 2019 are as follows:

			Gross		Gross		Approximate
	Amortized		Unrealized		Unrealized		Fair
(Dollars are in thousands)	Cost		Gains		Losses		Value
December 31, 2020
U.S. Government Agencies	$	13,852	$	322	$	67	$	14,107
Taxable municipals		5,157		188		—		5,345
Corporate bonds		5,893		186		31		6,048
Mortgage backed securities		22,565		388		47		22,906
Total Securities available for sale	$	47,467	$	1,084	$	145	$	48,406
December 31, 2019
U.S. Government Agencies	$	15,703	$	57	$	127	$	15,633
Taxable municipals		4,389		54		1		4,442
Corporate bonds		5,408		115		—		5,523
Mortgage backed securities		25,077		111		137		25,051
Total Securities available for sale	$	50,577	$	337	$	265	$	50,649

The following table details unrealized losses and related fair values in the available-for-sale portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2020 and December 31, 2019.

	Less than 12 Months				12 Months or More				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars are in thousands)		Value		Losses		Value		Losses		Value		Losses
December 31, 2020
U.S. Government Agencies	$	1,479	$	12	$	3,829	$	55	$	5,308	$	67
Taxable municipals		—		—		—		—		—		—
Corporate bonds		1,219		31		—		—		1,219		31
Mtg. backed securities		7,517		44		218		3		7,735		47
Total Securities AFS	$	10,215	$	87	$	4,047	$	58	$	14,262	$	145
December 31, 2019
U.S. Government Agencies	$	6,788	$	46	$	4,516	$	81	$	11,304	$	127
Taxable municipals		1,049		1		—		—		1,049		1
Corporate bonds		—		—		—		—		—		—
Mtg. backed securities		1,586		4		12,002		133		13,588		137
Total Securities AFS	$	9,423	$	51	$	16,518	$	214	$	25,941	$	265

At December 31, 2020, the available-for-sale portfolio included 42 investments for which the fair market value was less than amortized cost. At December 31, 2019, the available-for-sale portfolio included 100 investments for which the fair market value was less than amortized cost. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based on the Company’s analysis, the Company concluded that no securities had other-than-temporary impairment at December 31, 2020 or December 31, 2019.

Investment securities with a carrying value of $6.8 million and $6.9 million at December 31, 2020 and 2019, respectively, were pledged to secure public deposits and for other purposes required by law.

During the year ended December 31, 2020, $1.0 million of securities were sold, realizing $4 thousand in gains. No investment securities were sold during 2019.

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

					Weighted
(Dollars are in thousands)	Amortized		Fair		Average
Securities Available for Sale	Cost		Value		Yield
Due in one year or less	$	540	$	546		2.11	%
Due after one year through five years		6,664		6,795		3.42	%
Due after five years through ten years		9,487		9,754		2.68	%
Due after ten years		30,776		31,311		1.77	%
Total	$	47,467	$	48,406		2.19	%

The Bank, as a member of the Federal Reserve Bank and the Federal Home Loan Bank of Atlanta (FHLB), is required to hold stock in each. The Bank also owns stock in CBB Financial Corp., which is a correspondent of the Bank. These equity securities, which are included in Other Assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $2.6 million as of both December 31, 2020 and 2019. The stock has no quoted market value and no ready market exists.

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LOANS

12 Months Ended

Dec. 31, 2020

Receivables [Abstract]

LOANS

NOTE 6         LOANS

Loans receivable outstanding at December 31, are summarized as follows:

(Dollars are in thousands)	2020		2019
Real estate secured:
Commercial	$	179,381	$	170,436
Construction and land development		25,031		31,130
Residential 1-4 family		222,980		242,922
Multifamily		16,569		13,638
Farmland		18,368		20,790
Total real estate loans		462,329		478,916
Commercial		86,010		53,994
Agriculture		4,450		4,797
Consumer installment loans		20,632		23,127
All other loans		2,145		1,710
Total loans	$	575,566	$	562,544

Included in commercial loans at December 31, 2020, are $34.8 million of PPP loans that are guaranteed by the SBA. Fees paid by SBA ranged from 1% to 5% of the amount borrowed, with 5% paid on loans up to $350 thousand, 3% on loans between $350 thousand and $2 million, and 1% on loans over $2 million. During 2020, 645 loans totaling $28.8 million with original balances of $350 thousand or less were originated, along with the origination of 23 loans totaling $15.7 million, with original balances between $350 thousand and $2 million. As a result of these originations, fees totaling $1.9 million ($1.6 million, net of fees allocated to a third party service provider) were received related to the origination of these loans, of which $994 thousand was earned in 2020. Also included in total loans above are net deferred fees, including unearned PPP loan fees in 2020, of $496 thousand and net deferred costs of $378 thousand, at December 31 2020 and 2019, respectively. Income from net deferred fees and costs is recognized as income over the lives of the respective loans as a yield adjustment. If loans repay prior to scheduled maturities any unamortized fee or cost is recognized at that time.

Loans receivable on nonaccrual status at December 31, are summarized as follows:

(Dollars are in thousands)	2020		2019
Real estate secured:
Commercial	$	2,225	$	1,601
Construction and land development		57		45
Residential 1-4 family		2,700		2,544
Farmland		101		531
Total real estate loans		5,083		4,721
Commercial		453		390
Consumer installment and other loans		12		45
Total loans receivable on nonaccrual status	$	5,548	$	5,156

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

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

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

 The following table presents information concerning the Company’s investment in loans considered impaired as of December 31, 2020 and December 31, 2019:

As of December 31, 2020 (Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate secured:
Commercial	$	1,680	$	16	$	385	$	386	$	—
Construction and land development		89		18		99		376		—
Residential 1-4 family		1,788		53		1,662		1,898		—
Multifamily		—		—		—		—		—
Farmland		550		59		391		560		—
Commercial		59		—		—		—		—
Agriculture		—		—		—		—		—
Consumer installment loans		4		—		5		6		—
All other loans		—		—		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		707		—		1,566		1,678		574
Construction and land development		—		—		—		—		—
Residential 1-4 family		150		3		337		365		72
Multifamily		—		—		—		—		—
Farmland		212		9		208		220		2
Commercial		214		12		429		437		404
Agriculture		—		—		—		—		—
Consumer installment loans		—		—		—		—		—
All other loans		—		—		—		—		—
Total	$	5,453	$	170	$	5,082	$	5,926	$	1,052

As of December 31, 2019 (Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate secured:
Commercial	$	2,017	$	100	$	2,416	$	2,478	$	—
Construction and land development		91		7		70		346		—
Residential 1-4 family		1,944		55		1,263		1,460		—
Multifamily		29		1		—		—		—
Farmland		1,143		47		778		970		—
Commercial		578		11		128		178		—
Agriculture		—		—		—		1		—
Consumer installment loans		2		—		—		—		—
All other loans		—		—		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		470		1		363		379		70
Construction and land development		—		—		—		—		—
Residential 1-4 family		302		—		55		60		44
Multifamily		—		—		—		—		—
Farmland		221		11		216		228		9
Commercial		507		7		286		886		200
Agriculture		—		—		—		—		—
Consumer installment loans		3		—		—		—		—
All other loans		—		—		—		—		—
Total	$	7,307	$	240	$	5,575	$	6,986	$	323

An age analysis of past due loans receivable is below. At December 31, 2020 and 2019, there were no loans over 90 days past due that were accruing.

As of December 31, 2020 (Dollars are in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
Real estate secured:
Commercial	$	969	$	—	$	—	$	969	$	178,412	$	179,381
Construction and land development		64		—		—		64		24,967		25,031
Residential 1-4 family		5,717		615		690		7,022		215,958		222,980
Multifamily		—		—		—		—		16,569		16,569
Farmland		57		—		—		57		18,311		18,368
Total real estate loans		6,807		615		690		8,112		454,217		462,329
Commercial		214		—		—		214		85,796		86,010
Agriculture		7		1		—		8		4,442		4,450
Consumer installment Loans		214		22		—		236		20,396		20,632
All other loans		—		—		—		—		2,145		2,145
Total loans	$	7,242	$	638	$	690	$	8,570	$	566,996	$	575,566

As of December 31, 2019 (Dollars are in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
Real estate secured:
Commercial	$	502	$	125	$	262	$	889	$	169,547	$	170,436
Construction and land development		50		18		18		86		31,044		31,130
Residential 1-4 family		3,700		1,096		710		5,506		237,416		242,922
Multifamily		262		—		—		262		13,376		13,638
Farmland		111		47		152		310		20,480		20,790
Total real estate loans		4,625		1,286		1,142		7,053		471,863		485,916
Commercial		406		—		323		729		53,265		53,994
Agriculture		244		—		21		265		4,532		4,797
Consumer installment Loans		98		24		23		145		22,982		23,127
All other loans		—		—		—		—		1,710		1,710
Total loans	$	5,373	$	1,310	$	1,509	$	8,192	$	554,352	$	562,544

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

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

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

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

Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. There were no loans classified as doubtful at December 31, 2020, and one loan with a balance of $286 thousand at December 31, 2019.

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

As of December 31, 2020 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Real estate secured:
Commercial	$	171,212	$	6,112	$	2,057	$	—	$	179,381
Construction and land development		23,168		1,806		57		—		25,031
Residential 1-4 family		218,947		1,304		2,729		—		222,980
Multifamily		16,337		232		—		—		16,569
Farmland		17,019		1,249		100		—		18,368
Total real estate loans		446,683		10,703		4,943		—		462,329
Commercial		81,846		3,711		453		—		86,010
Agriculture		4,255		195		—		—		4,450
Consumer installment loans		20,615		5		12		—		20,632
All other loans		2,145		—		—		—		2,145
Total	$	555,544	$	14,614	$	5,408	$	—	$	575,566

As of December 31, 2019 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Real estate secured:
Commercial	$	165,570	$	3,265	$	1,601	$	—	$	170,436
Construction and land development		30,747		360		23		—		31,130
Residential 1-4 family		239,210		1,207		2,505		—		242,922
Multifamily		13,638		—		—		—		13,638
Farmland		18,779		1,480		531		—		20,790
Total real estate loans		467,944		6,312		4,660		—		478,916
Commercial		51,086		2,504		118		286		53,994
Agriculture		4,753		4		40		—		4,797
Consumer installment loans		23,087		12		28		—		23,127
All other loans		1,710		—		—		—		1,710
Total	$	548,580	$	8,832	$	4,846	$	286	$	562,544

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ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2020

Receivables [Abstract]

ALLOWANCE FOR LOAN LOSSES

NOTE 7   ALLOWANCE FOR LOAN LOSSES

The following tables present activity in the allowance for loan losses for the year ended December 30, 2020 and 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented as of December 30, 2020 and 2019.  

	Real estate secured
				Construction																Consumer
				and Land		Residential														and All
(Dollars are in thousands)	Commercial			Development		1-4 family			Multifamily		Farmland			Commercial			Agriculture			Other			Unallocated			Total
Year ended December 31,
2020
Beginning balance	$	1,248		$	158	$	1,736		$	104	$	109		$	1,789		$	27		$	195		$	2		$	5,368
Charge-offs		(65	)		—		(165	)		—		(42	)		(329	)		(15	)		(85	)		—			(701	)
Recoveries		57			—		38			—		33			40			1			55			—			224
Provision		1,041			75		342			47		(3	)		775			27			(2	)		(2	)		2,300
Ending balance	$	2,281		$	233	$	1,951		$	151	$	97		$	2,275		$	40		$	163		$	—		$	7,191
Allowance for loan losses at December 31, 2020
Individually evaluated for impairment	$	574		$	—	$	72		$	—	$	2		$	404		$	—		$	—		$	—		$	1,052
Collectively evaluated for impairment		1,707			233		1,879			151		95			1,871			40			163			—			6,139
	$	2,281		$	233	$	1,951		$	151	$	97		$	2,275		$	40		$	163		$	—		$	7,191
Loans at December 31, 2020 Individually evaluated for impairment	$	1,951		$	99	$	1,999		$	—	$	599		$	429		$	—		$	5		$	—		$	5,082
Collectively evaluated for impairment		177,430			24,932		220,981			16,569		17,769			85,581			4,450			22,772			—			570,484
	$	179,381		$	25,031	$	222,980		$	16,569	$	18,368		$	86,010		$	4,450		$	22,777		$	—		$	575,566

	Real estate secured
				Construction																		Consumer
				and Land			Residential															and All
(Dollars are in thousands)	Commercial			Development			1-4 family			Multifamily			Farmland			Commercial			Agriculture			Other			Unallocated			Total
Year ended December 31,
2019
Beginning balance	$	1,386		$	202		$	2,437		$	89		$	287		$	448		$	37		$	175		$	275		$	5,336
Charge-offs		(192	)		—			(336	)		—			(33	)		(1,762	)		(17	)		(114	)		—			(2,454	)
Recoveries		16			34			202			30			29			61			2			62			—			436
Provision		38			(78	)		(567	)		(15	)		(174	)		3,042			5			72			(273	)		2,050
Ending balance	$	1,248		$	158		$	1,736		$	104		$	109		$	1,789		$	27		$	195		$	2		$	5,368
Allowance for loan losses at December 31, 2019
Individually evaluated for impairment	$	70		$	—		$	44		$	—		$	9		$	200		$	—		$	—		$	—		$	323
Collectively evaluated for impairment		1,178			158			1,692			104			100			1,589			27			195			2			5,045
	$	1,248		$	158		$	1,736		$	104		$	109		$	1,789		$	27		$	195		$	2		$	5,368
Loans at December 31, 2019 Individually evaluated for impairment	$	2,779		$	70		$	1,318		$	—		$	994		$	414		$	—		$	—		$	—		$	5,575
Collectively evaluated for impairment		167,657			31,060			241,604			13,638			19,796			53,580			4,797			24,837			—			556,969
	$	170,436		$	31,130		$	242,922		$	13,638		$	20,790		$	53,994		$	4,797		$	24,837		$	—		$	562,544

In determining the amount of our allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases to our provision. Due to the underlying SBA guarantee provided for PPP loans, these accounts were not included in either the portfolio segment or impairment calculations at December 31, 2020. Additionally, due to uncertainties presented by the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors were revised accordingly. This revision included reviewing our internal scoring related to loan modifications and extensions, and external factors, specifically, unemployment and other economic factors.

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TROUBLED DEBT RESTRUCTURINGS

12 Months Ended

Dec. 31, 2020

Troubled Debt Restructurings

TROUBLED DEBT RESTRUCTURINGS

NOTE 8   TROUBLED DEBT RESTRUCTURINGS

At December 31, 2020, loans classified as troubled debt restructurings totaled $4.0 million compared to $4.3 million at December 31, 2019. The following table presents information related to loans modified as troubled debt restructurings during the years ended December 31, 2020 and 2019.

	December 31, 2020						December 31, 2019
(Dollars are in thousands)	# of Loans		Pre-Mod. Recorded Investment		Post-Mod. Recorded Investment		# of Loans		Pre-Mod. Recorded Investment		Post-Mod. Recorded Investment
Real estate secured:
Commercial		3	$	190	$	190		1	$	150	$	150
Construction and land Development		—		—		—		—		—		—
Residential 1-4 family		27		1,236		1,236		—		—		—
Multifamily		—		—		—		—		—		—
Farmland		—		—		—		1		305		305
Total real estate loans		30		1,426		1,426		2		455		455
Commercial		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Consumer installment loans		2		7		7		—		—		—
All other loans		—		—		—		—		—		—
Total		32	$	1,433	$	1,433		2	$	455	$	455

As discussed in Note 6, during the year ended December 31, 2020 modifications were granted on 786 loans with a gross aggregate balance of $119.6 million, under the provisions of the CARES Act. The characteristics of these modifications are considered short-term and did not result in a reclassification of the loans as troubled debt restructurings, as the accounts met the requirements stated in the CARES Act and had not been subject to prior modification.

During the year ended December 31, 2020, the Company modified the terms of thirty-two loans for which the modification was considered to be a troubled debt restructuring. The interest rate was not modified on these loans; however, the payment terms or maturity date were changed. During the year ended December 31, 2019, the Company modified the terms of two loans for which the modification was considered to be a troubled debt restructuring. The interest rate was not modified on these loans; however, the payment terms and maturity date were changed.      

Three loans totaling $142 thousand, modified as troubled debt restructurings during 2020, have since failed to perform in accordance with the revised terms and have been placed, or remained in nonaccrual status at December 31, 2020. Two loans modified as troubled debt restructurings defaulted during the year ended December 31, 2019. Generally, a troubled debt restructuring is considered to be in default once it becomes 90 days or more past due following a modification.

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

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BANK PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2020

Property, Plant and Equipment [Abstract]

BANK PREMISES AND EQUIPMENT

NOTE 9   BANK PREMISES AND EQUIPMENT

Depreciation expense for 2020 and 2019 was $2.2 million and $2.3 million, respectively. Bank premises and equipment at December 31, 2020 and 2019 are summarized as follows:

(Dollars are in thousands)	2020			2019
Land	$	7,796		$	7,485
Buildings and improvements		17,287			16,227
Furniture and equipment		16,900			16,253
Construction in progress		1,025			1,003
		43,008			40,968
Less accumulated depreciation		(20,834	)		(18,726	)
Bank Premises and Equipment	$	22,174		$	22,242

As presented in Note 17 Leasing Activities, in September 2019, the Bank entered into a sale and leaseback transaction for its branch office located in Lebanon, Virginia.

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

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INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 10 INCOME TAXES

The Company files a consolidated federal income tax return. The following summarizes the provision for income taxes and the related deferred tax components for the years ended December 31, 2020 and 2019.

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

(Dollars are in thousands)	2020		2019
Pre-tax book income
Domestic	$	3,993	$	2,581
Total pre-tax book income	$	3,993	$	2,581

Income tax expense is summarized as follows for the years ended December 31:

(Dollars are in thousands)	2020			2019
Current income tax expense (benefit)
Federal	$	(200	)	$	(35	)
State		—			—
Total current income tax expense (benefit)		(200	)		(35	)

Deferred income tax expense
Federal		1,304			557
State		(1	)		—
Total deferred income tax expense		1,303			557
Income tax expense	$	1,103		$	522

The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rate of 21% for years ending December 31, 2020 and 2019, respectively:

(Dollars are in thousands)	2020			2019
Income tax expense (benefit) at the applicable federal rate74	$	839		$	542
Permanent differences resulting from:
Nondeductible expenses		8			10
Tax exempt interest income		(7	)		(11	)
Bank owned life insurance		(16	)		(13	)
Other adjustments		279			(6	)
Income tax expense	$	1,103		$	522

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

(Dollars are in thousands)	2020		2019
Deferred Tax Assets
Allowance for loan losses	$	1,568	$	1,127
Deferred compensation		92		90
Nonaccrual loan interest		490		439
Other real estate owned		83		127
Amortization of core deposits		18		28
Amortization of goodwill		90		144
Capitalized interest and repair expense		23		23
Net operating loss carryforward		2,172		3,631
AMT carryforward		—		320
Other		33		—
Total Assets, gross		4,569		5,929
Valuation allowance		—		—
Total Assets, net		4,569		5,929
Deferred Tax Liabilities
Accelerated depreciation		869		937
Accrued employee benefits		—		11
Unrealized gain on securities available for sale		197		15
Prepaid expenses		22		59
Deferred loan costs		355		331
Total Liabilities, gross		1,443		1,353
Net Deferred Tax Asset	$	3,126	$	4,576

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

At December 31, 2020 and 2019, the Company had no unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to increase significantly over the next twelve months. The company recognizes interest and penalties as a component of income tax expense.

The Company and Bank are subject to U. S. federal income tax, a capital based franchise tax in the Commonwealth of Virginia; and income and excise taxes in West Virginia and Tennessee, respectively, based on earnings realized from business activities within each state. Years prior to 2017 are no longer subject to examination by taxing authorities.

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TIME DEPOSITS

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

TIME DEPOSITS

NOTE 11 TIME DEPOSITS

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

2021	$	137,383
2022		44,170
2023		23,097
2024		11,283
2025		18,516
After five years		—
Total	$	234,449

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 12 RELATED PARTY TRANSACTIONS

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

	For the years ended December 31,
(Dollars in thousands)	2020			2019
Beginning balance	$	2,457		$	2,553
New loans and advances on lines		4,567			1,925
Payments and other reductions		(2,837	)		(2,021	)
Ending balance	$	4,187		$	2,457

Total related party deposits held at the Bank were $21.5 million and $42.8 million at the end of years 2020 and 2019, respectively.

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

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RETIREMENT PLANS

12 Months Ended

Dec. 31, 2020

Retirement Benefits [Abstract]

RETIREMENT PLANS

NOTE 13 RETIREMENT PLANS

The Company has established a qualified defined contribution plan that covers all full time employees. The Company matches employee contributions up to a maximum of 3% of their salary. The Company contributed $258 thousand and $299 thousand to the defined contribution plan for 2020 and 2019, respectively.

The Bank maintains a salary continuation plan for key executives which was established in 2002 and is funded by single premium life insurance policies. Expenses related to the plan were $17 thousand and $4 thousand for the years ended December 31, 2020 and 2019, respectively.

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OTHER REAL ESTATE OWNED

12 Months Ended

Dec. 31, 2020

Real Estate [Abstract]

OTHER REAL ESTATE OWNED

NOTE 14 OTHER REAL ESTATE OWNED

The following table summarizes the activity in other real estate owned for the years ended December 31, 2020 and 2019:

	2020			2019
(Dollars are in thousands)
Balance, beginning of year	$	3,393		$	5,937
Additions		1,128			811
Transfers from premises and equipment		—			683
Proceeds from sales		(687	)		(1,322	)
Proceeds from insurance claims		—			(19	)
Loans made to finance sales		(428	)		(2,360	)
Adjustment of carrying value		(132	)		(214	)
Gains (losses) from sales		60			(123	)
Balance, end of year	$	3,334		$	3,393

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BANK OWNED LIFE INSURANCE

12 Months Ended

Dec. 31, 2020

Bank Owned Life Insurance

BANK OWNED LIFE INSURANCE

NOTE 15 BANK OWNED LIFE INSURANCE

At December 31, 2020 and 2019, we had an aggregate total cash surrender value of $4.7 million and $4.6 million, respectively, on life insurance policies covering current and former key officers

Total income for the policies during 2020 and 2019 was $77 thousand and $63 thousand, respectively.

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DIVIDEND LIMITATIONS ON SUBSIDIARY BANK

12 Months Ended

Dec. 31, 2020

Equity [Abstract]

DIVIDEND LIMITATIONS ON SUBSIDIARY BANK

NOTE 16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK

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

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LEASING ACTIVITIES

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

LEASING ACTIVITIES

NOTE 17 LEASING ACTIVITIES

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

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

As of December 31, 2020, the Bank leases five branch offices. The lease agreements have maturity dates ranging from May 2032 to September 2034. It is assumed that there are currently no circumstances in which the leases would be terminated prior to expiration. The weighted average remaining life of the lease terms at December 31, 2020, was 11.89 years.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to the lease term for each transaction. This methodology is expected to be used for any other subsequent lease agreements. The weighted average discount rate for the leases at December 31, 2020 was 3.16%.

The Company’s operating lease costs for the years ended December 31, 2020 and 2019, as a result of the transactions discussed above, was $552 thousand and $505 thousand, respectively.

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

2021	$	511
2022		530
2023		544
2024		546
2025		550
Thereafter		3978
Total lease payments		6,659
Less imputed interest		1,220
Total	$	5,439

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BORROWED FUNDS

12 Months Ended

Dec. 31, 2020

Borrowed Funds

BORROWED FUNDS

NOTE 18 BORROWED FUNDS

The following table presents the breakdown of borrowed funds as of December 31, 2020 and 2019 (Dollars in thousands):

	FHLB Revolving Advances (a)			Federal  Funds  Lines (b)			FHLB Term  Loans Short-Term (c)			FHLB Term Loans Long-Term (d)			NPB  Capital Trust I  (e)			NPB Capital Trust 2  (e)			Total
Balance December 31, 2020	$	—		$	—		$	5,000		$	—		$	11,341		$	5,155		$	21,496
Highest balance at any month-end		—			—			5,000			5,000			11,341			5,155
Average weighted balance		—			—			2,555			2,445			11,341			5,155			21,496
Average interest rate:
Paid during the year		—	%		—	%		1.36	%		1.36	%		3.55	%		2.70	%		2.84	%
At year-end		—	%		—	%		1.34	%		—	%		2.84	%		2.01	%		2.29	%
Balance December 31, 2019	$	—		$	—		$	—		$	5,000		$	11,341		$	5,155		$	21,496
Highest balance at any month-end		—			—			2,000			5,000			11,341			5,155
Average weighted balance		—			10			975			5,000			11,341			5,155			22,481
Average interest rate:
Paid during the year		—	%		3.32	%		1.26	%		1.36	%		5.09	%		4.25	%		3.89	%
At year-end		—	%		—	%		—	%		1.34	%		4.59	%		3.76	%		3.64	%

(a) - The Bank has the ability to borrow up to an additional $169.9 million from the FHLB under a line of credit which is secured by a blanket lien on residential real estate loans. The Bank had no overnight borrowings subject to daily rate changes from the FHLB at December 31, 2020 or 2019.

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

(b) - Federal funds lines consist of $20.0 million in unsecured federal funds line of credit facilities with correspondent banks as of both December 31, 2020 and 2019, exclusive of any outstanding balance.

(c) - At December 31, 2020, short term FHLB advances consisted of one $5.0 million advance with a fixed rate of 1.34%.

(d) - At December 31, 2020 there were no long term FHLB advances. Long term FHLB advances totaled $5 million at December 31, 2019

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

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

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

Following are maturities of borrowed funds at December 31, 2020 (dollars in thousands):

2021	$	5,000
2022		—
2023		—
2024		—
2025		—
2026 and thereafter		16,496
	$	21,496

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

12 Months Ended

Dec. 31, 2020

Investments, All Other Investments [Abstract]

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

NOTE 19 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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

Financial instruments whose contract amount represents credit risk at December 31 were as follows:

	2020		2019
(Dollars in thousands)
Commitments to extend credit	$	57,334	$	59,552
Standby letters of credit		2,031		2,582

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

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

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LEGAL CONTINGENCIES

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

LEGAL CONTINGENCIES

NOTE 20        LEGAL CONTINGENCIES

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

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

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

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CAPITAL

12 Months Ended

Dec. 31, 2020

Banking Regulation, Total Capital [Abstract]

CAPITAL

NOTE 21        CAPITAL

Capital Requirements and Ratios

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

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

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

The Bank’s actual capital amounts and ratios are presented in the following table as of December 31, 2020 and 2019, respectively.

	Actual					Minimum Capital Requirement					Minimum to Be Well Capitalized Under Prompt Corrective  Action Provisions
(Dollars are in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2020:
Total Capital to Risk Weighted Assets	$	77,133		16.41	%	$	37,603		8.0	%	$	47,028		10.0	%
Tier 1 Capital to Risk Weighted Assets		71,241		15.16	%		28,202		6.0	%		37,603		8.0	%
Tier 1 Capital to Average Assets		71,241		9.49	%		29,989		4.0	%		37,545		5.0	%
Common Equity Tier 1 Capital to Risk Weighted Assets		71,241		15.16	%		30,036		4.5	%		30,552		6.5	%
December 31, 2019:
Total Capital to Risk Weighted Assets	$	72,109		14.83	%	$	38,910		8.0	%	$	48,637		10.0	%
Tier 1 Capital to Risk Weighted Assets		66,741		13.72	%		29,182		6.0	%		38,910		8.0	%
Tier 1 Capital to Average Assets		66,741		9.43	%		28,313		4.0	%		35,391		5.0	%
Common Equity Tier 1 Capital to Risk Weighted Assets		66,741		13.72	%		21,887		4.5	%		31,614		6.5	%

Accordingly, as of December 31, 2020 and 2019, the Bank was well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since such dates that management believes have changed the Bank’s category.

The Bank is also subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The final rules require the Bank to comply with the following minimum capital ratios: (i) a Common Equity Tier 1 capital to risk-weighted assets ratio of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum Common Equity Tier 1 capital to risk-weighted assets ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least, 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The Bank’s capital conservation buffer was 8.20% at December 31, 2020. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a Common Equity Tier 1 capital to risk-weighted assets ratio above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. As of both December 31, 2020 and 2019, the Common Equity Tier 1 Capital to Risk-weighted Assets ratio, the Tier 1 Capital to Risk-weighted Assets ratio, the Total Capital to Risk-weighted Assets ratio, and the Tier 1 Capital to Average Assets ratio of the Bank, all exceeded the minimum requirements.

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FAIR VALUES

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

FAIR VALUES

NOTE 22      FAIR VALUES

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Fair Value Measurements and Disclosures also establish fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an exchange market, as well as U. S. Treasury, other U. S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

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

Level 3: Significant unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities Available for Sale — Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s available for sale securities, totaling $48.4 million and $50.6 million at December 31, 2020 and 2019, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service.

Loans - The Company does not record loans at fair value on a recurring basis. Real estate serves as collateral on a substantial majority of the Company’s loans. When a loan is considered impaired, a specific reserve may be established. Loans, which are deemed to be impaired and require a reserve, are primarily valued on a non-recurring basis at the fair value of the underlying real estate collateral. Where there is no observable market price, such fair values are obtained using independent appraisals, which management evaluates to determine whether or not the fair value of the collateral is further impaired below the appraised value and adjusts for estimated costs of disposition. The Company records impaired loans as nonrecurring Level 3 assets. The aggregate amount of impaired loans carried at fair value was $4.0 million and $5.3 million at December 31, 2020 and 2019, respectively.

Foreclosed Assets – Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Foreclosed assets are carried at the lower of their carrying value or fair value. Fair value is based upon observable market prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When observable market prices are not available, management determines the fair value of the foreclosed asset using independent third party appraisals, evaluated to determine whether or not the property is further impaired below the appraised value, and adjusts for estimated costs of disposition. The Company records foreclosed assets as nonrecurring Level 3. The aggregate carrying amounts of foreclosed assets were $3.3 million and $3.4 million at December 31, 2020 and 2019, respectively.

Assets and liabilities measured at fair value are as follows as of December 31, 2020 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable  inputs  (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	—	$	14,107	$	—
Taxable municipals		—		5,345		—
Corporate bonds		—		6,048		—
Mortgage backed securities		—		22,906		—
(On a non-recurring basis) Other real estate owned		—		—		3,334
Impaired loans:
Real estate secured:
Commercial		—		—		1,377
Construction and land development		—		—		99
Residential 1-4 family		—		—		1,927
Multifamily		—		—		—
Farmland		—		—		597
Commercial		—		—		25
Agriculture		—		—		—
Consumer installment loans		—		—		5
All other loans		—		—		—
Total	$	—	$	48,406	$	7,364

Assets and liabilities measured at fair value are as follows as of December 31, 2019 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)	Quoted  market price in  active markets  (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	—	$	15,633	$	—
Taxable municipals		—		4,442		—
Corporate bonds		—		5,523		—
Mortgage backed securities		—		25,051		—
(On a non-recurring basis) Other real estate owned		—		—		3,393
Impaired loans:
Real estate secured:
Commercial		—		—		2,709
Construction and land development		—		—		70
Residential 1-4 family		—		—		1,274
Multifamily		—		—		—
Farmland		—		—		985
Commercial		—		—		214
Agriculture		—		—		—
Consumer installment loans		—		—		—
All other loans		—		—		—
Total	$	—	$	50,649	$	8,645

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of December 31, 2020 and 2019, the significant unobservable inputs used in the fair value measurements were as follows:

(Dollars in thousands)	Fair Value at December 31,  2020			Fair Value at December 31, 2019		Valuation  Technique		Significant Unobservable Inputs		General Range of Significant Unobservable  Input Values
Impaired Loans		$	4,030	$	5,252		Appraised Value/Discounted Cash Flows/Market Value of Note		Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell		0 – 18%
Other Real Estate Owned		$	3,334	$	3,393		Appraised Value/Comparable Sales/Other Estimates from Independent Sources		Discounts to reflect current market conditions and estimated costs to sell		0 – 18%

Fair Value of Financial Instruments

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows:

					Fair Value Measurements
(Dollars are in thousands)	Carrying  Amount		Fair  Value		Quoted  market  price in  active  markets  (Level 1)		Significant  other  observable inputs (Level 2)		Significant unobservable  inputs  (Level 3)
December 31, 2020
Financial Instruments – Assets
Net Loans	$	568,375	$	564,664	$	—	$	560,634	$	4,030
Financial Instruments – Liabilities
Time Deposits		234,449		237,768		—		237,768		—
Borrowed Funds		21,496		16,788		—		16,788		—
December 31, 2019
Financial Instruments – Assets
Net Loans	$	557,176	$	550,495	$	—	$	545,243	$	5,252
Financial Instruments – Liabilities
Time Deposits		257,406		259,325		—		259,325		—
Borrowed Funds		21,496		18,503		—		18,503		—

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

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

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

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

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REVENUE FROM CONTRACTS WITH CUSTOMERS

12 Months Ended

Dec. 31, 2020

Revenue from Contract with Customer [Abstract]

REVENUE FROM CONTRACTS WITH CUSTOMERS

NOTE 23      REVENUE FROM CONTRACTS WITH CUSTOMERS

All of our revenue from contracts with customers as defined in ASC 606 is recognized within Noninterest Income. The following table presents Noninterest Income by revenue stream for the years ended December 31, 2020 and 2019.

(Dollars are in thousands)	2020		2019
Service charges and fees	$	3,217	$	3,605
Card processing and interchange income		3,314		3,014
Insurance and investment fees		716		663
Gains on sales of available-for-sale securities (1)		4		—
Gain on sale and leaseback transactions (1)		—		803
Other noninterest income		896		567
Total Noninterest Income	$	8,147	$	8,652

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

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

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

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

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

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NONINTEREST EXPENSES

12 Months Ended

Dec. 31, 2020

Noninterest Expenses

NONINTEREST EXPENSES

NOTE 24 NONINTEREST EXPENSES

Other operating expenses, included as part of noninterest expenses, consisted of the following for the years ended December 31, 2020 and 2019:

(Dollars are in thousands)	2020		2019
Advertising, sponsorships and donations	$	216	$	315
ATM network expense		1,476		1,832
Legal and professional fees		839		872
Consulting fees		504		829
Loan related expenses		353		581
Printing and supplies		141		146
FDIC insurance premiums		393		222
Other real estate owned expenses, net		307		635
Other operating expenses		2,507		2,404
Total	$	6,736	$	7,836

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 25 SUBSEQUENT EVENTS

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

As disclosed in Note 20 Legal Contingencies, the Bank is a defendant in a complaint filed by a former employee in the United States District Court for the Western District of Virginia on January 1, 2021.

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

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

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RECENT ACCOUNTING DEVELOPMENTS

12 Months Ended

Dec. 31, 2020

Accounting Changes and Error Corrections [Abstract]

RECENT ACCOUNTING DEVELOPMENTS

NOTE 26        RECENT ACCOUNTING DEVELOPMENTS

The following is a summary of recent authoritative announcements:

In June 2016, per ASU No. 2016-13, ‘Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,’ the Financial Accounting Standards Board (the FASB) issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. Subsequently, per ASU No. 2019-10, implementation for the Company is delayed until reporting periods beginning after December 15, 2022. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

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

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

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

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

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

In March, 2020, the FASB released ASU 2020-04, ‘Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting,’ which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. The amendments in this Update are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in the Update are effective for the Company as of March 12, 2020 through December 31, 2022. The Company is currently in the process of evaluating the impact of adoption of this guidance, but does not expect this amendment to have a material impact on its financial statements.

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

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

In January, 2021, the FASB released ASU 2021-01, ‘Reference Rate Reform (Topic 848),’ which clarifies that certain optional expedients and exceptions in topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition related to reference rate reform. The amendments in this Update are effective immediately for all entities. An entity may elect to apply the amendments in the Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued. The Company does not expect this amendment to have a material effect on its financial statements.

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

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PARENT CORPORATION ONLY FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2020

Condensed Financial Information Disclosure [Abstract]

PARENT CORPORATION ONLY FINANCIAL STATEMENTS

NOTE 27 PARENT CORPORATION ONLY FINANCIAL STATEMENTS

CONDENSED BALANCE SHEETS 

AS OF DECEMBER 31, 2020 AND 2019

(Dollars in Thousands)

	2020			2019
ASSETS
Due from banks	$	215		$	209
Investment in subsidiaries		72,990			69,463
Other assets		1,669			1,737
Total Assets	$	74,874		$	71,409
LIABILITIES
Accrued interest payable	$	109		$	182
Accrued expenses and other liabilities		92			129
Trust preferred securities		16,496			16,496
Total Liabilities		16,697			16,807
STOCKHOLDERS’ EQUITY
Common stock - $2.00 par value, 50,000,000 shares authorized;   23,922,086 shares issued and outstanding at both December 31, 2020 and 2019		47,844			47,844
Additional paid capital		14,570			14,570
Retained deficit		(4,979	)		(7,869	)
Accumulated other comprehensive income		742			57
Total Stockholders’ Equity		58,177			54,602
Total Liabilities and Stockholders’ Equity	$	74,874		$	71,409

CONDENSED STATEMENTS OF INCOME

 FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 

(Dollars in thousands)

	2020			2019
Income
Miscellaneous income	$	16		$	26
Dividends from subsidiaries		610			760
Undistributed income of subsidiaries		2,842			2,076
Total income		3,468			2,862
Expenses
Trust preferred securities interest expense		541			796
Professional fees		114			154
Other operating expenses		19			60
Total Expenses		674			1,010
Income before Income Taxes		2,794			1,852
Income Tax Benefit		(96	)		(207	)
Net Income	$	2,890		$	2,059

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 

(Dollars in thousands)

	2020			2019
Cash Flows From Operating Activities
Net income	$	2,890		$	2,059
Adjustments to reconcile net income to net cash used in  operating activities:
Equity in undistributed earnings of subsidiaries		(2,842	)		(2,076	)
Net decrease (increase) in other assets		67			(173	)
Net (decrease) increase in other liabilities		(109	)		38
Net cash provided by (used in) operating activities		6			(152	)
Net increase (decrease) in Cash and Cash Equivalents		6			(152	)
Cash and Cash Equivalents, Beginning of year		209			361
Cash and Cash Equivalents, End of Year	$	215		$	209
Supplemental Disclosure of Cash Paid During the Year for:
Interest	$	614		$	811
Taxes	$	(166	)	$	(34	)

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SELECTED QUARTERLY INFORMATION (UNAUDITED)

12 Months Ended

Dec. 31, 2020

Quarterly Financial Information Disclosure [Abstract]

SELECTED QUARTERLY INFORMATION (UNAUDITED)

NOTE 28 SELECTED QUARTERLY INFORMATION (UNAUDITED)

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

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation - The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (Hereinafter, collectively referred to as the Company, we, us, or our). All significant intercompany balances and transactions have been eliminated. In accordance with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial statements.

Use of Estimates

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles of the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses and the determination of the deferred tax asset and related valuation allowance are based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

Cash and Cash Equivalents

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

Investment Securities

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

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

Loans held for sale

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

Loans

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

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

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

Significant Group Concentration of Credit Risk

Significant Group Concentrations of Credit Risk – The Company identifies a concentration as any obligation, direct or indirect, of the same or affiliated interests which represent 25% or more of the Company’s capital structure, or $14.4 million as of December 31, 2020. Most of the Company’s activities are with customers located within southwest Virginia, southern West Virginia, northeastern Tennessee region and western North Carolina. Certain concentrations may pose credit risk. The Company does not have any significant concentrations to any one industry or customer.

Allowance for Loan Losses

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

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

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

Other Real Estate Owned

Other Real Estate Owned – Other real estate owned represents properties acquired through foreclosure or deeds taken in lieu of foreclosure. At the time of acquisition, these properties are recorded at fair value less estimated costs to sell. Expenses incurred in connection with operating these properties and subsequent write-downs, if any, are charged to operations. Subsequent to foreclosure, management periodically considers the adequacy of the reserve for losses on the property. Gains and losses on the sales of these properties are credited or charged to income in the year of the sale.

Bank Premises and Equipment

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

Type	Estimated useful life
Buildings	39 years
Paving and landscaping	15 years
Computer equipment and software	3 to 5 years
Vehicles	5 years
Furniture and other equipment	5 to 10 years

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

Income Taxes

Income Taxes – Deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. The Company provides a valuation allowance on its net deferred tax assets where it is more likely than not such assets will not be realized. At December 31, 2020 and 2019, the Company had no valuation allowance on its net deferred tax assets.

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

Income Per Share

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

Financial Instruments - Off-balance-sheet instruments

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

Financial Instruments - Fair Value

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

Comprehensive Income

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

Revenue from Contracts with Customers

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

Advertising Cost

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

Reclassification

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

Subsequent Events

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Schedule of estimated useful lives

Depreciation is computed using the straight-line method over the following estimated useful lives:

Type	Estimated useful life
Buildings	39 years
Paving and landscaping	15 years
Computer equipment and software	3 to 5 years
Vehicles	5 years
Furniture and other equipment	5 to 10 years

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INCOME PER SHARE (Tables)

12 Months Ended

Dec. 31, 2020

Income Per Share

Schedule of basic and diluted net loss per common share calculations

Basic and diluted net income per common share calculations follows:

(Amounts in thousands, except	For the years ended
share and per share data)	December 31,
	2020		2019
Net income	$	2,890	$	2,059
Weighted average shares outstanding		23,922,086		23,922,086
Weighted average dilutive shares outstanding		23,992,086		23,992,086
Basic and diluted income per share	$	0.12	$	0.09

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INVESTMENT SECURITIES (Tables)

12 Months Ended

Dec. 31, 2020

Investment securities activity:

Schedule of securities amortized cost and estimated fair value

The amortized cost and estimated fair value of securities (all available-for-sale) as of December 31, 2020 and December 31, 2019 are as follows:

			Gross		Gross		Approximate
	Amortized		Unrealized		Unrealized		Fair
(Dollars are in thousands)	Cost		Gains		Losses		Value
December 31, 2020
U.S. Government Agencies	$	13,852	$	322	$	67	$	14,107
Taxable municipals		5,157		188		—		5,345
Corporate bonds		5,893		186		31		6,048
Mortgage backed securities		22,565		388		47		22,906
Total Securities available for sale	$	47,467	$	1,084	$	145	$	48,406
December 31, 2019
U.S. Government Agencies	$	15,703	$	57	$	127	$	15,633
Taxable municipals		4,389		54		1		4,442
Corporate bonds		5,408		115		—		5,523
Mortgage backed securities		25,077		111		137		25,051
Total Securities available for sale	$	50,577	$	337	$	265	$	50,649

Schedule of fair value and gross unrealized losses on investment securities

The following table details unrealized losses and related fair values in the available-for-sale portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2020 and December 31, 2019.

	Less than 12 Months				12 Months or More				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars are in thousands)		Value		Losses		Value		Losses		Value		Losses
December 31, 2020
U.S. Government Agencies	$	1,479	$	12	$	3,829	$	55	$	5,308	$	67
Taxable municipals		—		—		—		—		—		—
Corporate bonds		1,219		31		—		—		1,219		31
Mtg. backed securities		7,517		44		218		3		7,735		47
Total Securities AFS	$	10,215	$	87	$	4,047	$	58	$	14,262	$	145
December 31, 2019
U.S. Government Agencies	$	6,788	$	46	$	4,516	$	81	$	11,304	$	127
Taxable municipals		1,049		1		—		—		1,049		1
Corporate bonds		—		—		—		—		—		—
Mtg. backed securities		1,586		4		12,002		133		13,588		137
Total Securities AFS	$	9,423	$	51	$	16,518	$	214	$	25,941	$	265

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

Also, actual maturities may differ from scheduled maturities on amortizing securities, such as mortgage-back securities and collateralized mortgage obligations, because the underlying collateral on these types of securities may be repaid prior to the scheduled maturity date.

					Weighted
(Dollars are in thousands)	Amortized		Fair		Average
Securities Available for Sale	Cost		Value		Yield
Due in one year or less	$	540	$	546		2.11	%
Due after one year through five years		6,664		6,795		3.42	%
Due after five years through ten years		9,487		9,754		2.68	%
Due after ten years		30,776		31,311		1.77	%
Total	$	47,467	$	48,406		2.19	%

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LOANS (Tables)

12 Months Ended

Dec. 31, 2020

Receivables [Abstract]

Summary of loans receivable outstanding

Loans receivable outstanding at December 31, are summarized as follows:

(Dollars are in thousands)	2020		2019
Real estate secured:
Commercial	$	179,381	$	170,436
Construction and land development		25,031		31,130
Residential 1-4 family		222,980		242,922
Multifamily		16,569		13,638
Farmland		18,368		20,790
Total real estate loans		462,329		478,916
Commercial		86,010		53,994
Agriculture		4,450		4,797
Consumer installment loans		20,632		23,127
All other loans		2,145		1,710
Total loans	$	575,566	$	562,544

Summary of loans receivable on nonaccrual status

Loans receivable on nonaccrual status at December 31, are summarized as follows:

(Dollars are in thousands)	2020		2019
Real estate secured:
Commercial	$	2,225	$	1,601
Construction and land development		57		45
Residential 1-4 family		2,700		2,544
Farmland		101		531
Total real estate loans		5,083		4,721
Commercial		453		390
Consumer installment and other loans		12		45
Total loans receivable on nonaccrual status	$	5,548	$	5,156

Summary of impaired loans

The following table presents information concerning the Company’s investment in loans considered impaired as of December 31, 2020 and December 31, 2019:

As of December 31, 2020 (Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate secured:
Commercial	$	1,680	$	16	$	385	$	386	$	—
Construction and land development		89		18		99		376		—
Residential 1-4 family		1,788		53		1,662		1,898		—
Multifamily		—		—		—		—		—
Farmland		550		59		391		560		—
Commercial		59		—		—		—		—
Agriculture		—		—		—		—		—
Consumer installment loans		4		—		5		6		—
All other loans		—		—		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		707		—		1,566		1,678		574
Construction and land development		—		—		—		—		—
Residential 1-4 family		150		3		337		365		72
Multifamily		—		—		—		—		—
Farmland		212		9		208		220		2
Commercial		214		12		429		437		404
Agriculture		—		—		—		—		—
Consumer installment loans		—		—		—		—		—
All other loans		—		—		—		—		—
Total	$	5,453	$	170	$	5,082	$	5,926	$	1,052

As of December 31, 2019 (Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate secured:
Commercial	$	2,017	$	100	$	2,416	$	2,478	$	—
Construction and land development		91		7		70		346		—
Residential 1-4 family		1,944		55		1,263		1,460		—
Multifamily		29		1		—		—		—
Farmland		1,143		47		778		970		—
Commercial		578		11		128		178		—
Agriculture		—		—		—		1		—
Consumer installment loans		2		—		—		—		—
All other loans		—		—		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		470		1		363		379		70
Construction and land development		—		—		—		—		—
Residential 1-4 family		302		—		55		60		44
Multifamily		—		—		—		—		—
Farmland		221		11		216		228		9
Commercial		507		7		286		886		200
Agriculture		—		—		—		—		—
Consumer installment loans		3		—		—		—		—
All other loans		—		—		—		—		—
Total	$	7,307	$	240	$	5,575	$	6,986	$	323

Summary of age analysis of past due loans receivable

An age analysis of past due loans receivable is below. At December 31, 2020 and 2019, there were no loans over 90 days past due that were accruing.

As of December 31, 2020 (Dollars are in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
Real estate secured:
Commercial	$	969	$	—	$	—	$	969	$	178,412	$	179,381
Construction and land development		64		—		—		64		24,967		25,031
Residential 1-4 family		5,717		615		690		7,022		215,958		222,980
Multifamily		—		—		—		—		16,569		16,569
Farmland		57		—		—		57		18,311		18,368
Total real estate loans		6,807		615		690		8,112		454,217		462,329
Commercial		214		—		—		214		85,796		86,010
Agriculture		7		1		—		8		4,442		4,450
Consumer installment Loans		214		22		—		236		20,396		20,632
All other loans		—		—		—		—		2,145		2,145
Total loans	$	7,242	$	638	$	690	$	8,570	$	566,996	$	575,566

As of December 31, 2019 (Dollars are in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
Real estate secured:
Commercial	$	502	$	125	$	262	$	889	$	169,547	$	170,436
Construction and land development		50		18		18		86		31,044		31,130
Residential 1-4 family		3,700		1,096		710		5,506		237,416		242,922
Multifamily		262		—		—		262		13,376		13,638
Farmland		111		47		152		310		20,480		20,790
Total real estate loans		4,625		1,286		1,142		7,053		471,863		485,916
Commercial		406		—		323		729		53,265		53,994
Agriculture		244		—		21		265		4,532		4,797
Consumer installment Loans		98		24		23		145		22,982		23,127
All other loans		—		—		—		—		1,710		1,710
Total loans	$	5,373	$	1,310	$	1,509	$	8,192	$	554,352	$	562,544

Summary of risk category of loans receivable

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

As of December 31, 2020 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Real estate secured:
Commercial	$	171,212	$	6,112	$	2,057	$	—	$	179,381
Construction and land development		23,168		1,806		57		—		25,031
Residential 1-4 family		218,947		1,304		2,729		—		222,980
Multifamily		16,337		232		—		—		16,569
Farmland		17,019		1,249		100		—		18,368
Total real estate loans		446,683		10,703		4,943		—		462,329
Commercial		81,846		3,711		453		—		86,010
Agriculture		4,255		195		—		—		4,450
Consumer installment loans		20,615		5		12		—		20,632
All other loans		2,145		—		—		—		2,145
Total	$	555,544	$	14,614	$	5,408	$	—	$	575,566

As of December 31, 2019 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Real estate secured:
Commercial	$	165,570	$	3,265	$	1,601	$	—	$	170,436
Construction and land development		30,747		360		23		—		31,130
Residential 1-4 family		239,210		1,207		2,505		—		242,922
Multifamily		13,638		—		—		—		13,638
Farmland		18,779		1,480		531		—		20,790
Total real estate loans		467,944		6,312		4,660		—		478,916
Commercial		51,086		2,504		118		286		53,994
Agriculture		4,753		4		40		—		4,797
Consumer installment loans		23,087		12		28		—		23,127
All other loans		1,710		—		—		—		1,710
Total	$	548,580	$	8,832	$	4,846	$	286	$	562,544

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ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2020

Receivables [Abstract]

Schedule of allocation of portion of allowance

Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented as of December 30, 2020 and 2019.  

	Real estate secured
				Construction																Consumer
				and Land		Residential														and All
(Dollars are in thousands)	Commercial			Development		1-4 family			Multifamily		Farmland			Commercial			Agriculture			Other			Unallocated			Total
Year ended December 31,
2020
Beginning balance	$	1,248		$	158	$	1,736		$	104	$	109		$	1,789		$	27		$	195		$	2		$	5,368
Charge-offs		(65	)		—		(165	)		—		(42	)		(329	)		(15	)		(85	)		—			(701	)
Recoveries		57			—		38			—		33			40			1			55			—			224
Provision		1,041			75		342			47		(3	)		775			27			(2	)		(2	)		2,300
Ending balance	$	2,281		$	233	$	1,951		$	151	$	97		$	2,275		$	40		$	163		$	—		$	7,191
Allowance for loan losses at December 31, 2020
Individually evaluated for impairment	$	574		$	—	$	72		$	—	$	2		$	404		$	—		$	—		$	—		$	1,052
Collectively evaluated for impairment		1,707			233		1,879			151		95			1,871			40			163			—			6,139
	$	2,281		$	233	$	1,951		$	151	$	97		$	2,275		$	40		$	163		$	—		$	7,191
Loans at December 31, 2020 Individually evaluated for impairment	$	1,951		$	99	$	1,999		$	—	$	599		$	429		$	—		$	5		$	—		$	5,082
Collectively evaluated for impairment		177,430			24,932		220,981			16,569		17,769			85,581			4,450			22,772			—			570,484
	$	179,381		$	25,031	$	222,980		$	16,569	$	18,368		$	86,010		$	4,450		$	22,777		$	—		$	575,566

	Real estate secured
				Construction																		Consumer
				and Land			Residential															and All
(Dollars are in thousands)	Commercial			Development			1-4 family			Multifamily			Farmland			Commercial			Agriculture			Other			Unallocated			Total
Year ended December 31,
2019
Beginning balance	$	1,386		$	202		$	2,437		$	89		$	287		$	448		$	37		$	175		$	275		$	5,336
Charge-offs		(192	)		—			(336	)		—			(33	)		(1,762	)		(17	)		(114	)		—			(2,454	)
Recoveries		16			34			202			30			29			61			2			62			—			436
Provision		38			(78	)		(567	)		(15	)		(174	)		3,042			5			72			(273	)		2,050
Ending balance	$	1,248		$	158		$	1,736		$	104		$	109		$	1,789		$	27		$	195		$	2		$	5,368
Allowance for loan losses at December 31, 2019
Individually evaluated for impairment	$	70		$	—		$	44		$	—		$	9		$	200		$	—		$	—		$	—		$	323
Collectively evaluated for impairment		1,178			158			1,692			104			100			1,589			27			195			2			5,045
	$	1,248		$	158		$	1,736		$	104		$	109		$	1,789		$	27		$	195		$	2		$	5,368
Loans at December 31, 2019 Individually evaluated for impairment	$	2,779		$	70		$	1,318		$	—		$	994		$	414		$	—		$	—		$	—		$	5,575
Collectively evaluated for impairment		167,657			31,060			241,604			13,638			19,796			53,580			4,797			24,837			—			556,969
	$	170,436		$	31,130		$	242,922		$	13,638		$	20,790		$	53,994		$	4,797		$	24,837		$	—		$	562,544

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TROUBLED DEBT RESTRUCTURINGS (Tables)

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Schedule of loans modified as troubled debt restructurings

The following table presents information related to loans modified as troubled debt restructurings during the years ended December 31, 2020 and 2019.

	December 31, 2020						December 31, 2019
(Dollars are in thousands)	# of Loans		Pre-Mod. Recorded Investment		Post-Mod. Recorded Investment		# of Loans		Pre-Mod. Recorded Investment		Post-Mod. Recorded Investment
Real estate secured:
Commercial		3	$	190	$	190		1	$	150	$	150
Construction and land Development		—		—		—		—		—		—
Residential 1-4 family		27		1,236		1,236		—		—		—
Multifamily		—		—		—		—		—		—
Farmland		—		—		—		1		305		305
Total real estate loans		30		1,426		1,426		2		455		455
Commercial		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Consumer installment loans		2		7		7		—		—		—
All other loans		—		—		—		—		—		—
Total		32	$	1,433	$	1,433		2	$	455	$	455

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BANK PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2020

Property, Plant and Equipment [Abstract]

Schedule of bank premises and equipment

Bank premises and equipment at December 31, 2020 and 2019 are summarized as follows:

(Dollars are in thousands)	2020			2019
Land	$	7,796		$	7,485
Buildings and improvements		17,287			16,227
Furniture and equipment		16,900			16,253
Construction in progress		1,025			1,003
		43,008			40,968
Less accumulated depreciation		(20,834	)		(18,726	)
Bank Premises and Equipment	$	22,174		$	22,242

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Schedule of pre-tax book income

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

(Dollars are in thousands)	2020		2019
Pre-tax book income
Domestic	$	3,993	$	2,581
Total pre-tax book income	$	3,993	$	2,581

Schedule of components of income tax expense

Income tax expense is summarized as follows for the years ended December 31:

(Dollars are in thousands)	2020			2019
Current income tax expense (benefit)
Federal	$	(200	)	$	(35	)
State		—			—
Total current income tax expense (benefit)		(200	)		(35	)

Deferred income tax expense
Federal		1,304			557
State		(1	)		—
Total deferred income tax expense		1,303			557
Income tax expense	$	1,103		$	522

Schedule of reconciliation of income tax expense

The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rate of 21% for years ending December 31, 2020 and 2019, respectively:

(Dollars are in thousands)	2020			2019
Income tax expense (benefit) at the applicable federal rate74	$	839		$	542
Permanent differences resulting from:
Nondeductible expenses		8			10
Tax exempt interest income		(7	)		(11	)
Bank owned life insurance		(16	)		(13	)
Other adjustments		279			(6	)
Income tax expense	$	1,103		$	522

Schedule of net deferred tax assets and liabilities

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

(Dollars are in thousands)	2020		2019
Deferred Tax Assets
Allowance for loan losses	$	1,568	$	1,127
Deferred compensation		92		90
Nonaccrual loan interest		490		439
Other real estate owned		83		127
Amortization of core deposits		18		28
Amortization of goodwill		90		144
Capitalized interest and repair expense		23		23
Net operating loss carryforward		2,172		3,631
AMT carryforward		—		320
Other		33		—
Total Assets, gross		4,569		5,929
Valuation allowance		—		—
Total Assets, net		4,569		5,929
Deferred Tax Liabilities
Accelerated depreciation		869		937
Accrued employee benefits		—		11
Unrealized gain on securities available for sale		197		15
Prepaid expenses		22		59
Deferred loan costs		355		331
Total Liabilities, gross		1,443		1,353
Net Deferred Tax Asset	$	3,126	$	4,576

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TIME DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Schedule of maturities

At December 31, 2020, the scheduled maturities of time deposits are as follows (dollars are in thousands):

2021	$	137,383
2022		44,170
2023		23,097
2024		11,283
2025		18,516
After five years		—
Total	$	234,449

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RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2020

Related Party Transactions [Abstract]

Schedule of related party

The following table summarizes these transactions, which were made on substantially the same terms as those prevailing for other customers and did not involve any abnormal risk.

	For the years ended December 31,
(Dollars in thousands)	2020			2019
Beginning balance	$	2,457		$	2,553
New loans and advances on lines		4,567			1,925
Payments and other reductions		(2,837	)		(2,021	)
Ending balance	$	4,187		$	2,457

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OTHER REAL ESTATE OWNED (Tables)

12 Months Ended

Dec. 31, 2020

Real Estate [Abstract]

Schedule of other real estate owned

The following table summarizes the activity in other real estate owned for the years ended December 31, 2020 and 2019:

	2020			2019
(Dollars are in thousands)
Balance, beginning of year	$	3,393		$	5,937
Additions		1,128			811
Transfers from premises and equipment		—			683
Proceeds from sales		(687	)		(1,322	)
Proceeds from insurance claims		—			(19	)
Loans made to finance sales		(428	)		(2,360	)
Adjustment of carrying value		(132	)		(214	)
Gains (losses) from sales		60			(123	)
Balance, end of year	$	3,334		$	3,393

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LEASING ACTIVITIES (Tables)

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

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

At December 31, 2020, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars are in thousands):

2021	$	511
2022		530
2023		544
2024		546
2025		550
Thereafter		3978
Total lease payments		6,659
Less imputed interest		1,220
Total	$	5,439

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BORROWED FUNDS (Tables)

12 Months Ended

Dec. 31, 2020

Borrowed Funds

Schedule of breakdown of borrowed funds

The following table presents the breakdown of borrowed funds as of December 31, 2020 and 2019 (Dollars in thousands):

	FHLB Revolving Advances (a)			Federal  Funds  Lines (b)			FHLB Term  Loans Short-Term (c)			FHLB Term Loans Long-Term (d)			NPB  Capital Trust I  (e)			NPB Capital Trust 2  (e)			Total
Balance December 31, 2020	$	—		$	—		$	5,000		$	—		$	11,341		$	5,155		$	21,496
Highest balance at any month-end		—			—			5,000			5,000			11,341			5,155
Average weighted balance		—			—			2,555			2,445			11,341			5,155			21,496
Average interest rate:
Paid during the year		—	%		—	%		1.36	%		1.36	%		3.55	%		2.70	%		2.84	%
At year-end		—	%		—	%		1.34	%		—	%		2.84	%		2.01	%		2.29	%
Balance December 31, 2019	$	—		$	—		$	—		$	5,000		$	11,341		$	5,155		$	21,496
Highest balance at any month-end		—			—			2,000			5,000			11,341			5,155
Average weighted balance		—			10			975			5,000			11,341			5,155			22,481
Average interest rate:
Paid during the year		—	%		3.32	%		1.26	%		1.36	%		5.09	%		4.25	%		3.89	%
At year-end		—	%		—	%		—	%		1.34	%		4.59	%		3.76	%		3.64	%

(a) - The Bank has the ability to borrow up to an additional $169.9 million from the FHLB under a line of credit which is secured by a blanket lien on residential real estate loans. The Bank had no overnight borrowings subject to daily rate changes from the FHLB at December 31, 2020 or 2019.

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

(b) - Federal funds lines consist of $20.0 million in unsecured federal funds line of credit facilities with correspondent banks as of both December 31, 2020 and 2019, exclusive of any outstanding balance.

(c) - At December 31, 2020, short term FHLB advances consisted of one $5.0 million advance with a fixed rate of 1.34%.

(d) - At December 31, 2020 there were no long term FHLB advances. Long term FHLB advances totaled $5 million at December 31, 2019

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

Schedule of maturities of borrowed funds

Following are maturities of borrowed funds at December 31, 2020 (dollars in thousands):

2021	$	5,000
2022		—
2023		—
2024		—
2025		—
2026 and thereafter		16,496
	$	21,496

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Tables)

12 Months Ended

Dec. 31, 2020

Investments, All Other Investments [Abstract]

Schedule of financial instruments with credit risk

Financial instruments whose contract amount represents credit risk at December 31 were as follows:

	2020		2019
(Dollars in thousands)
Commitments to extend credit	$	57,334	$	59,552
Standby letters of credit		2,031		2,582

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CAPITAL (Tables)

12 Months Ended

Dec. 31, 2020

Banking Regulation, Total Capital [Abstract]

Schedule of capital requirements

The Bank’s actual capital amounts and ratios are presented in the following table as of December 31, 2020 and 2019, respectively.

	Actual					Minimum Capital Requirement					Minimum to Be Well Capitalized Under Prompt Corrective  Action Provisions
(Dollars are in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2020:
Total Capital to Risk Weighted Assets	$	77,133		16.41	%	$	37,603		8.0	%	$	47,028		10.0	%
Tier 1 Capital to Risk Weighted Assets		71,241		15.16	%		28,202		6.0	%		37,603		8.0	%
Tier 1 Capital to Average Assets		71,241		9.49	%		29,989		4.0	%		37,545		5.0	%
Common Equity Tier 1 Capital to Risk Weighted Assets		71,241		15.16	%		30,036		4.5	%		30,552		6.5	%
December 31, 2019:
Total Capital to Risk Weighted Assets	$	72,109		14.83	%	$	38,910		8.0	%	$	48,637		10.0	%
Tier 1 Capital to Risk Weighted Assets		66,741		13.72	%		29,182		6.0	%		38,910		8.0	%
Tier 1 Capital to Average Assets		66,741		9.43	%		28,313		4.0	%		35,391		5.0	%
Common Equity Tier 1 Capital to Risk Weighted Assets		66,741		13.72	%		21,887		4.5	%		31,614		6.5	%

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FAIR VALUES (Tables)

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Schedule of summary of assets and liabilities measured at fair value

Assets and liabilities measured at fair value are as follows as of December 31, 2020 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable  inputs  (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	—	$	14,107	$	—
Taxable municipals		—		5,345		—
Corporate bonds		—		6,048		—
Mortgage backed securities		—		22,906		—
(On a non-recurring basis) Other real estate owned		—		—		3,334
Impaired loans:
Real estate secured:
Commercial		—		—		1,377
Construction and land development		—		—		99
Residential 1-4 family		—		—		1,927
Multifamily		—		—		—
Farmland		—		—		597
Commercial		—		—		25
Agriculture		—		—		—
Consumer installment loans		—		—		5
All other loans		—		—		—
Total	$	—	$	48,406	$	7,364

Assets and liabilities measured at fair value are as follows as of December 31, 2019 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)	Quoted  market price in  active markets  (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	—	$	15,633	$	—
Taxable municipals		—		4,442		—
Corporate bonds		—		5,523		—
Mortgage backed securities		—		25,051		—
(On a non-recurring basis) Other real estate owned		—		—		3,393
Impaired loans:
Real estate secured:
Commercial		—		—		2,709
Construction and land development		—		—		70
Residential 1-4 family		—		—		1,274
Multifamily		—		—		—
Farmland		—		—		985
Commercial		—		—		214
Agriculture		—		—		—
Consumer installment loans		—		—		—
All other loans		—		—		—
Total	$	—	$	50,649	$	8,645

Schedule of significant unobservable inputs In level 3 assets

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of December 31, 2020 and 2019, the significant unobservable inputs used in the fair value measurements were as follows:

(Dollars in thousands)	Fair Value at December 31,  2020			Fair Value at December 31, 2019		Valuation  Technique		Significant Unobservable Inputs		General Range of Significant Unobservable  Input Values
Impaired Loans		$	4,030	$	5,252		Appraised Value/Discounted Cash Flows/Market Value of Note		Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell		0 – 18%
Other Real Estate Owned		$	3,334	$	3,393		Appraised Value/Comparable Sales/Other Estimates from Independent Sources		Discounts to reflect current market conditions and estimated costs to sell		0 – 18%

Schedule of estimated fair value of financial instruments

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows:

					Fair Value Measurements
(Dollars are in thousands)	Carrying  Amount		Fair  Value		Quoted  market  price in  active  markets  (Level 1)		Significant  other  observable inputs (Level 2)		Significant unobservable  inputs  (Level 3)
December 31, 2020
Financial Instruments – Assets
Net Loans	$	568,375	$	564,664	$	—	$	560,634	$	4,030
Financial Instruments – Liabilities
Time Deposits		234,449		237,768		—		237,768		—
Borrowed Funds		21,496		16,788		—		16,788		—
December 31, 2019
Financial Instruments – Assets
Net Loans	$	557,176	$	550,495	$	—	$	545,243	$	5,252
Financial Instruments – Liabilities
Time Deposits		257,406		259,325		—		259,325		—
Borrowed Funds		21,496		18,503		—		18,503		—

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REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables)

12 Months Ended

Dec. 31, 2020

Revenue from Contract with Customer [Abstract]

Schedule of revenue from contracts with customers

The following table presents Noninterest Income by revenue stream for the years ended December 31, 2020 and 2019.

(Dollars are in thousands)	2020		2019
Service charges and fees	$	3,217	$	3,605
Card processing and interchange income		3,314		3,014
Insurance and investment fees		716		663
Gains on sales of available-for-sale securities (1)		4		—
Gain on sale and leaseback transactions (1)		—		803
Other noninterest income		896		567
Total Noninterest Income	$	8,147	$	8,652

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

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NON-INTEREST EXPENSES (Tables)

12 Months Ended

Dec. 31, 2020

Noninterest Expenses

Schedule of noninterest expenses

Other operating expenses, included as part of noninterest expenses, consisted of the following for the years ended December 31, 2020 and 2019:

(Dollars are in thousands)	2020		2019
Advertising, sponsorships and donations	$	216	$	315
ATM network expense		1,476		1,832
Legal and professional fees		839		872
Consulting fees		504		829
Loan related expenses		353		581
Printing and supplies		141		146
FDIC insurance premiums		393		222
Other real estate owned expenses, net		307		635
Other operating expenses		2,507		2,404
Total	$	6,736	$	7,836

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PARENT CORPORATION ONLY FINANCIAL STATEMENTS (Tables)

12 Months Ended

Dec. 31, 2020

Condensed Financial Information Disclosure [Abstract]

Schedule of parent corporation only condensed balance sheets

CONDENSED BALANCE SHEETS 

AS OF DECEMBER 31, 2020 AND 2019

(Dollars in Thousands)

	2020			2019
ASSETS
Due from banks	$	215		$	209
Investment in subsidiaries		72,990			69,463
Other assets		1,669			1,737
Total Assets	$	74,874		$	71,409
LIABILITIES
Accrued interest payable	$	109		$	182
Accrued expenses and other liabilities		92			129
Trust preferred securities		16,496			16,496
Total Liabilities		16,697			16,807
STOCKHOLDERS’ EQUITY
Common stock - $2.00 par value, 50,000,000 shares authorized;   23,922,086 shares issued and outstanding at both December 31, 2020 and 2019		47,844			47,844
Additional paid capital		14,570			14,570
Retained deficit		(4,979	)		(7,869	)
Accumulated other comprehensive income		742			57
Total Stockholders’ Equity		58,177			54,602
Total Liabilities and Stockholders’ Equity	$	74,874		$	71,409

Schedule of parent corporation only condensed statements of income

CONDENSED STATEMENTS OF INCOME

 FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 

(Dollars in thousands)

	2020			2019
Income
Miscellaneous income	$	16		$	26
Dividends from subsidiaries		610			760
Undistributed income of subsidiaries		2,842			2,076
Total income		3,468			2,862
Expenses
Trust preferred securities interest expense		541			796
Professional fees		114			154
Other operating expenses		19			60
Total Expenses		674			1,010
Income before Income Taxes		2,794			1,852
Income Tax Benefit		(96	)		(207	)
Net Income	$	2,890		$	2,059

Schedule of parent corporation only condensed statements of cash flows

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 

(Dollars in thousands)

	2020			2019
Cash Flows From Operating Activities
Net income	$	2,890		$	2,059
Adjustments to reconcile net income to net cash used in  operating activities:
Equity in undistributed earnings of subsidiaries		(2,842	)		(2,076	)
Net decrease (increase) in other assets		67			(173	)
Net (decrease) increase in other liabilities		(109	)		38
Net cash provided by (used in) operating activities		6			(152	)
Net increase (decrease) in Cash and Cash Equivalents		6			(152	)
Cash and Cash Equivalents, Beginning of year		209			361
Cash and Cash Equivalents, End of Year	$	215		$	209
Supplemental Disclosure of Cash Paid During the Year for:
Interest	$	614		$	811
Taxes	$	(166	)	$	(34	)

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SELECTED QUARTERLY INFORMATION (Tables)

12 Months Ended

Dec. 31, 2020

Quarterly Financial Information Disclosure [Abstract]

Schedule of selected quarterly information

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

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

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	12 Months Ended
	Dec. 31, 2020
Paving And Landscaping [Member]
Estimated useful life	15 years
Vehicles [Member]
Estimated useful life	5 years
Buildings [Member]
Estimated useful life	39 years
Minimum [Member] | Computer Equipment And Software [Member]
Estimated useful life	3 years
Minimum [Member] | Furniture and Equipment [Member]
Estimated useful life	5 years
Maximum [Member] | Computer Equipment And Software [Member]
Estimated useful life	5 years
Maximum [Member] | Furniture and Equipment [Member]
Estimated useful life	10 years

XML

INCOME PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Income Per Share
Net income	$ 1,391	$ 1,424	$ 29	$ 46	$ 432	$ 876	$ 345	$ 406	$ 2,890	$ 2,059
Weighted average shares outstanding									23,922,086	23,922,086
Weighted average dilutive shares outstanding									23,992,086	23,992,086
Basic and diluted income per share	$ 0.06	$ 0.06	$ 0.00	$ 0.00	$ 0.02	$ 0.04	$ 0.01	$ 0.02	$ 0.12	$ 0.09

XML

INVESTMENT SECURITIES (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Amortized Cost	$ 47,467	$ 50,577
Gross Unrealized Gains	1,084	337
Gross Unrealized Losses	145	265
Approximate Fair Value	48,406	50,649
U.S. Government Agencies [Member]
Amortized Cost	13,852	15,703
Gross Unrealized Gains	322	57
Gross Unrealized Losses	67	127
Approximate Fair Value	14,107	15,633
Taxable Municipals [Member]
Amortized Cost	5,157	4,389
Gross Unrealized Gains	188	54
Gross Unrealized Losses		1
Approximate Fair Value	5,345	4,442
Corporate Bonds [Member]
Amortized Cost	5,893	5,408
Gross Unrealized Gains	186	115
Gross Unrealized Losses	31
Approximate Fair Value	6,048	5,523
Mortgage Backed Securities [Member]
Amortized Cost	22,565	25,077
Gross Unrealized Gains	388	111
Gross Unrealized Losses	47	137
Approximate Fair Value	$ 22,906	$ 25,051

XML

INVESTMENT SECURITIES (Details 1) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Fair Value, Less than 12 Months	$ 10,215	$ 9,423
Unrealized Losses, Less than 12 Months	87	51
Fair Value, 12 Months or More	4,047	16,518
Unrealized Losses, 12 Months or More	58	214
Fair Value, Total	14,262	25,941
Unrealized Losses, Total	145	265
U.S. Government Agencies [Member]
Fair Value, Less than 12 Months	1,479	6,788
Unrealized Losses, Less than 12 Months	12	46
Fair Value, 12 Months or More	3,829	4,516
Unrealized Losses, 12 Months or More	55	81
Fair Value, Total	5,308	11,304
Unrealized Losses, Total	67	127
Taxable Municipals [Member]
Fair Value, Less than 12 Months		1,049
Unrealized Losses, Less than 12 Months		1
Fair Value, 12 Months or More
Unrealized Losses, 12 Months or More
Fair Value, Total		1,049
Unrealized Losses, Total		1
Corporate Bonds [Member]
Fair Value, Less than 12 Months	1,219
Unrealized Losses, Less than 12 Months	31
Fair Value, 12 Months or More
Unrealized Losses, 12 Months or More
Fair Value, Total	1,219
Unrealized Losses, Total	31
Mortgage Backed Securities [Member]
Fair Value, Less than 12 Months	7,517	1,586
Unrealized Losses, Less than 12 Months	44	4
Fair Value, 12 Months or More	218	12,002
Unrealized Losses, 12 Months or More	3	133
Fair Value, Total	7,735	13,588
Unrealized Losses, Total	$ 47	$ 137

XML

INVESTMENT SECURITIES (Details 2) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Investment securities activity:
Due in one year or less, amortized Cost	$ 540
Due after one year through five years, amortized cost	6,664
Due after five years through ten years, amortized cost	9,487
Due after ten years, amortized cost	30,776
Amortized cost, total	47,467	$ 50,577
Due in one year or less, fair value	546
Due after one year through five years, fair value	6,795
Due after five years through ten years, fair value	9,754
Due after ten years, fair value	31,311
Approximate fair value	$ 48,406	$ 50,649
Due in one year or less, weighted average yield	2.11%
Due after one year through five years, weighted average yield	3.42%
Due after five years through ten years, weighted average yield	2.68%
Due after ten years, weighted average yield	1.77%
Weighted average yield, total	2.19%

XML

LOANS (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019
Total loans and leases	$ 575,566	$ 585,122	$ 587,566	$ 560,468	$ 562,544	$ 558,174	$ 551,131	$ 553,585
Real Estate [Member]
Total loans and leases	462,329				478,916
Commercial [Member]
Total loans and leases	86,010				53,994
Commercial [Member] | Real Estate [Member]
Total loans and leases	179,381				170,436
Construction and Land Development [Member] | Real Estate [Member]
Total loans and leases	25,031				31,130
Residential 1-4 Family [Member] | Real Estate [Member]
Total loans and leases	222,980				242,922
Multifamily [Member] | Real Estate [Member]
Total loans and leases	16,569				13,638
Farmland [Member] | Real Estate [Member]
Total loans and leases	18,368				20,790
Agriculture [Member]
Total loans and leases	4,450				4,797
Commercial [Member]
Total loans and leases	20,632				23,127
Consumer Installment Loans [Member]
Total loans and leases	$ 2,145				$ 24,837

XML

LOANS (Details 1) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Total loans receivable on nonaccrual status	$ 5,548	$ 5,156
Real Estate [Member]
Total loans receivable on nonaccrual status	5,083	4,721
Commercial [Member]
Total loans receivable on nonaccrual status	453	390
Commercial [Member] | Real Estate [Member]
Total loans receivable on nonaccrual status	2,225	1,601
Construction and Land Development [Member] | Real Estate [Member]
Total loans receivable on nonaccrual status	57	45
Residential 1-4 Family [Member] | Real Estate [Member]
Total loans receivable on nonaccrual status	2,700	2,544
Farmland [Member] | Real Estate [Member]
Total loans receivable on nonaccrual status	101	531
Commercial [Member]
Total loans receivable on nonaccrual status	$ 12	$ 45

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LOANS (Details 2) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Average Recorded Investment	$ 5,453	$ 7,307
Interest Income Recognized	170	240
Recorded Investment	5,082	5,575
Unpaid Principal Balance	5,926	6,986
Related Allowance	1,052	323
Commercial [Member] | Impaired Financing Receivables With No Related Allowance [Member]
Average Recorded Investment	59	578
Interest Income Recognized		11
Recorded Investment		128
Unpaid Principal Balance		178
Related Allowance
Commercial [Member] | Impaired Financing Receivables With Related Allowance [Member]
Average Recorded Investment	214	507
Interest Income Recognized	12	7
Recorded Investment	429	286
Unpaid Principal Balance	437	886
Related Allowance	404	200
Agriculture [Member] | Impaired Financing Receivables With No Related Allowance [Member]
Average Recorded Investment
Interest Income Recognized
Recorded Investment
Unpaid Principal Balance		1
Related Allowance
Agriculture [Member] | Impaired Financing Receivables With Related Allowance [Member]
Average Recorded Investment
Interest Income Recognized
Recorded Investment
Unpaid Principal Balance
Related Allowance
Commercial [Member] | Impaired Financing Receivables With No Related Allowance [Member]
Average Recorded Investment	4	2
Interest Income Recognized
Recorded Investment	5
Unpaid Principal Balance	6
Related Allowance
Commercial [Member] | Impaired Financing Receivables With Related Allowance [Member]
Average Recorded Investment		3
Interest Income Recognized
Recorded Investment
Unpaid Principal Balance
Related Allowance
Commercial [Member] | Real Estate [Member] | Impaired Financing Receivables With No Related Allowance [Member]
Average Recorded Investment	1,680	2,017
Interest Income Recognized	16	100
Recorded Investment	385	2,416
Unpaid Principal Balance	386	2,478
Related Allowance
Commercial [Member] | Real Estate [Member] | Impaired Financing Receivables With Related Allowance [Member]
Average Recorded Investment	707	470
Interest Income Recognized		1
Recorded Investment	1,566	363
Unpaid Principal Balance	1,678	379
Related Allowance	574	70
Construction and Land Development [Member] | Real Estate [Member] | Impaired Financing Receivables With No Related Allowance [Member]
Average Recorded Investment	89	91
Interest Income Recognized	18	7
Recorded Investment	99	70
Unpaid Principal Balance	376	346
Related Allowance
Construction and Land Development [Member] | Real Estate [Member] | Impaired Financing Receivables With Related Allowance [Member]
Average Recorded Investment
Interest Income Recognized
Recorded Investment
Unpaid Principal Balance
Related Allowance
Residential 1-4 Family [Member] | Real Estate [Member] | Impaired Financing Receivables With No Related Allowance [Member]
Average Recorded Investment	1,788	1,944
Interest Income Recognized	53	55
Recorded Investment	1,662	1,263
Unpaid Principal Balance	1,898	1,460
Related Allowance
Residential 1-4 Family [Member] | Real Estate [Member] | Impaired Financing Receivables With Related Allowance [Member]
Average Recorded Investment	150	302
Interest Income Recognized	3
Recorded Investment	337	55
Unpaid Principal Balance	365	60
Related Allowance	72	44
Multifamily [Member] | Real Estate [Member] | Impaired Financing Receivables With No Related Allowance [Member]
Average Recorded Investment		29
Interest Income Recognized		1
Recorded Investment
Unpaid Principal Balance
Related Allowance
Multifamily [Member] | Real Estate [Member] | Impaired Financing Receivables With Related Allowance [Member]
Average Recorded Investment
Interest Income Recognized
Recorded Investment
Unpaid Principal Balance
Related Allowance
Farmland [Member] | Real Estate [Member] | Impaired Financing Receivables With No Related Allowance [Member]
Average Recorded Investment	550	1,143
Interest Income Recognized	59	47
Recorded Investment	391	778
Unpaid Principal Balance	560	970
Related Allowance
Farmland [Member] | Real Estate [Member] | Impaired Financing Receivables With Related Allowance [Member]
Average Recorded Investment	212	221
Interest Income Recognized	9	11
Recorded Investment	208	216
Unpaid Principal Balance	220	228
Related Allowance	$ 2	$ 9

XML

LOANS (Details 3) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019
Loans 30-59 Days Past Due	$ 7,242				$ 5,373
Loans 60-89 Days Past Due	638				1,310
Loans 90 or More Days Past Due	690				1,509
Total Past Due Loans	8,570				8,192
Current Loans	566,996				554,352
Total loans and leases	575,566	$ 585,122	$ 587,566	$ 560,468	562,544	$ 558,174	$ 551,131	$ 553,585
Real Estate [Member]
Loans 30-59 Days Past Due	6,807				4,625
Loans 60-89 Days Past Due	615				1,286
Loans 90 or More Days Past Due	690				1,142
Total Past Due Loans	8,112				7,053
Current Loans	454,217				471,863
Total loans and leases	462,329				478,916
Commercial [Member]
Loans 30-59 Days Past Due	214				406
Loans 60-89 Days Past Due
Loans 90 or More Days Past Due					323
Total Past Due Loans	214				729
Current Loans	85,796				53,265
Total loans and leases	86,010				53,994
Commercial [Member] | Real Estate [Member]
Loans 30-59 Days Past Due	969				502
Loans 60-89 Days Past Due					125
Loans 90 or More Days Past Due					262
Total Past Due Loans	969				889
Current Loans	178,412				169,547
Total loans and leases	179,381				170,436
Construction and Land Development [Member] | Real Estate [Member]
Loans 30-59 Days Past Due	64				50
Loans 60-89 Days Past Due					18
Loans 90 or More Days Past Due					18
Total Past Due Loans	64				86
Current Loans	24,967				31,044
Total loans and leases	25,031				31,130
Residential 1-4 Family [Member] | Real Estate [Member]
Loans 30-59 Days Past Due	5,717				3,700
Loans 60-89 Days Past Due	615				1,096
Loans 90 or More Days Past Due	690				710
Total Past Due Loans	7,022				5,506
Current Loans	215,958				237,416
Total loans and leases	222,980				242,922
Multifamily [Member] | Real Estate [Member]
Loans 30-59 Days Past Due					262
Loans 60-89 Days Past Due
Loans 90 or More Days Past Due
Total Past Due Loans					262
Current Loans	16,569				13,376
Total loans and leases	16,569				13,638
Farmland [Member] | Real Estate [Member]
Loans 30-59 Days Past Due	57				111
Loans 60-89 Days Past Due					47
Loans 90 or More Days Past Due					152
Total Past Due Loans	57				310
Current Loans	18,311				20,480
Total loans and leases	18,368				20,790
Agriculture [Member]
Loans 30-59 Days Past Due	7				244
Loans 60-89 Days Past Due	1
Loans 90 or More Days Past Due					21
Total Past Due Loans	8				265
Current Loans	4,442				4,532
Total loans and leases	4,450				4,797
Commercial [Member]
Loans 30-59 Days Past Due	214				98
Loans 60-89 Days Past Due	22				24
Loans 90 or More Days Past Due					23
Total Past Due Loans	236				145
Current Loans	20,396				22,982
Total loans and leases	20,632				23,127
Consumer Installment Loans [Member]
Loans 30-59 Days Past Due
Loans 60-89 Days Past Due
Loans 90 or More Days Past Due
Total Past Due Loans
Current Loans	2,145				1,710
Total loans and leases	$ 2,145				$ 24,837

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LOANS (Details 4) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019
Total	$ 575,566	$ 585,122	$ 587,566	$ 560,468	$ 562,544	$ 558,174	$ 551,131	$ 553,585
Real Estate [Member]
Total	462,329				478,916
Substandard [Member]
Total	5,408				4,846
Pass [Member]
Total	555,544				548,580
Special Mention [Member]
Total	14,614				8,832
Doubtful [Member]
Total					286
Real Estate [Member] | Substandard [Member]
Total	4,943				4,660
Real Estate [Member] | Pass [Member]
Total	446,683				467,944
Real Estate [Member] | Special Mention [Member]
Total	10,703				6,312
Real Estate [Member] | Doubtful [Member]
Total
Commercial [Member]
Total	86,010				53,994
Commercial [Member] | Real Estate [Member]
Total	179,381				170,436
Construction and Land Development [Member] | Real Estate [Member]
Total	25,031				31,130
Construction and Land Development [Member] | Real Estate [Member] | Substandard [Member]
Total	57				23
Construction and Land Development [Member] | Real Estate [Member] | Pass [Member]
Total	23,168				30,747
Construction and Land Development [Member] | Real Estate [Member] | Special Mention [Member]
Total	1,806				360
Construction and Land Development [Member] | Real Estate [Member] | Doubtful [Member]
Total
Residential 1-4 Family [Member] | Real Estate [Member]
Total	222,980				242,922
Residential 1-4 Family [Member] | Real Estate [Member] | Substandard [Member]
Total	2,729				2,505
Residential 1-4 Family [Member] | Real Estate [Member] | Pass [Member]
Total	218,947				239,210
Residential 1-4 Family [Member] | Real Estate [Member] | Special Mention [Member]
Total	1,304				1,207
Residential 1-4 Family [Member] | Real Estate [Member] | Doubtful [Member]
Total
Multifamily [Member] | Real Estate [Member]
Total	16,569				13,638
Multifamily [Member] | Real Estate [Member] | Substandard [Member]
Total
Multifamily [Member] | Real Estate [Member] | Pass [Member]
Total	16,337				13,638
Multifamily [Member] | Real Estate [Member] | Special Mention [Member]
Total	232
Multifamily [Member] | Real Estate [Member] | Doubtful [Member]
Total
Farmland [Member] | Real Estate [Member]
Total	18,368				20,790
Farmland [Member] | Real Estate [Member] | Substandard [Member]
Total	100				531
Farmland [Member] | Real Estate [Member] | Pass [Member]
Total	17,019				18,779
Farmland [Member] | Real Estate [Member] | Special Mention [Member]
Total	1,249				1,480
Farmland [Member] | Real Estate [Member] | Doubtful [Member]
Total
Commercial [Member]
Total	86,010
Agriculture [Member]
Total	4,450				4,797
Agriculture [Member] | Substandard [Member]
Total					40
Agriculture [Member] | Pass [Member]
Total	4,255				4,753
Agriculture [Member] | Special Mention [Member]
Total	195				4
Agriculture [Member] | Doubtful [Member]
Total
Commercial [Member]
Total	20,632				23,127
Commercial [Member] | Substandard [Member]
Total	12				28
Commercial [Member] | Pass [Member]
Total	20,615				23,087
Commercial [Member] | Special Mention [Member]
Total	5				12
Commercial [Member] | Doubtful [Member]
Total
Consumer Installment Loans [Member]
Total	2,145				24,837
Consumer Installment Loans [Member] | Substandard [Member]
Total
Consumer Installment Loans [Member] | Pass [Member]
Total	2,145				1,710
Consumer Installment Loans [Member] | Special Mention [Member]
Total
Consumer Installment Loans [Member] | Doubtful [Member]
Total
Commercial [Member] | Substandard [Member]
Total	453				118
Commercial [Member] | Pass [Member]
Total	81,846				51,086
Commercial [Member] | Special Mention [Member]
Total	3,711				2,504
Commercial [Member] | Doubtful [Member]
Total					286
Commercial [Member] | Real Estate [Member] | Substandard [Member]
Total	2,057				1,601
Commercial [Member] | Real Estate [Member] | Pass [Member]
Total	171,212				165,570
Commercial [Member] | Real Estate [Member] | Special Mention [Member]
Total	6,112				3,265
Commercial [Member] | Real Estate [Member] | Doubtful [Member]
Total

XML

ALLOWANCE FOR LOAN LOSSES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Balance, beginning of year	$ 5,368	$ 5,336
Charge Offs	(701)	(2,454)
Recoveries	224	436
Provision for loan losses	2,300	2,050
Balance, End of period	7,191	5,368
Commercial [Member]
Balance, beginning of year	1,789	448
Charge Offs	(329)	(1,762)
Recoveries	40	61
Provision for loan losses	775	3,042
Balance, End of period	2,275	1,789
Agriculture [Member]
Balance, beginning of year	27	37
Charge Offs	(15)	(17)
Recoveries	1	2
Provision for loan losses	27	5
Balance, End of period	40	27
Consumer Installment Loans [Member]
Balance, beginning of year	195	175
Charge Offs	(85)	(114)
Recoveries	55	62
Provision for loan losses	(2)	72
Balance, End of period	163	195
Unallocated [Member]
Balance, beginning of year	2	273
Charge Offs
Recoveries
Provision for loan losses	(2)	(273)
Balance, End of period		2
Real Estate [Member]
Balance, beginning of year		5,101
Charge Offs		(561)
Recoveries		311
Provision for loan losses		(796)
Real Estate [Member] | Commercial [Member]
Balance, beginning of year	1,248	1,386
Charge Offs	(65)	(192)
Recoveries	57	16
Provision for loan losses	1,041	38
Balance, End of period	2,281	1,248
Real Estate [Member] | Construction and Land Development [Member]
Balance, beginning of year	158	191
Charge Offs
Recoveries		34
Provision for loan losses	75	(78)
Balance, End of period	233	158
Real Estate [Member] | Residential 1-4 Family [Member]
Balance, beginning of year	1,736	2,437
Charge Offs	(165)	(336)
Recoveries	38	202
Provision for loan losses	342	(567)
Balance, End of period	1,951	1,736
Real Estate [Member] | Multifamily [Member]
Balance, beginning of year	104	89
Charge Offs
Recoveries		30
Provision for loan losses	47	(15)
Balance, End of period	2,275	104
Real Estate [Member] | Farmland [Member]
Balance, beginning of year	109	287
Charge Offs	(42)	(33)
Recoveries	33	29
Provision for loan losses	(3)	(174)
Balance, End of period	$ 97	$ 109

XML

ALLOWANCE FOR LOAN LOSSES (Details 1) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Allowance for loan losses, individually evaluated for impairment	$ 1,052				$ 323
Allowance for loan losses, collectively evaluated for impairment	6,139				5,045
Allowance for loan losses, total	7,191				5,368				$ 5,336
Recorded investment in loans, individually evaluated for impairment	5,082				5,575
Recorded investment in loans, collectively evaluated for impairment	570,484				556,969
Recorded investment in loans, total	575,566	$ 585,122	$ 587,566	$ 560,468	562,544	$ 558,174	$ 551,131	$ 553,585
Real Estate [Member]
Allowance for loan losses, individually evaluated for impairment					123
Allowance for loan losses, collectively evaluated for impairment					3,232
Recorded investment in loans, individually evaluated for impairment					5,161
Recorded investment in loans, collectively evaluated for impairment					473,755
Recorded investment in loans, total	462,329				478,916
Commercial [Member]
Allowance for loan losses, individually evaluated for impairment	404				200
Allowance for loan losses, collectively evaluated for impairment	1,871				1,589
Allowance for loan losses, total	2,275				1,789
Recorded investment in loans, individually evaluated for impairment	429				414
Recorded investment in loans, collectively evaluated for impairment	85,581				53,580
Recorded investment in loans, total	86,010				53,994
Commercial [Member] | Real Estate [Member]
Allowance for loan losses, individually evaluated for impairment	574				70
Allowance for loan losses, collectively evaluated for impairment	1,707				1,178
Allowance for loan losses, total	2,281				1,248
Recorded investment in loans, individually evaluated for impairment	1,951				2,779
Recorded investment in loans, collectively evaluated for impairment	177,430				167,657
Recorded investment in loans, total	179,381				170,436
Construction and Land Development [Member] | Real Estate [Member]
Allowance for loan losses, individually evaluated for impairment
Allowance for loan losses, collectively evaluated for impairment	233				158
Allowance for loan losses, total	233				158
Recorded investment in loans, individually evaluated for impairment	99				70
Recorded investment in loans, collectively evaluated for impairment	24,932				31,060
Recorded investment in loans, total	25,031				31,130
Residential 1-4 Family [Member] | Real Estate [Member]
Allowance for loan losses, individually evaluated for impairment	72				44
Allowance for loan losses, collectively evaluated for impairment	1,879				1,692
Allowance for loan losses, total	1,951				1,736
Recorded investment in loans, individually evaluated for impairment	1,999				1,318
Recorded investment in loans, collectively evaluated for impairment	220,981				241,604
Recorded investment in loans, total	222,980				242,922
Multifamily [Member] | Real Estate [Member]
Allowance for loan losses, individually evaluated for impairment
Allowance for loan losses, collectively evaluated for impairment	151				104
Allowance for loan losses, total	151				104
Recorded investment in loans, individually evaluated for impairment
Recorded investment in loans, collectively evaluated for impairment	16,569				13,638
Recorded investment in loans, total	16,569				13,638
Farmland [Member] | Real Estate [Member]
Allowance for loan losses, individually evaluated for impairment	2				9
Allowance for loan losses, collectively evaluated for impairment	95				100
Allowance for loan losses, total	97				109
Recorded investment in loans, individually evaluated for impairment	599				994
Recorded investment in loans, collectively evaluated for impairment	17,769				19,796
Recorded investment in loans, total	18,368				20,790
Agriculture [Member]
Allowance for loan losses, individually evaluated for impairment
Allowance for loan losses, collectively evaluated for impairment	40				27
Allowance for loan losses, total	40				27				37
Recorded investment in loans, individually evaluated for impairment
Recorded investment in loans, collectively evaluated for impairment	4,450				4,797
Recorded investment in loans, total	4,450				4,797
Consumer Installment Loans [Member]
Allowance for loan losses, individually evaluated for impairment
Allowance for loan losses, collectively evaluated for impairment	163				195
Allowance for loan losses, total	163				195				175
Recorded investment in loans, individually evaluated for impairment	5
Recorded investment in loans, collectively evaluated for impairment	22,772				24,837
Recorded investment in loans, total	$ 2,145				24,837
Unallocated [Member]
Allowance for loan losses, individually evaluated for impairment
Allowance for loan losses, collectively evaluated for impairment					2
Allowance for loan losses, total					2				$ 273
Recorded investment in loans, individually evaluated for impairment
Recorded investment in loans, collectively evaluated for impairment
Recorded investment in loans, total

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TROUBLED DEBT RESTRUCTURINGS (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
# of Loans	32	2
Pre-Mod. Recorded Investment	$ 1,433	$ 455
Post-Mod. Recorded Investment	$ 1,433	$ 455
Real Estate [Member]
# of Loans	30	2
Pre-Mod. Recorded Investment	$ 1,426	$ 455
Post-Mod. Recorded Investment	$ 1,426	$ 455
Consumer Installment Loans [Member]
# of Loans
Pre-Mod. Recorded Investment
Post-Mod. Recorded Investment
Commercial [Member]
# of Loans		2
Pre-Mod. Recorded Investment		$ 7
Post-Mod. Recorded Investment		$ 7
Agriculture [Member]
# of Loans
Pre-Mod. Recorded Investment
Post-Mod. Recorded Investment
Commercial [Member]
# of Loans
Pre-Mod. Recorded Investment
Post-Mod. Recorded Investment
Commercial [Member] | Real Estate [Member]
# of Loans	3	1
Pre-Mod. Recorded Investment	$ 190	$ 150
Post-Mod. Recorded Investment	$ 190	$ 150
Construction and Land Development [Member] | Real Estate [Member]
# of Loans
Pre-Mod. Recorded Investment
Post-Mod. Recorded Investment
Residential 1-4 Family [Member] | Real Estate [Member]
# of Loans	27
Pre-Mod. Recorded Investment	$ 1,236
Post-Mod. Recorded Investment	$ 1,236
Multifamily [Member] | Real Estate [Member]
# of Loans
Pre-Mod. Recorded Investment
Post-Mod. Recorded Investment
Farmland [Member] | Real Estate [Member]
# of Loans		1
Pre-Mod. Recorded Investment		$ 305
Post-Mod. Recorded Investment		$ 305

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BANK PREMISES AND EQUIPMENT (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Bank premises and equipment, gross, total	$ 43,008	$ 40,968
Less accumulated depreciation	(20,834)	(18,726)
Bank premises and equipment, net, total	22,174	22,242
Land [Member]
Bank premises and equipment, gross, total	7,796	7,485
Buildings and Improvements [Member]
Bank premises and equipment, gross, total	17,287	16,227
Furniture and Equipment [Member]
Bank premises and equipment, gross, total	16,900	16,253
Construction in Progress [Member]
Bank premises and equipment, gross, total	$ 1,025	$ 1,003

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INCOME TAXES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Total pre-tax book income	$ 3,993	$ 2,581
Domestic [Member]
Total pre-tax book income	$ 3,993	$ 2,581

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INCOME TAXES (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Total current income tax expense (benefit)	$ (200)	$ (35)
Total deferred income tax expense	1,103	556
Income tax expense	1,103	522
Federal [Member]
Total current income tax expense (benefit)	(200)	(35)
Total deferred income tax expense	1,304	557
State [Member]
Total current income tax expense (benefit)
Total deferred income tax expense	$ (1)

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INCOME TAXES (Details 2) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Income tax expense (benefit) at the applicable federal rate	$ 839	$ 542
Permanent differences resulting from:
Nondeductible expenses	8	10
Tax exempt interest income	(7)	(11)
Bank owned life insurance	(16)	(13)
Other adjustments	279	(6)
Income tax expense	$ 1,103	$ 522

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INCOME TAXES (Details 3) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Deferred Tax Assets
Allowance for loan losses	$ 1,568	$ 1,127
Deferred compensation	92	90
Nonaccrual loan interest	490	439
Other real estate owned	83	127
Amortization of core deposits	18	28
Amortization of goodwill	90	144
Capitalized interest and repair expense	23	23
Net operating loss carryforward	2,172	3,631
AMT carryforward		320
Other	33
Total Assets, gross	4,569	5,929
Valuation allowance
Total Assets, net	4,569	5,929
Deferred Tax Liabilities
Accelerated depreciation	869	937
Accrued employee benefits		11
Unrealized gain on securities available for sale	197	15
Prepaid expenses	22	59
Deferred loan costs	355	331
Total Liabilities, gross	1,443	1,353
Net Deferred Tax Asset	$ 3,126	$ 4,576

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TIME DEPOSITS (Details) $ in Thousands	Dec. 31, 2020 USD ($)
Notes to Financial Statements
2021	$ 137,383
2022	44,170
2023	23,097
2024	11,283
2025	18,516
After five years
Total	$ 234,449

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RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Related Party Transactions [Abstract]
Beginning balance	$ 2,457	$ 2,553
New loans and advances on lines	4,567	1,925
Payments and other reductions	(2,837)	(2,021)
Ending balance	$ 4,187	$ 2,457

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OTHER REAL ESTATE OWNED (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Real Estate [Abstract]
Balance, beginning of year	$ 3,393	$ 5,937
Additions	1,128	811
Transfers from premises and equipment		683
Proceeds from sales	(687)	(1,322)
Proceeds from insurance claims		(19)
Loans made to finance sales	(428)	(2,360)
Adjustment of carrying value	(132)	(214)
Gains (losses) from sales	60	(123)
Balance, end of year	$ 3,334	$ 3,393

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LEASING ACTIVITIES (Details) $ in Thousands	Dec. 31, 2020 USD ($)
Leases [Abstract]
2021	$ 511
2022	530
2023	544
2024	546
2025	550
Thereafter	3,978
Total lease payments	6,659
Less imputed interest	1,220
Total	$ 5,439

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BORROWED FUNDS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Balance for the year	$ 5,439	$ 5,835
Average weighted balance	$ 21,496	$ 22,481
Average interest rate paid during the year	2.84%	3.89%
Average interest rate at year end	2.29%	3.64%
Revolving Advances [Member]
Balance for the year
Highest balance at any month-end
Average weighted balance
Average interest rate paid during the year
Average interest rate at year end
Federal Funds Lines [Member]
Balance for the year
Highest balance at any month-end
Average weighted balance		$ 10
Average interest rate paid during the year		3.32%
Average interest rate at year end
Loans Short-Term[Member]
Balance for the year	$ 5,000
Highest balance at any month-end	5,000	2,000
Average weighted balance	$ 2,555	$ 975
Average interest rate paid during the year	1.36%	1.26%
Average interest rate at year end	1.34%
Loans Long-Term [Member]
Balance for the year		$ 5,000
Highest balance at any month-end	5,000	5,000
Average weighted balance	$ 2,445	$ 5,000
Average interest rate paid during the year	1.36%	1.36%
Average interest rate at year end		1.34%
NPB Capital Trust I [Member]
Balance for the year	$ 11,341	$ 11,341
Highest balance at any month-end	11,341	11,341
Average weighted balance	$ 11,341	$ 11,341
Average interest rate paid during the year	3.55%	5.09%
Average interest rate at year end	2.84%	4.59%
NPB Capital Trust 2 [Member]
Balance for the year	$ 5,155	$ 5,155
Highest balance at any month-end	5,155	5,155
Average weighted balance	$ 5,155	$ 5,155
Average interest rate paid during the year	2.70%	4.25%
Average interest rate at year end	2.01%	3.76%

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BORROWED FUNDS (Details 1) $ in Thousands	Dec. 31, 2020 USD ($)
Borrowed Funds
2021	$ 5,000
2022
2023
2024
2025
2026 and thereafter	16,496
Total	$ 21,496

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Commitments To Extend Credit [Member]
Financial instruments with off-balance sheet risk	$ 57,334	$ 59,552
Standby Letters of Credit [Member]
Financial instruments with off-balance sheet risk	$ 2,031	$ 2,582

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CAPITAL (Details) - Bank $ in Thousands	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Total Capital to Risk Weighted Assets, Actual, Amount	$ 77,133	$ 72,109
Total Capital to Risk Weighted Assets, Actual, Ratio	0.1641	0.1483
Total Capital to Risk Weighted Assets, Minimum Capital Requirement, Amount	$ 37,603	$ 38,910
Total Capital to Risk Weighted Assets, Minimum Capital Requirement, Ratio	0.0800	0.080
Total Capital to Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 47,028	$ 48,637
Total Capital to Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.1000	0.100
Tier 1 Capital Risk Weighted Assets, Actual, Amount	$ 71,241	$ 66,741
Tier 1 Capital Risk Weighted Assets, Actual, Ratio	0.1516	0.1372
Tier 1 Capital Risk Weighted Assets, Minimum Capital Requirement, Amount	$ 28,202	$ 29,182
Tier 1 Capital Risk Weighted Assets, Minimum Capital Requirement, Ratio	0.0600	0.060
Tier 1 Capital Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 37,603	$ 38,910
Tier 1 Capital Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0800	0.080
Tier 1 Capital to Average Assets, Actual, Amount	$ 71,241	$ 66,741
Tier 1 Capital to Average Assets, Actual, Ratio	0.0949	0.0943
Tier 1 Capital to Average Assets, Minimum Capital Requirement, Amount	$ 29,989	$ 28,313
Tier 1 Capital to Average Assets, Minimum Capital Requirement, Ratio	0.0400	0.040
Tier 1 Capital to Average Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 37,545	$ 35,391
Tier 1 Capital to Average Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0500	0.050
Common Equity Tier 1 Capital to Risk Weighted Assets, Actual, Amount	$ 71,241	$ 66,741
Common Equity Tier 1 Capital to Risk Weighted Assets, Actual, Ratio	0.1516	0.1372
Common Equity Tier 1 Capital to Risk Weighted Assets, Minimum Capital Requirement, Amount	$ 30,036	$ 21,887
Common Equity Tier 1 Capital to Risk Weighted Assets, Minimum Capital Requirement, Ratio	0.0450	0.045
Common Equity Tier 1 Capital to Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 30,552	$ 31,614
Common Equity Tier 1 Capital to Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0650	0.065

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FAIR VALUES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Fair Value, Inputs, Level 2 [Member]
Impaired loans	$ 48,406	$ 50,649
Fair Value, Inputs, Level 3 [Member]
Other real estate owned	3,334	3,393
Impaired loans	7,364	8,645
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | U.S. Government Agencies [Member]
Available for sale investments	14,107	15,633
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Taxable Municipals
Available for sale investments	5,345	4,442
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate Bonds
Available for sale investments	6,048	5,523
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage Backed Securities [Member]
Available for sale investments	22,906	25,051
Commercial [Member] | Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Impaired loans	25	214
Commercial [Member] | Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate [Member]
Impaired loans	1,377	2,709
Construction and Land Development [Member] | Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate [Member]
Impaired loans	99	70
Residential 1-4 Family [Member] | Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate [Member]
Impaired loans	1,927	25
Multifamily [Member] | Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate [Member]
Impaired loans
Farmland [Member] | Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate [Member]
Impaired loans	25	985
Agriculture [Member] | Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Impaired loans
Commercial [Member] | Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Impaired loans	$ 5

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FAIR VALUES (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Impaired Loans [Member]
Fair Value	$ 4,030	$ 5,252
Valuation Technique	Appraised Value/Discounted Cash Flows/Market Value of Note
Significant Unobservable Inputs	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell
Other Real Estate Owned [Member]
Fair Value	$ 3,334	$ 3,393
Valuation Technique	Appraised Value/Comparable Sales/Other Estimates from Independent Sources
Significant Unobservable Inputs	Discounts to reflect current market conditions and estimated costs to sell
Minimum [Member] | Impaired Loans [Member]
General Range of Significant Unobservable Input Values	0.00%
Minimum [Member] | Other Real Estate Owned [Member]
General Range of Significant Unobservable Input Values	0.00%
Maximum [Member] | Impaired Loans [Member]
General Range of Significant Unobservable Input Values	18.00%
Maximum [Member] | Other Real Estate Owned [Member]
General Range of Significant Unobservable Input Values	18.00%

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FAIR VALUES (Details 2) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Net Loans	$ 568,375	$ 557,176
Time deposits	234,449
Fair Value, Inputs, Level 2 [Member]
Net Loans	560,634	545,243
Time deposits	237,768	259,325
FHLB advances	16,788	18,503
Fair Value, Inputs, Level 3 [Member]
Net Loans	4,030	5,252
Time deposits
FHLB advances
Reported Value Measurement [Member]
Net Loans	568,375	557,176
Time deposits	234,449	257,406
FHLB advances	21,496	5,000
Estimate of Fair Value Measurement [Member]
Net Loans	564,664	550,495
Time deposits	237,768	259,325
FHLB advances	$ 16,788	$ 18,503

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REVENUE FROM CONTRACTS WITH CUSTOMERS (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Revenue from Contract with Customer [Abstract]
Service charges and fees									$ 3,217	$ 3,605
Card Processing and interchange income									3,314	3,014
Insurance and investment fees									716	663
Gains on sales of available-for-sale securities									4
Gain on sale and leaseback transactions									4
Other noninterest income									896	567
Total Noninterest Income	$ 2,234	$ 2,116	$ 1,628	$ 2,165	$ 2,051	$ 2,855	$ 1,969	$ 1,777	$ 8,147	$ 8,652

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NONINTEREST EXPENSES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Noninterest Expenses
Advertising, sponsorships and donations	$ 216	$ 315
ATM network expense	1,476	1,832
Legal and professional fees	839	872
Consulting fees	504	829
Loan related expenses	353	581
Printing and supplies	141	146
FDIC insurance premiums	393	222
Other real estate owned expenses, net	307	635
Other operating expenses	2,507	2,404
Total	$ 6,736	$ 7,836

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PARENT CORPORATION ONLY FINANCIAL STATEMENTS (Details) - USD ($) $ / shares in Units, $ in Thousands	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
ASSETS
Due from banks	$ 16,023				$ 13,998
Other assets	10,317				10,238
LIABILITIES
Accrued interest payable	436				694
Accrued expenses and other liabilities	2,742				2,269
Total Liabilities	698,125				651,771
STOCKHOLDERS' EQUITY
Common stock - $2.00 par value, 50,000,000 shares authorized; 23,922,086 shares issued and outstanding at both December 31, 2020 and 2019	47,844				47,844
Retained deficit	(4,979)				(7,869)
Accumulated other comprehensive income (loss)	742				57
Total Stockholders' Equity	58,177	$ 56,919	$ 55,473	$ 55,251	54,602	$ 54,206	$ 53,179	$ 52,026	$ 51,250
Total Liabilities and Stockholders' Equity	$ 756,302				$ 706,373
Common stock, par value (in dollars per share)	$ 2.00				$ 2.00
Common stock, authorized	50,000,000				50,000,000
Common stock, issued	23,922,086				23,922,086
Common stock, outstanding	23,922,086				23,922,086
Parent Company [Member]
ASSETS
Due from banks	$ 215				$ 209
Investment in subsidiaries	72,990				69,463
Other assets	1,669				1,737
Total Assets	74,874				71,409
LIABILITIES
Accrued interest payable	109				182
Accrued expenses and other liabilities	92				129
Trust preferred securities	16,496				16,496
Total Liabilities	16,697				16,807
STOCKHOLDERS' EQUITY
Common stock - $2.00 par value, 50,000,000 shares authorized; 23,922,086 shares issued and outstanding at both December 31, 2020 and 2019	47,844				47,844
Additional paid capital	14,570				14,570
Retained deficit	(4,979)				(7,869)
Accumulated other comprehensive income (loss)	742				57
Total Stockholders' Equity	58,177				54,602
Total Liabilities and Stockholders' Equity	$ 74,874				$ 71,409
Common stock, par value (in dollars per share)	$ 2.00				$ 2.00
Common stock, authorized	50,000,000				50,000,000
Common stock, issued	23,922,086				23,922,086
Common stock, outstanding	23,922,086				23,922,086

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PARENT CORPORATION ONLY FINANCIAL STATEMENTS (Details 1) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Expenses
Professional fees									$ 504	$ 829
Other operating expenses									6,736	7,836
Total Expenses	$ 6,272	$ 6,282	$ 7,192	$ 7,251	$ 7,006	$ 7,079	$ 7,684	$ 7,228	26,997	28,997
Income before Income Taxes									3,993	2,581
Income Tax Benefit									1,103	522
Net Income	$ 1,391	$ 1,424	$ 29	$ 46	$ 432	$ 876	$ 345	$ 406	2,890	2,059
Parent Company [Member]
Income
Miscellaneous income									16	26
Dividends from subsidiaries									610	760
Undistributed income of subsidiaries									2,842	2,076
Total income									3,468	2,862
Expenses
Trust preferred securities interest expense									541	796
Professional fees									114	154
Other operating expenses									19	60
Total Expenses									674	1,010
Income before Income Taxes									2,794	1,852
Income Tax Benefit									(96)	(207)
Net Income									$ 2,890	$ 2,059

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PARENT CORPORATION ONLY FINANCIAL STATEMENTS (Details 2) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Cash Flows From Operating Activities
Net income	$ 1,391	$ 1,424	$ 29	$ 46	$ 432	$ 876	$ 345	$ 406	$ 2,890	$ 2,059
Adjustments to reconcile net income to net cash used in operating activities:
Net decrease (increase) in other assets									77	265
Net Cash Provided by Operating Activities									8,574	11,548
Net increase (decrease) in cash and cash equivalents									42,203	21,974
Cash and Cash Equivalents, Beginning of the Year				50,147				28,173	50,147	28,173
Cash and Cash Equivalents, End of the Year	92,350				50,147				92,350	50,147
Supplemental Disclosure of Cash Paid During the Year for:
Interest									5,151	5,872
Taxes									(166)	(34)
Parent Company [Member]
Cash Flows From Operating Activities
Net income									2,890	2,059
Adjustments to reconcile net income to net cash used in operating activities:
Equity in undistributed earnings of subsidiaries									(2,842)	(2,076)
Net decrease (increase) in other assets									67	(173)
Net (decrease) increase in other liabilities									(109)	38
Net Cash Provided by Operating Activities									6	(152)
Net increase (decrease) in cash and cash equivalents									6	(152)
Cash and Cash Equivalents, Beginning of the Year				$ 209				$ 361	209	361
Cash and Cash Equivalents, End of the Year	$ 215				$ 209				215	209
Supplemental Disclosure of Cash Paid During the Year for:
Interest									614	811
Taxes									$ (166)	$ (34)

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SELECTED QUARTERLY INFORMATION (UNAUDITED) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Income statement
Net interest income	$ 6,447	$ 6,414	$ 6,140	$ 6,142	$ 6,252	$ 6,347	$ 6,282	$ 6,095	$ 25,143	$ 24,976
Provision for loan losses	300	450	550	1,000	760	1,020	135	135	2,300	2,050
Noninterest income	2,234	2,116	1,628	2,165	2,051	2,855	1,969	1,777	8,147	8,652
Noninterest expense	6,272	6,282	7,192	7,251	7,006	7,079	7,684	7,228	26,997	28,997
NET INCOME	$ 1,391	$ 1,424	$ 29	$ 46	$ 432	$ 876	$ 345	$ 406	$ 2,890	$ 2,059
Earnings (loss) per share, basic and diluted	$ 0.06	$ 0.06	$ 0.00	$ 0.00	$ 0.02	$ 0.04	$ 0.01	$ 0.02	$ 0.12	$ 0.09
Period end balance sheet
Loans receivable	$ 575,566	$ 585,122	$ 587,566	$ 560,468	$ 562,544	$ 558,174	$ 551,131	$ 553,585	$ 575,566	$ 562,544
Total assets	756,302	749,125	754,651	715,144	706,373	706,939	701,952	721,868	756,302	706,373
Total deposits	668,012	661,672	668,404	629,525	621,477	621,603	619,313	638,409	668,012	621,477
Total stockholders' equity	$ 58,177	$ 56,919	$ 55,473	$ 55,251	$ 54,602	$ 54,206	$ 53,179	$ 52,026	$ 58,177	$ 54,602	$ 51,250