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, 2025

000-27205

(Commission File No.)

Peoples Bancorp of North Carolina, Inc.
(Exact Name of Registrant as Specified in Its Charter)
North Carolina	56-2132396
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(State or Other Jurisdiction of Incorporation)	(IRS Employer Identification No.)
518 West C Street, Newton, North Carolina	28658
(Address of Principal Executive Offices)	(Zip Code)
(828) 464-5620
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(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value
(title of class)

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 and post 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) ☐

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

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

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

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.  $133,583,528.57 based on the closing price of such common stock on June 30, 2025, which was $28.85 per share.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 5,461,490 shares of common stock, outstanding at February 28, 2026.

Auditor firm ID 686

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report of Peoples Bancorp of North Carolina, Inc. (the “Company”) for the year ended December 31, 2025 (the “Annual Report”), which will be included as Appendix A to the Company’s Proxy Statement for the 2026 Annual Meeting of Shareholders to be held on May 7, 2026 (the “Proxy Statement”), are incorporated by reference into Part II and filed as Exhibit 13 to this Form 10-K.

Portions of the Company’s Proxy Statement to be filed pursuant to Regulation 14A, are incorporated by reference into Part III.  The Proxy Statement will be filed on or before April 30, 2026.

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

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PEOPLES BANCORP OF NORTH CAROLINA, INC.
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FORM 10-K CROSS REFERENCE INDEX
	10-K	Proxy Statement and Annual Report
	Page	Page
PART I
Item 1 - Business	4 - 13	N/A
Item 1A - Risk Factors	14 - 24	N/A
Item 1B - Unresolved Staff Comments	25	N/A
Item 1C - Cybersecurity	25	N/A
Item 2 - Properties	26	N/A
Item 3 - Legal Proceedings	27	N/A
Item 4 - Mine Safety Disclosures	27	N/A
PART II
Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28	N/A
Item 6 - Reserved	29	A-3
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	30	A-4 - A-20
Item 7A - Quantitative and Qualitative Disclosures About Market Risk	30	N/A
Item 8 - Financial Statements and Supplementary Data	30	A-20 - A-62
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30	N/A
Item 9A - Controls and Procedures	30	N/A
Item 9B - Other Information	31	N/A
Item 9C - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	31	N/A
PART III
Item 10 - Directors and Executive Officers and Corporate Governance	32	15 and A-63
Item 11 - Executive Compensation	32	19 - 28
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	32	6 - 8
Item 13 - Certain Relationships and Related Transactions and Director Independence	32	7, 8 and 30
Item 14 - Principal Accountant Fees and Services	32	32
PART IV
Item 15 - Exhibits and Financial Statement Schedules	33 - 35	N/A
Signatures	36	N/A
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Table of Contents

PART I

ITEM 1. BUSINESS

General Business

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

The Bank, founded in 1912, is a state-chartered commercial bank serving the citizens and business interests of the Catawba Valley and surrounding communities through 15 banking offices, located in Lincolnton, Newton, Denver, Catawba, Conover, Maiden, Claremont, Hiddenite, Hickory, Charlotte, Huntersville and Mooresville, North Carolina. The Bank also operates loan production offices in Charlotte, Denver, Salisbury and Winston-Salem, North Carolina. The Company’s fiscal year ends December 31. At December 31, 2025, the Company had total assets of $1.70 billion, net loans of $1.20 billion, deposits of $1.51 billion, total securities of $380.0 million, and shareholders’ equity of $157.1 million.

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

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

At December 31, 2025, the Company employed 268 full-time employees and eight part-time employees, which equated to 273 full-time equivalent employees.

Subsidiaries

The Bank is a subsidiary of the Company.  At December 31, 2025, the Bank had four subsidiaries, Peoples Investment Services, Inc., Real Estate Advisory Services, Inc., Community Bank Real Estate Solutions, LLC (“CBRES”) and PB Real Estate Holdings, LLC.  Through a relationship with Raymond James Financial Services, Inc., Peoples Investment Services, Inc. provides the Bank’s customers access to investment counseling and non-deposit investment products such as stocks, bonds, mutual funds, tax deferred annuities, and related brokerage services. Real Estate Advisory Services, Inc. provides real estate appraisal and real estate brokerage services.  CBRES serves as a “clearing-house” for appraisal services for community banks.  Other banks are able to contract with CBRES to find and engage appropriate appraisal companies.   As a separate legal entity, CBRES’s services and the appraisal process are conducted independent from the financing process of the Bank.  PB Real Estate Holdings, LLC acquires, manages and disposes of real property, other collateral and assets obtained in the ordinary course of collecting debts previously contracted.  All of the Bank’s subsidiaries are incorporated in the state of North Carolina.

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

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Market Area and Competition

The Bank’s primary market consists of the communities in an approximate 50-mile radius around its headquarters office in Newton, North Carolina.  This area includes Catawba County, Alexander County, Lincoln County, Iredell County and portions of northeast Gaston County, North Carolina.  The Bank also conducts a portion of its business outside of this area.  The Bank is located only 40 miles north of Charlotte, North Carolina, and the Bank’s primary market area is and will continue to be significantly affected by its close proximity to this major metropolitan area.

Employment in the Bank’s primary market area is diversified among manufacturing, retail and wholesale trade, technology, services and utilities.  Catawba County’s largest employers include Catawba County Schools, Catawba Valley Medical Center, Duke LifePoint/Frye Regional Medical Center, CommScope, Inc. (manufacturer of fiber optic cable and accessories), Corning Optical Communications (manufacturer of fiber optic cable and accessories), Target Stores Distribution Center (transportation and warehousing), Catawba County, GKN ePowertrain (manufacturing), Wal-Mart Associates, Inc. and Pierre Foods, Inc.  Lincoln County’s largest employers include Lincoln County Schools, County of Lincoln, Atrium Health, Lincoln Charter Schools, Inc., American Woodmark - RSI Home Products (manufacturing), Wal-Mart Associates, Inc., The Timken Company (manufacturing), Blum, Inc. (manufacturing), Lowes Home Centers, Inc. and Cataler North America (manufacturing).

The Bank has operated in the Catawba Valley region of North Carolina for over 110 years and is the only financial institution headquartered in Newton, North Carolina.  Nevertheless, the Bank faces strong competition both in attracting deposits and making loans. Direct competition for deposits has historically come from other commercial banks, credit unions and brokerage firms located in its primary market area, including large financial institutions.  One national money center commercial bank is headquartered in Charlotte, North Carolina.  Based upon June 30, 2025 comparative data, the Bank had 23.54% of the deposits in Catawba County, placing it first in deposit size among a total of 11 banks with branch offices in Catawba County; 15.24% of the deposits in Lincoln County, placing it third in deposit size among a total of 10 banks with branch offices in Lincoln County; and 15.92% of the deposits in Alexander County, placing it third in deposit size among a total of four banks with branch offices in Alexander County.

The Bank also faces additional significant competition for investors’ funds from short-term money market securities and other corporate and government securities.  The Bank’s core deposit base has grown principally due to economic growth in the Bank’s market area coupled with the implementation of new and competitive deposit products. The ability of the Bank to attract and retain deposits depends on its ability to generally provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities.

The Bank experiences strong competition for loans from commercial banks and mortgage banking companies.  The Bank competes for loans primarily through the interest rates and loan fees it charges and the efficiency and quality of services it provides to borrowers.  Competition is increasing as a result of the continuing reduction of restrictions on the interstate operations of financial institutions.

Lending Policies and Procedures

Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors of the Bank (the “Bank Board”). The loan approval process is intended to assess the borrower’s ability to repay the loan and the value of the collateral that will secure the loan. To assess the borrower’s ability to repay, we review the borrower’s employment, credit history, and other information on the historical and projected income and expenses of the borrower.

The objectives of our lending program are to: (i) establish a sound asset structure; (ii) provide a sound and profitable loan portfolio to (a) protect the depositor’s funds and (b) maximize our shareholders’ return on investment; (iii) promote the stable economic growth and development of the market area served by the Bank; and (iv) comply with all regulatory agency requirements and applicable law.

The Bank’s legal lending limit is set by law and is monitored by the FDIC and the Commissioner. As of December 31, 2025, the Bank’s legal lending limit was $31.4 million (absent fully marketable collateral) or $52.3 million (when fully secured by readily marketable collateral), and the largest credit relationship was $24.4 million. The underwriting standards and loan origination procedures include officer lending limits, which are approved by the Bank Board. The Executive Loan Committee of the Bank has loan authority of up to the legal lending limit of the Bank. As of December 31, 2025, the individual lending authority of the Chief Credit Officer/Executive Vice President was set at $8.0 million.

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It is the policy of the Bank to ensure that the Bank Board is fully apprised of the status and critical factors affecting the quality and performance of the loan portfolio. These factors include, but are not limited to: (i) credit underwriting policies and procedures; (ii) results of loan reviews and loan audits; and, (iii) credit concentrations (single borrowers and specific industries).

Management provides the Bank Board with the loan portfolio information as described below:

Monthly:

The following reports are submitted to the Bank Board for review and approval on a monthly basis:

·	Loan Quality/Yield/Growth/Trend Report
·	Risk Grade Report with Details of Loans Risk Graded 5-8
·	Commercial Loan Delinquency
·	New Loans - $250,000 and Greater
·	Comparison of New Loans in Prior Month with Same Month in Prior Year
·	Outstanding Commitments - $500,000 and Greater
·	Commitment Pipeline Report – outstanding commitments of $2,000,000 and greater (pending final approval and/or acceptance by the applicant)
·	Underwriting Exception Report (Commercial, Consumer and Mortgage)
·	Documentation Exception Report (Commercial and Consumer – quarterly comparison with current month)
·	All New Loans for Prior Month – Details

Quarterly:

The following reports are submitted to the Bank Board for review and approval on a quarterly basis:

·	Real Estate Secured Loans with Non-Conforming Loan-To-Value Ratio
·	Status of Other Real Estate Owned
·	Nonaccrual
·	Impaired Loan Report
·	Letters of Credit Outstanding
·	Portfolio Status Report - Detailed analytical report summarizing the composition of the Bank's loan portfolio
·	Portfolio Stress Tests
·	Matured Home Equity Loan Report

Semi-annually:

The following report is submitted to the Bank Board for review and approval on a semi-annual basis:

·	Participation Status Report

Annually:

On an annual basis, the Bank Board:

·	Reviews and approves the Bank’s credit underwriting policies and procedures
·	Reviews findings of the annual independent loan review of borrowing relationships of $1.5 million and greater as well as a periodic sample of commercial relationships with exposures below $1.5 million prepared by an independent loan review company engaged by the Bank
·	Receives information from management detailing all new committed borrowing relationships exceeding $3.0 million and is informed during the year if a borrowing relationship exceeds $2.5 million
·	Mortgage Report

Investment Policies and Procedures

The Bank’s investment policy is designed to provide flexibility as necessary to maintain satisfactory liquidity while maximizing earnings on funds available for investment. The Bank maintains an investment portfolio of high-quality investment securities that is managed in a manner consistent with safe and sound banking practices. The characteristics and financial goals of the investment portfolio are complementary to the Bank’s broader business strategies and congruent with the Bank’s capital policies, technical expertise, and risk tolerances.

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The Bank’s specific investment objectives are as follows:

A. Provide Earnings – Maximize the total return on invested funds in a manner that is consistent with the Bank’s overall financial goals and risk considerations. This objective is fulfilled by investing in, holding, and divesting from individual securities that, when considered in combination, contribute to a superior risk/reward for the total portfolio.

B. Provide Liquidity – Remain sufficiently liquid to meet anticipated funding demands either through declines in deposits and/or increases in loan demand. The Bank makes investments that are marketable and capable of being converted to cash at their market values in a relatively short period of time.

C. Mitigate Interest Rate Risk – Utilize portfolio strategies to assist the Bank in managing its overall interest rate sensitivity position in accordance with the goals and objectives approved by the Asset/Liability Management Committee (“ALCO”) of the Bank.

D. Ensure the Safety of Principal –At all times, the safety of principal is a primary consideration. Upon purchase, the Bank’s investments are limited to investment-grade instruments that fully comply with all applicable regulatory guidelines and limitations.

E. Manage Tax Liabilities – Conduct portfolio management in light of the Bank’s current and projected tax position in order to improve overall profitability by reducing the Bank’s tax exposure to its minimum permissible level.

F. Meet Pledging Requirements – Provide collateral for various deposit and funding products such as public funds, trust deposits, repurchase agreements and FHLB borrowings.

The Bank Board reviews and approves the Bank’s Investment Policy annually or more frequently, if appropriate. All investment portfolio activities are reported to the ALCO and the Bank Board. The Bank Board oversees the establishment of appropriate systems and internal controls designed to keep portfolio strategies and holdings consistent with the overall strategies of the Bank.

The Bank Board designates a Primary Investment Officer who is directed to implement the Investment Policy of the Bank in a safe and sound manner. The Primary Investment Officer of the Bank is charged with the responsibility to actively manage the Bank's investment portfolio, in conformity with the preceding objectives and the following approval requirements. Such responsibility includes the purchase and/or disposition of any holding within the investment portfolio up to $8 million and the ability to establish accounts with other depository institutions or investment firms as needed to process investment activity approved under this policy. Any activity over $8 million and less than 20% of the Bank’s capital as defined by accounting principles generally accepted in the United States of America (“GAAP”) must be approved by the ALCO. Transactions exceeding 20% of GAAP capital must be approved by the Bank Board. Also, any sale of securities that will result in a gain of more than $500,000 or a loss before income taxes exceeding the lesser of $250,000 or 2.5% of the current year’s projected net income must be approved by the Bank Board. The Investment Officer may designate certain investment functions to other officers of the Bank and may also seek outside sources for investment advice or periodic appraisals of the portfolio. The Executive Vice President/Chief Financial Officer serves as the Primary Investment Officer.

Human Capital Management

At December 31, 2025, the Company employed 268 full-time employees and eight part-time employees, which equated to 273 full-time equivalent employees. We are not a party to any collective bargaining agreements, and we consider our employee relations to be good.

Oversight of our corporate culture is an important element of our Board of Directors oversight of risk because our people are critical to the success of our corporate strategy. Our Board of Directors sets the “tone at the top,” and holds senior management accountable for embodying, maintaining, and communicating our culture to employees. Our culture is guided by our guiding principles below:

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Our Core Values

-	Employees – We are informed, encouraged, and committed
-	Integrity – We are fair and truthful
-	Exceptional Customer Service – We surpass our customers’ expectation
-	Accountability – We are accountable for our own actions and bank goals
-	Progressive and Positive – We see change as an opportunity
-	Our brand story

Our Bank Promise, Vision, and Mission

We are committed to fostering, cultivating, and preserving a culture of diversity and inclusion. We are working to cultivate our leaders and shape future talent pools to help us meet the needs of our customers now and in the future. Our human capital is the most valuable asset we have. The collective sum of the individual differences, life experiences, knowledge, inventiveness, innovation, self-expression, unique capabilities, and talent that our employees invest in their work represents a significant part of not only our culture but our reputation and our achievement as well. We embrace our employees’ differences in age, color, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, veteran status, and other characteristics that make our employees unique.

By emphasizing a consistent set of principles that all employees follow, we believe that our employees work experience is more satisfying, and they are better able to serve their customers consistently and at a high level.

Our employees are key to our success as an organization. We are committed to attracting, retaining and promoting top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion and physical ability. We strive to identify and select the best candidates for all open positions based on qualifying factors for each job. We are dedicated to providing a workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment; rewarding and recognizing our employees based on their individual results and performance; and recognizing and respecting all of the characteristics and differences that make each of our employees unique.

Employees have annual assignments related to “valuing differences” and diversity training is an integrated part of our leadership training as well.

We also seek to design careers within our organization that are fulfilling ones, with competitive compensation and benefits alongside a positive work-life balance. We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training and development programs.

Supervision and Regulation

Bank holding companies and commercial banks are extensively regulated under both federal and state law.  The following is a brief summary of certain statutes and rules and regulations that affect or will affect the Company, the Bank and their subsidiaries.  This summary is qualified in its entirety by reference to the particular statute and regulatory provisions referred to below and is not intended to be an exhaustive description of the statutes or regulations applicable to the business of the Company, the Bank and their subsidiaries.  Supervision, regulation and examination of the Company and the Bank by the regulatory agencies are intended primarily for the protection of depositors rather than shareholders of the Company.  Statutes, rules and regulations which contain wide-ranging proposals for altering the structures, regulations and competitive relationship of financial institutions are introduced regularly.  The Company cannot predict whether or in what form any proposed statute, rule or regulation will be adopted or the extent to which the business of the Company and the Bank may be affected by such statute or regulation.

General .  There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by law and regulatory policy that are designed to minimize potential loss to depositors  and the FDIC deposit insurance fund in the event a depository institution becomes in danger of default or in default.  For example, to mitigate the risk of failure, bank holding companies are required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” with the terms of the capital restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (i) an amount equal to 5% of the bank’s total assets at the time the bank became undercapitalized or (ii) the amount which is necessary (or would have been necessary) to bring the bank into compliance with all  capital standards as of the time the bank fails to comply with such capital restoration plan. The Company, as a registered bank holding company, is subject to the regulation of the Federal Reserve.  Under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required 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 absent such policy.  The Federal Reserve under the BHCA also has the authority to require a bank holding company to terminate any activity or to relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.

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As a result of the Company’s ownership of the Bank, the Company is also registered under the bank holding company laws of North Carolina.  Accordingly, the Company is also subject to regulation and supervision by the Commissioner.

Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”). On July 21, 2010, the Dodd-Frank Act became law.**** The Dodd-Frank Act has had and will continue to have a broad impact on the financial services industry, including significant regulatory and compliance changes including, among other things,

·	enhanced authority over troubled and failing banks and their holding companies;
·	increased capital and liquidity requirements;
·	increased regulatory examination fees; and
·	specific provisions designed to improve supervision and safety and soundness by imposing restrictions and limitations on the scope and type of banking and financial activities.

In May 2018, the Economic Growth Act, was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets less than $10 billion and for large banks with assets of more than $50 billion.

The Economic Growth Act, among other matters, expanded the definition of qualified mortgages which may be held by a financial institution and provided for an alternative capital rule which financial institutions and their holding companies with total consolidated assets of less than $10 billion may elect to utilize. The Economic Growth Act instructed the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8% and 10%. In addition, the Economic Growth Act included regulatory relief for community banks of certain sizes regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans. We have not opted to utilize the Community Bank Leverage Ratio and have instead continued to use the Basel III standards (see discussion on Basel III standards under the heading “Capital Adequacy” below).

Capital Adequacy . At December 31, 2025, the Bank exceeded each of its minimum capital requirements with a Tier 1 leverage capital ratio of 11.13%, common equity Tier 1 risk-based capital ratio of 14.83%, Tier 1 risk-based capital ratio of 14.83% and total risk-based capital ratio of 15.70%. At December 31, 2025, the Company also exceeded each of its minimum capital requirements with a Tier 1 leverage capital ratio of 11.33%, common equity Tier 1 risk-based capital ratio of 13.83%, Tier 1 risk-based capital ratio of 14.96% and total risk-based capital ratio of 15.82%.

On July 2, 2013, the Federal Reserve approved a final rule that established an integrated regulatory capital framework that addressed shortcomings in certain capital requirements. The rule, which became effective on January 1, 2015, implemented in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The final rule:

·	established a new minimum common equity Tier 1 risk-based capital ratio (common equity Tier 1 capital to total risk-weighted assets) of 4.5% and increased the minimum Tier 1 risk-based capital ratio from 4.0% to 6.0%, while maintaining the minimum total risk-based capital ratio of 8.0% and the minimum Tier 1 leverage capital ratio of 4.0%;
·	revised the rules for calculating risk-weighted assets to enhance their risk sensitivity;
·	phased out trust preferred securities and cumulative perpetual preferred stock as Tier 1 capital;
·	added a requirement to maintain a minimum conservation buffer, composed of common equity Tier 1 capital, of 2.5% of risk-weighted assets, to be applied to the new common equity Tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio and the Total risk-based capital ratio, which means that banking organizations, on a fully phased in basis no later than January 1, 2019, must maintain a minimum common equity Tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5%; and
·	changed the definitions of capital categories for insured depository institutions for purposes of the Federal Deposit Insurance Corporation Improvement Act of 1991 prompt corrective action provisions. Under these revised definitions, to be considered well-capitalized, an insured depository institution must have a Tier 1 leverage capital ratio of at least 5.0%, a common equity Tier 1 risk-based capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0% and a total risk-based capital ratio of at least 10.0%.

The new minimum regulatory capital ratios and changes to the calculation of risk-weighted assets became effective for the Bank and the Company on January 1, 2015. The required minimum conservation buffer was phased in incrementally, starting at 0.625% on January 1, 2016 and increased to 1.25% on January 1, 2017, 1.875% on January 1, 2018, and 2.5% on January 1, 2019.

The final rule established common equity Tier 1 capital as a new capital component. Common equity Tier 1 capital consists of common stock instruments that meet the eligibility criteria in the final rule, retained earnings, accumulated other comprehensive income/loss and common equity Tier 1 minority interest. As a result, Tier 1 capital has two components: common equity Tier 1 capital and additional Tier 1 capital. The final rule also revised the eligibility criteria for inclusion in additional Tier 1 and Tier 2 capital. As a result of these changes, certain non-qualifying capital instruments, including cumulative preferred stock and trust preferred securities, are excluded as a component of Tier 1 capital for institutions of the size of the Company.

The final rule further required that certain items be deducted from common equity Tier 1 capital, including (1) goodwill and other intangible assets, other than mortgage servicing rights, net of deferred tax liabilities (“DTLs”); (2) deferred tax assets that arise from operating losses and tax credit carryforwards, net of valuation allowances and DTLs; (3) after-tax gain-on-sale associated with a securitization exposure; and (4) defined benefit pension fund assets held by a depository institution holding company, net of DTLs. In addition, banking organizations must deduct from common equity Tier 1 capital the amount of certain assets, including mortgage servicing assets, that exceed certain thresholds. The final rule also allows all but the largest banking organizations to make a one-time election not to recognize unrealized gains and losses on available for sale debt securities in regulatory capital, as under prior capital rules.

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The final rule provided that the failure to maintain the minimum conservation buffer will result in restrictions on capital distributions and discretionary cash bonus payments to executive officers. If a banking organization’s conservation buffer is less than 0.625%, the banking organization may not make any capital distributions or discretionary cash bonus payments to executive officers. If the conservation buffer is greater than 0.625% but not greater than 1.25%, capital distributions and discretionary cash bonus payments are limited to 20% of net income for the four calendar quarters preceding the applicable calendar quarter (net of any such capital distributions), or eligible retained income. If the conservation buffer is greater than 1.25% but not greater than 1.875%, the limit is 40% of eligible retained income, and if the conservation buffer is greater than 1.875% but not greater than 2.5%, the limit is 60% of eligible retained income. The preceding thresholds for the conservation buffer and related restrictions represent the fully phased in rules, effective January 1, 2019.

Dividend and Repurchase Limitations . Federal regulations provide that the Company must obtain Federal Reserve approval prior to repurchasing its common stock for consideration in excess of 10% of its net worth during any twelve-month period unless the Company (i) both before and after the redemption satisfies capital requirements for a “well capitalized” bank holding company; (ii) received a one or two rating in its last examination; and (iii) is not the subject of any unresolved supervisory issues.

The ability of the Company to pay dividends or repurchase shares is largely dependent upon the Company’s receipt of dividends from the Bank. North Carolina commercial banks, such as the Bank, are subject to legal limitations on the amounts of dividends they are permitted to pay. Also, an insured depository institution, such as the Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is defined in the applicable law and regulations).

Deposit Insurance . As a member of the FDIC, our deposits are insured up to applicable limits by the FDIC, and such insurance is backed by the full faith and credit of the United States Government. The basic deposit insurance level is generally $250,000, as specified in FDIC regulations. For this protection, each insured bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC.

We recognized approximately $776,000 and $764,000 in FDIC insurance expense in 2025 and 2024, respectively.

The FDIC may conduct examinations of and require reporting by FDIC-insured institutions. It may also prohibit an institution from engaging in any activity that it determines by regulation or order to pose a serious risk to the deposit insurance fund and may terminate the Bank’s deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

Federal Home Loan Bank System . The Federal Home Loan Bank (“FHLB”) system provides a central credit facility for member institutions. As a member of the FHLB of Atlanta, the Bank is required to own capital stock in the FHLB of Atlanta in an amount at least equal to 0.20% (or 20 basis points) of the Bank’s total assets at the end of each calendar year, plus 4.25% of its outstanding advances (borrowings) from the FHLB of Atlanta under the new activity-based stock ownership requirement. On December 31, 2025, the Bank was in compliance with this requirement.

Community Reinvestment. Under the Community Reinvestment Act (“CRA”), as implemented by regulations of the FDIC, an insured institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop, consistent with the CRA, the types of products and services that it believes are best suited to its particular community. The CRA requires the federal banking regulators, in connection with their examinations of insured institutions, to assess the institutions’ records of meeting the credit needs of their communities, using the ratings of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance,” and to take that record into account in its evaluation of certain applications by those institutions. All institutions are required to make public disclosure of their CRA performance ratings. The Bank received a “satisfactory” rating in its last CRA examination, which was conducted in May 2023.

In October 2023, the Federal Reserve, FDIC, and OCC issued a final rule to amend their regulations implementing the CRA. In July 2025, the federal banking agencies issued a joint Notice of Proposed Rulemaking, which, if finalized, would rescind the 2023 final rule and reinstate the CRA framework that existed prior to the issuance of that rule. Implementation of the October 2023 final rule, which was subject to an injunction and has not taken effect, would have materially changed the CRA framework, including imposing additional costs and changing how CRA performance would be assessed.

Changes in Control. The BHCA prohibits the Company from acquiring direct or indirect control of more than 5% of the outstanding voting stock or substantially all of the assets of any bank or savings bank or merging or consolidating with another bank or financial holding company or savings bank holding company without prior approval of the Federal Reserve. Similarly, Federal Reserve approval (or, in certain cases, non‑objection) must be obtained prior to any person acquiring control of the Company. Control is deemed to exist if, among other things, a person acquires 25% or more of any class of voting stock of the Company or controls in any manner the election of a majority of the directors of the Company.

Federal Securities Law*.* The Company has registered its common stock with the Securities and Exchange Commission (“SEC”) pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”). As a result of such registration, the proxy and tender offer rules, insider trading reporting requirements, annual and periodic reporting and other requirements of the Exchange Act are applicable to the Company. In addition, the SEC and Nasdaq have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd Frank Act that apply to the Company as a Nasdaq-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings.

Transactions with Affiliates. Under current federal law, depository institutions are subject to the restrictions and limitations contained in Section 22(h) of the Federal Reserve Act with respect to loans to directors, executive officers and principal shareholders. In addition to limitations on the dollar value of loans to directors, executive officers and principal shareholders, pursuant to Section 22(h), the Federal Reserve requires that loans to directors, executive officers, and principal shareholders be made on terms substantially the same as offered in comparable transactions with non-executive employees of the Bank. The FDIC has imposed additional limits on the amount a bank can loan to an executive officer.

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Loans to One Borrower. The Bank is subject to the loans-to-one-borrower limits established by North Carolina law, which are substantially the same as those applicable to national banks. Under these limits, no loans and extensions of credit to any borrower outstanding at one time and not fully secured by readily marketable collateral may exceed 15% of the Bank’s total equity capital. At December 31, 2025, this limit was $31.4 million. This limit is increased by an additional 10% of the Bank’s total equity capital, or $52.3 million as of December 31, 2025, for loans and extensions of credit that are fully secured by readily marketable collateral.

Anti-Money Laundering and the USA Patriot Act. A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (the "USA Patriot Act""), substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must use enhanced due diligence procedures in their dealings with certain types of high-risk customers and implement a written customer identification program. Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions. Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.

Interstate Banking and Branching. The BHCA was amended by the Interstate Banking Act. The Interstate Banking Act provides that adequately capitalized and managed financial and bank holding companies are permitted to acquire banks in any state. State law prohibiting interstate banking or discriminating against out-of-state banks is preempted. States are not permitted to enact laws opting out of this provision; however, states are allowed to adopt a minimum age restriction requiring that target banks located within the state be in existence for a period of years, up to a maximum of five years, before a bank may be subject to the Interstate Banking Act. The Interstate Banking Act, as amended by the Dodd-Frank Act, establishes deposit caps which prohibit acquisitions that result in the acquiring company controlling 30% or more of the deposits of insured banks and thrift institutions held in the state in which the target maintains a branch or 10% or more of the deposits nationwide. States have the authority to waive the 30% deposit cap. State-level deposit caps are not preempted as long as they do not discriminate against out-of-state companies, and the federal deposit caps apply only to initial entry acquisitions.

Limits on Rates Paid on Deposits and Brokered Deposits. FDIC regulations limit the ability of insured depository institutions to accept, renew or roll-over deposits by offering rates of interest which are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions having the same type of charter in such depository institution’s normal market area. Under these regulations, “well capitalized” depository institutions may accept, renew or roll-over such deposits without restriction, “adequately capitalized” depository institutions may accept, renew or roll-over such deposits with a waiver from the FDIC (subject to certain restrictions on payments of rates) and “undercapitalized” depository institutions may not accept, renew, or roll-over such deposits. Definitions of “well capitalized,” “adequately capitalized” and “undercapitalized” are the same as the definitions adopted by federal banking agencies to implement the prompt corrective action provisions discussed above.

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Current Expected Credit Loss Accounting Standard. The Company accounts for credit losses in accordance with the Current Expected Credit Loss model (or "CECL") as prescribed by the Financial Accounting Standards Board ("FASB"). CECL requires companies to recognize credit losses expected over the life of certain financial assets. The Company adopted CECL as of January 1, 2023. Since the adoption of CECL, the allowance for credit losses represents management’s estimate of credit losses for the remaining estimated life of the Bank’s financial assets, including loan receivables and some off-balance sheet credit exposures. Estimating the amount of the allowance for credit losses requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet. Loan losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

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

Financial Privacy and Cybersecurity. The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.

Under various policy statements, 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. Additionally, 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. The Company has multiple information security programs that reflect the requirements of this guidance. If, however, we fail to observe the regulatory guidance in the future, we could be subject to various regulatory sanctions, including financial penalties.

In November 2021, the federal banking regulators adopted a regulation that, among other things, requires a banking organization to notify its primary federal regulators as soon as possible and within 36 hours after identifying a “computer-security incident” that the banking organization believes in good faith is reasonably likely to materially disrupt or degrade its business or operations in a manner that would, among other things, jeopardize the viability of its operations, result in customers being unable to access their deposit and other accounts, result in a material loss of revenue, profit or stock price, or pose a threat to the financial stability of the U.S.

In July 2023, the SEC adopted new cybersecurity disclosure rules for public companies that require disclosure regarding cybersecurity risk management (including the role of the Board in overseeing cybersecurity risks, management’s role and expertise in assessing and managing cybersecurity risks, and processes for assessing, identifying and managing cybersecurity risks) in annual reports. These new cybersecurity disclosure rules also require the disclosure of material cybersecurity incidents in a Form 8-K, generally within four days of determining an incident is material. See Item 1A, “Risk Factors,” and Item 1C, "Cybersecurity," for additional disclosures related to cybersecurity.

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In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages people, processes, and technology to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date we have not detected a significant compromise, the risks of significant data loss or any material financial losses related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats. Additional discussion of our cybersecurity risk management process and strategy are contained in Item 1C. of this Report.

***The Bank Secrecy Act (BSA).***The BSA requires all financial institutions, including banks and securities broker-dealers, to, among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. It includes a variety of recordkeeping and reporting requirements (such as cash and suspicious activity reporting) as well as due diligence/know-your-customer documentation requirements. The Bank has established an anti-money laundering program to comply with the BSA requirements.

The Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002 ("SOX") implements a broad range of corporate governance and accounting measures for public companies (including publicly-held bank holding companies such as the Company) designed to promote honesty and transparency in corporate America and better protect investors from the types of corporate wrongdoings that occurred at Enron and WorldCom, among other companies. SOX's principal provisions, many of which have been implemented through regulations released and policies and rules adopted by the securities exchanges in 2003 and 2004, provide for and include, among other things:

·	The creation of an independent accounting oversight board;
·	Auditor independence provisions which restrict non-audit services that accountants may provide to clients;
·	Additional corporate governance and responsibility measures, including the requirement that the chief executive officer and chief financial officer of a public company certify financial statements;
·	The forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve-month period following initial publication of any financial statements that later require restatement;
·	An increase in the oversight of, and enhancement of certain requirements relating to, audit committees of public companies and how they interact with the public company's independent auditors;
·	Requirements that audit committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer;
·	Requirements that companies disclose whether at least one member of the audit committee is a 'financial expert' (as such term is defined by the SEC), and if not, why not;
·	Expanded disclosure requirements for corporate insiders, including accelerated reporting of stock transactions by insiders and a prohibition on insider trading during certain blackout periods;
·	A prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions, such as the Bank, on non-preferential terms and in compliance with bank regulatory requirements;
·	Disclosure of a code of ethics and filing a Form 8-K in the event of a change or waiver of such code; and
·	A range of enhanced penalties for fraud and other violations.

The Company complies with the provisions of SOX and its underlying regulations. Management believes that such compliance efforts have strengthened the Company's overall corporate governance structure, and does not believe that such compliance has to date had, or will in the future have, a material impact on the Company’s results of operations or financial condition.

Standards for Safety and Soundness.  Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")  the federal bank regulatory agencies have prescribed, by regulation, standards and guidelines for all insured depository institutions and depository institution holding companies relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees and benefits. The compensation standards prohibit employment contracts, compensation or benefit arrangements, stock option plans, fee arrangements or other compensatory arrangements that would provide "excessive" compensation, fees or benefits, or that could lead to material financial loss. In addition, the federal bank regulatory agencies are required by FDICIA to prescribe standards specifying: (i) maximum classified assets to capital ratios; (ii) minimum earnings sufficient to absorb losses without impairing capital; and (iii) to the extent feasible, a minimum ratio of market value to book value for publicly-traded shares of depository institutions and depository institution holding companies.

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Other. Additional regulations require annual examinations of all insured depository institutions by the appropriate federal banking agency and establish operational and managerial, asset quality, earnings and stock valuation standards for insured depository institutions, as well as compensation standards.

The Bank is subject to examination by the FDIC and the Commissioner.  In addition, the Bank is subject to various other state and federal laws and regulations, including state usury laws, laws relating to fiduciaries, consumer credit, equal credit and fair credit reporting laws and laws relating to branch banking.  The Bank, as an insured North Carolina commercial bank, is prohibited from engaging as a principal in activities that are not permitted for national banks, unless (i) the FDIC determines that the activity would pose no significant risk to the appropriate deposit insurance fund and (ii) the Bank is, and continues to be, in compliance with all applicable capital standards.

Future Requirements. Statutes and regulations, which contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions, are introduced regularly.  Neither the Company nor the Bank can predict whether or what form any proposed statute or regulation will be adopted or the extent to which the business of the Company or the Bank may be affected by such statute or regulation.

Available Information

The Company makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports available free of charge on its internet website www.peoplesbanknc.com as soon as reasonably practicable after the reports are electronically filed with the SEC. The Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are also available on its internet website in interactive data format using the eXtensible Business Reporting Language (XBRL), which allows financial statement information to be downloaded directly into spreadsheets, analyzed in a variety of ways using commercial off-the-shelf software and used within investment models in other software formats. The SEC maintains an Internet site that contains reports, proxy information, statements and other information filed by the Company with the SEC electronically. These filings are also accessible on the SEC’s website at https://www.sec.gov.

The Company maintains an internet website at www.peoplesbanknc.com. The Company’s corporate governance policies, including the charters of the Audit and Enterprise Risk, Compensation, and Governance Committees, and the Code of Business Conduct and Ethics may be found on the Company’s website. A written copy of the foregoing corporate governance policies is available upon written request to the Company. Information included on the Company’s website is not incorporated by reference into this Annual Report.

ITEM 1A. RISK FACTORS

The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us and our business. If any of these risks were to materialize, our business, financial condition or results of operations could be materially and adversely affected.

RISK FACTORS RELATED TO OUR BUSINESS

Unfavorable economic conditions could adversely affect our business.

Our business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on our operationsand financial condition. Our banking operations are primarily locally oriented and community-based. Our retail and commercial banking activities are primarily concentrated within the same geographic footprint. Our market is primarily based in the Catawba Valley region of North Carolina and surrounding communities. Adverse economic conditions within our markets could have a material adverse effect on our financial condition, results of operations and cash flows. Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve. Unfavorable changes in unemployment, real estate values, interest rates, inflation and other factors could weaken the economies of the communities we serve. Weakness in any of our market areas could have an adverse impact on our earnings, and consequently our financial condition and capital adequacy.

Inflation can have an adverse impact on our customers and their ability to repay.

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. In recent years, there has been a pronounced rise in inflation and, until recently, the Federal Reserve has responded by raising certain benchmark interest rates in an effort to combat this trend. Our customers may also be affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.

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Recessionary conditions could result in increases in our level of nonperforming loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.

Recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and increased unemployment levels may result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.

We are subject to credit risk and may incur losses if loans are not repaid.

There are inherent risks associated with our lending activities. These risks include, among other things, the impact of changes in interest rates and changes in the economic conditions in the markets where we operate as well as those across the United States and abroad. Increases in interest rates and/or negative economic conditions could adversely impact the ability of borrowers to repay outstanding loans and the value of the collateral securing these loans. We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices. Although we believe that our underwriting criteria are appropriate for the various kinds of loans we make, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for credit losses.

Our loan portfolio includes loans with a higher risk of loss.

We originate commercial real estate loans, commercial loans, construction and land development loans, and residential mortgage loans primarily within our market area.  Commercial real estate, commercial, and construction and land development loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are most susceptible to a risk of loss during a downturn in the business cycle.  These loans also have historically had greater credit risk than other loans for the following reasons:

·	Commercial Real Estate Loans. Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property.
·	Commercial Loans. Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business.
·	Construction and land development loans. The risk of loss is largely dependent on the initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral.
·	Single-family residential loans. Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.

A significant amount of the Bank’s business is concentrated in lending which is secured by property located in the Catawba Valley and surrounding areas.

In addition to the financial strength and cash flow characteristics of the borrower in each case, the Bank often secures its loans with real estate collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If the Bank is required to liquidate the collateral securing a loan during a period of reduced real estate values to satisfy the debt, the Bank’s earnings and capital could be adversely affected.

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Additionally, with most of the Bank’s loans concentrated in the Catawba Valley and surrounding areas, a decline in local economic conditions could adversely affect the values of the Bank’s real estate collateral. Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.

Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.

In considering whether to make a loan secured by real property, we typically require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made. If the appraisal does not reflect the amount that may be obtained upon any sale or foreclosure of the property, we may not realize an amount equal to the indebtedness secured by the property.

Our allowance for credit losses may be insufficient and could therefore reduce earnings.

The risk of credit losses on loans varies with, among other things, general economic conditions, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for credit losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Management believes it has established the allowance in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and in consideration of the current economic environment. Although management uses the best information available to make evaluations, significant future additions to the allowance may be necessary based on changes in economic and other conditions, thus adversely affecting the operating results of the Company. If management’s assumptions and judgments prove to be incorrect and the allowance for credit losses is inadequate to absorb future losses, or if the bank regulatory authorities require the Bank to increase the allowance for credit losses as a part of their examination process, the Bank’s earnings and capital could be significantly and adversely affected.  For further discussion related to our process for determining the appropriate level of the allowance for credit losses, see “Allowance for Credit Losses” within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results and Operation” of the Annual Report, which is included in this Form 10-K as Exhibit (13).

If our non-performing assets increase, our earnings will suffer.

Our non-performing assets adversely affect our net income in various ways.  We do not record interest income on non-accrual loans or real estate owned.  We must reserve for probable losses, which is established through a current period charge to the provision for loan losses as well as from time to time, as appropriate, the write down of the value of properties in our other real estate owned portfolio to reflect changing market values.  Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related to our other real estate owned.  Further, the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity.  Finally, if our estimate for the recorded allowance for credit losses proves to be incorrect and our allowance is inadequate, we will have to increase the allowance accordingly.

Changes in interest rates affect profitability and assets.

Changes in prevailing interest rates may hurt the Bank’s business. The Bank derives its income primarily from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more the Bank earns. When market rates of interest change, the interest the Bank receives on its assets and the interest the Bank pays on its liabilities will fluctuate. This can cause decreases in the “spread” and can adversely affect the Bank’s income. Changes in market interest rates could reduce the value of the Bank’s financial assets. Fixed-rate investments, mortgage-backed and related securities and mortgage loans generally decrease in value as interest rates rise. In addition, interest rates affect how much money the Bank lends. For example, when interest rates rise, the cost of borrowing increases and the loan originations tend to decrease. If the Bank is unsuccessful in managing the effects of changes in interest rates, the financial condition and results of operations could suffer.

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A small number of large deposit relationships provide a significant level of funding for the Bank.

The Bank’s two largest deposit relationships, amounted to $122.7 million at December 31, 2025.  These balances represent 8.13% of total deposits at December 31, 2025.  Withdrawals of deposits by any one of our largest depositors could force us to rely more heavily on borrowings and other sources of funding for our business and withdrawal demands, adversely affecting our net interest margin and results of operations.  We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources.  Consequently, the occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition and future prospects.

We may not be able to retain or grow our deposit base, which could adversely impact our funding costs.

Like many financial institutions, the Bank relies on customer deposits as its primary source of funding for its lending activities, and the Bank continues to seek customer deposits to maintain this funding base. The Bank’s future growth will largely depend on its ability to retain and grow its deposit base. As of December 31, 2025, the Bank had $1.51 billion in deposits. The Bank’s deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors outside of its control, such as increasing competitive pressures for deposits, changes in interest rates and returns on other investment classes, customer perceptions of its financial health and general reputation, and a loss of confidence by customers in the Bank or the banking sector generally, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits. The availability of deposits can also be impacted by regulatory changes (e.g., changes in FDIC insurance, the liquidity coverage ratio, etc.), changes in the financial condition of the Bank, or the banking industry in general, and other events which can impact the perceived safety and soundness or economic benefits of bank deposits. Any loss by the Bank of its deposit base could limit its lending ability resulting in lower loan originations, which could have a material adverse effect on the Bank’s business, financial condition and results of operations.

Increases in FDIC insurance premiums may adversely affect our net income and profitability.

The Company is generally unable to control the amount of premiums that the Bank is required to pay for FDIC insurance. If there are bank or financial institution failures that exceed the FDIC’s expectations, the Bank may be required to pay higher FDIC premiums than those currently in force. Any future increases or required prepayments of FDIC insurance premiums may adversely impact the Company’s earnings and financial condition.

Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and/or its third-party service providers. While we have experienced, and expect to continue to experience, these types of threats and incidents, none of them to date have been material to the Company. Although we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations.

Our business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, our business and a negative impact on our results of operations.

We rely heavily on communications and information systems to conduct our business. Our daily operations depend on the operational effectiveness of our technology. We rely on our systems to accurately track and record our assets and liabilities. Any failure, interruption or breach in security of our computer systems or outside technology, whether due to severe weather, natural disasters, acts of war or terrorism, criminal activity, cyberattacks or other factors, could result in failures or disruptions in general ledger, deposit, loan, customer relationship management, and other systems leading to inaccurate financial records. This could materially affect our business operations and financial condition.

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While we have disaster recovery and other policies and procedures designed to prevent or limit the effect of any failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations.

In addition, the Bank provides its customers the ability to bank online and through mobile banking. The secure transmission of confidential information over the Internet is a critical element of online and mobile banking. While we use qualified third-party vendors to test and audit our network, our network could become vulnerable to unauthorized access, computer viruses, phishing schemes and other security issues. The Bank may be required to spend significant capital and other resources to alleviate problems caused by security breaches or computer viruses.

To the extent that the Bank’s activities or the activities of its customers involve the storage and transmission of confidential information, security breaches and viruses could expose the Bank to claims, litigation, and other potential liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in the Bank’s systems and could adversely affect its reputation and its ability to generate deposits.

Additionally, we outsource the processing of transactional activity, as well as other systems such as online banking, to third party vendors. Prior to establishing an outsourcing relationship, and on an ongoing basis thereafter, management monitors key vendor controls and procedures related to information technology, which includes reviewing reports of service auditor’s examinations. If our third-party provider encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.

The adoption and use of artificial intelligence tools by us and our third-party vendors and service providers may increase the risk of errors, omissions, unfair treatment or fraudulent behavior by our employees, clients, or counterparties, or other third parties.

We are in the process of implementing artificial intelligence, including generative artificial intelligence, machine learning, and similar tools and technologies that collect, aggregate, analyze or generate data or other materials or content (collectively, “AI”), for internal use. We expect to adopt such tools as appropriate to increase efficiency, in line with our AI Strategy.  In addition, we expect our third-party vendors and service providers to increasingly develop and incorporate AI into their product offerings faster than we are able to do so independently. There are significant and evolving risks involved in utilizing AI, and no assurance can be provided that our or our third-party vendors’ or service providers’ use of AI will enhance our or our third-party vendors’ or service providers’ products or services or produce the intended results. The adoption and incorporation of such AI tools can lead to concerns around safety and soundness, fair access to financial services, fair treatment of consumers, and compliance with applicable laws and regulations. Such risk can result from models being incorrectly or inadequately designed or trained, inadequate model testing or validation, narrow or limited human oversight, inadequate planning or due diligence, inappropriate or controversial data practices by developers or end-users, and other factors adversely affecting public opinion of AI and the acceptance of AI solutions. Further, generative AI has been known to, and may continue to, create biased, incomplete, inaccurate, misleading or poor-quality output or produce other discriminatory or unexpected results, errors, or inadequacies, any of which may not be easily detectable. AI solutions may also be adversely impacted by unforeseen defects, technical challenges, cyber-attacks, cybersecurity breaches, service outages or other similar incidents, or material performance issues. We have implemented an AI governance function and risk management framework that includes a risk assessment of internal and vendor AI solutions, due diligence, model validation, and controls. However, given the pace of rapid adoption of such tools by vendors and service providers, we may not be aware of the addition of AI solutions prior to such tools being introduced into our environment. Failure to adequately manage AI risks can result in erroneous results and decisions made by misinformation, unwanted forms of bias, unauthorized access to sensitive, confidential, proprietary or personal information, and violations of applicable laws and regulations, leading to operational inefficiencies, competitive harm, reputational harm, ethical challenges, legal liability, losses, fines, and other adverse impacts on our business and financial results. If we do not have sufficient rights to use the data or other material or content on which the AI tools we use rely, or to use the output of such AI tools, we also may incur liability through the violation of applicable laws and regulations, third-party intellectual property, privacy or other rights, or contracts to which we are a party. Further, our competitors or other third parties may incorporate AI into their business or operations more quickly or more successfully than us, which could impair our ability to compete effectively.

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In addition, regulation of AI is rapidly evolving as legislatures and regulators are increasingly focused on these powerful emerging technologies. The technologies underlying AI and its uses are subject to a variety of laws and regulations, including intellectual property, data privacy and cybersecurity, consumer protection, competition, equal opportunity, and fair lending laws, and are expected to be subject to increased regulation and new laws or new applications of existing laws and regulations. AI is the subject of ongoing review by various U.S. governmental and regulatory agencies, and various U.S. states are applying, or are considering applying, existing laws and regulations to AI or are considering general legal frameworks for AI. We may not be able to anticipate how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our operations or offerings in certain jurisdictions if the legal frameworks are inconsistent across jurisdictions. Furthermore, because AI technology itself is highly complex and rapidly developing, it is not possible to predict all the legal, operational or technological risks that may arise relating to the use of AI. We expect our use of AI will require additional resources, including the incurrence of additional costs, to develop and maintain our products and services to minimize potentially harmful or unintended consequences, to comply with applicable and emerging laws and regulations, to maintain or extend our competitive position, and to address any ethical, reputational, technical, operational, legal, competitive or regulatory issues which may arise as a result of any of the foregoing.

In the normal course of business, we process large volumes of transactions involving millions of dollars. If our internal controls fail to work as expected, if our systems are used in an unauthorized manner, or if our employees subvert our internal controls, we could experience significant losses.

We process large volumes of transactions on a daily basis involving millions of dollars and are exposed to numerous types of operational risk. Operational risk includes the risk of fraud by persons inside or outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems and breaches of the internal control system and compliance requirements. This risk also includes potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards.

We establish and maintain systems of internal operational controls that provide us with timely and accurate information about our level of operational risk. Although not foolproof, these systems have been designed to manage operational risk at appropriate, cost-effective levels. Procedures exist that are designed to ensure that policies relating to conduct, ethics, and business practices are followed. From time to time, losses from operational risk may occur, including the effects of operational errors. We continually monitor and improve our internal controls, data processing systems, and corporate-wide processes and procedures, but there can be no assurance that future losses will not occur.

Financial services companies depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports, and other financial information. We may also rely on representations of those customers, counterparties, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, financial advisors and consultants, credit reports, or other financial information could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations.

We are subject to extensive regulation, which could have an adverse effect on our operations.

The Company and the Bank are subject to extensive regulation and supervision from the Commissioner, the FDIC and the Federal Reserve. This regulation and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the FDIC insurance fund and our depositors and borrowers, rather than for holders of our equity securities. In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future.

Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets and the determination of the level of allowance for credit losses. Changes in the regulations that apply to us, or changes in our compliance with regulations, could have a material impact on our operations.

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We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations and related enforcement actions.

The federal BSA, the USA Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The Financial Crimes Enforcement Network (“FINCEN”), established by the Treasury to administer the BSA, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the OFAC. Federal and state bank regulators also have begun to focus on compliance with BSA and AML regulations. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The Department of Justice, the Consumer Finance Protection Bureau and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. A successful challenge to our performance under the fair lending laws and regulations could adversely impact our CRA rating and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on or delays in approving merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, and investment banks. Defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. We can make no assurance that any such losses would not materially and adversely affect our business, financial condition or results of operations.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.

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Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations or deterioration in credit markets.

Risks related to decline in value of investment securities portfolio.

At December 31, 2025, unrealized losses in our available for sale investment securities portfolio totaled $35.3 million.  These unrealized losses arose due to changing interest rates and are considered to be temporary; however, in the event that we sell these securities while they are in an unrealized loss position, we will recognize a corresponding loss, which could have a material adverse effect on our earnings and financial condition.

We could experience losses due to competition with other financial institutions.

We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources. Such competitors primarily include national, regional and internet banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including, without limitation, thrifts, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries, such as online lenders and banks. The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation. In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.

Our ability to compete successfully depends on a number of factors, including, among other things:

·	the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets;
·	the ability to expand our market position;
·	the scope, relevance, and pricing of products and services offered to meet customer needs and demands;
·	the rate at which we introduce new products and services relative to our competitors;
·	customer satisfaction with our level of service; and
·	industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.

We face increasing competition from fintechs and other technology-driven platforms

Fintechs and other technology-driven platforms are expanding their presence, offering a wide variety of products and services that challenge traditional banking models. The growing experimentation with and adoption of technologies such as artificial intelligence, quantum computing, blockchain, stablecoins, and other digital currencies-including the potential issuance, acceptance, and integration of central bank digital currencies-have the potential to fundamentally reshape the financial services landscape. Developments in the regulatory landscape relating to emerging technologies, such as the enactment and implementation of the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (“GENIUS Act”) and potential enactment of the Digital Asset Market Clarity Act of 2025 (“CLARITY Act”) or similar market structure legislation, may affect our clients’ needs and expectations for products and services. Failure to keep pace with technological advancements may adversely affect our competitive position, diminish customer satisfaction, and reduce the accessibility and relevance of our products and services.

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Failure to keep pace with technological change could adversely affect our business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

We rely on other companies to provide key components of our business infrastructure.

Third party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business and could negatively impact our reputation. Replacing these third-party vendors could also entail significant delay and expense.

Negative publicity could damage our reputation.

Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct.  Our reputation could also be adversely impacted by negative public opinion regarding the financial services industry in general.

Loss of key personnel could adversely impact results.

The success of the Bank has been and will continue to be greatly influenced by the ability to retain the services of existing senior management.  The unexpected loss of the services of any of the key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse impact on the business and financial results of the Bank.

We may be subject to examinations by taxing authorities which could adversely affect our results of operations.

In the normal course of business, we may be subject to examinations from federal and state taxing authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we are engaged. Recently, federal and state taxing authorities have become increasingly aggressive in challenging tax positions taken by financial institutions. The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have an adverse effect on our financial condition and results of operations.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.

Our accounting policies are fundamental to understanding our financial results and condition. Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

From time to time the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. These changes are beyond our control, can be hard to predict and could materially impact how we report our results of operations and financial condition. We could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements in material amounts.

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Our internal controls may be ineffective.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition.

Credit losses on investment securities or inability to realize deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.

In assessing the impairment of investment securities, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issues, and 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 of fair value in the near term. In assessing the future ability of the Company to realize the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The impact of each of these impairment matters could have a material adverse effect on our business, results of operations, and financial condition.

Because we engage in lending secured by real estate and may be forced to foreclose on the collateral property and own the underlying real estate, we may be subject to the increased costs associated with the ownership of real property, which could result in reduced net income.

Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate.  The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to:

·	general or local economic conditions;
·	environmental cleanup liability;
·	neighborhood values;
·	interest rates;
·	real estate tax rates;
·	operating expenses of the mortgaged properties;
·	supply of and demand for rental units or properties;
·	ability to obtain and maintain adequate occupancy of the properties;
·	zoning laws;
·	governmental rules, regulations and fiscal policies; and
·	acts of God.

Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate.  Therefore, the cost of operating real property may exceed the rental income earned from such property, and we may have to advance funds in order to protect our investment or we may be required to dispose of the real property at a loss.

We are subject to losses due to errors, omissions or fraudulent behavior by our employees, clients, counterparties or other third parties.

We are exposed to many types of operational risk, including the risk of fraud by employees and third parties, clerical recordkeeping errors and transactional errors. Our business is dependent on our employees as well as third-party service providers to process a large number of increasingly complex transactions. We could be materially and adversely affected if employees, clients, counterparties or other third parties caused an operational breakdown or failure, either as a result of human error, fraudulent manipulation or purposeful damage to any of our operations or systems.

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In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a client, we may assume that the client’s financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the client. Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties.

Our articles of incorporation and bylaws, and certain banking laws may have an anti-takeover effect.

Provisions of our articles of incorporation and bylaws, and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.   The combination of these provisions may prohibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.

RISKS RELATED TO THE COMPANY’S STOCK

Our stock price can be volatile.

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to a variety of factors including the risk factors discussed elsewhere in this report that are outside of our control and which may occur regardless of our operating results.

Future sales of our stock by our shareholders or the perception that those sales could occur may cause our stock price to decline.

Although our common stock is listed for trading in The NASDAQ Global Select Market under the symbol “PEBK”, the trading volume in our common stock is lower than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the relatively low trading volume of our common stock, significant sales of our common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of those sales or perceptions.

Our common stock is not FDIC insured.

The Company’s common stock is not a savings or deposit account or other obligation of any bank and is not insured by the FDIC or any other governmental agency and is subject to investment risk, including the possible loss of principal.  Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company.  As a result, holders of our common stock may lose some or all of their investment.

We may reduce or eliminate dividends on our common stock.

Although we have historically paid a quarterly cash dividend to the holders of our common stock, holders of our common stock are not entitled to receive dividends.  Downturns in the domestic and global economies could cause our Board of Directors to consider, among other things, reducing or eliminating dividends paid on our common stock.  This could adversely affect the market price of our common stock.  Furthermore, as a bank holding company, our ability to pay dividends is subject to the guidelines of the Federal Reserve regarding capital adequacy and dividends before declaring or paying any dividends.  Dividends also may be limited as a result of safety and soundness considerations.

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We may need additional access to capital, which we may be unable to obtain on attractive terms or at all.

We may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments, for future growth or to fund losses or additional provision for loan losses in the future. Our ability to raise additional capital, if needed, will depend in part on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we may be unable to raise additional capital, if and when needed, on terms acceptable to it, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired and our stock price negatively affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 1C. CYBERSECURITY

Risk Management and Strategy

Our risk management program is designed to identify, assess, and mitigate risks across various aspects of the Company, including financial, operational, regulatory, reputational, and legal. Cybersecurity is a critical component of this program, given the increasing reliance on technology and potential of cyber threats. Our Director of Technology, is primarily responsible for this cybersecurity component and is a key member of Bank management, reporting directly to the Chief Operations Officer and, as discussed below, periodically to the Bank Board.

Our objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse our systems or information. The structure of our cybersecurity program is designed around the U.S. Department of Commerce National Institute of Standards and Technology (“NIST”) Framework, regulatory guidance, and other industry standards. In addition, we leverage certain industry and government associations, third-party benchmarking, audits, and threat intelligence to facilitate and promote program effectiveness. Our Director of Technology,  Information Security Officer, Chief Operations Officer and key members of their teams collaborate with peer banks and industry groups to review cybersecurity trends and issues and identify best practices. The information security program is periodically reviewed by such personnel with the goal of addressing changing threats and conditions.

We leverage people, processes, and technology as part of our efforts to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on suspected advanced persistent threats. We have established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations and tabletop exercises, and recovery and resilience tests. We provide regular updates across the Company to highlight recent examples of risks as they are identified. We engage in regular assessments of our infrastructure, software systems, and network architecture, using internal cybersecurity experts and third-party specialists. We maintain a third-party risk management program designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers and our supply chain. We actively monitor our email gateways for malicious phishing email campaigns and monitor remote connections.

We maintain an Incident Response Plan that provides a documented framework for responding to actual or potential cybersecurity incidents, including timely notification of and escalation to the appropriate management committees and Bank Board. The Incident Response Plan is coordinated through the Chief Operations Officer, and key members of management are embedded into the Plan by its design. The Incident Response Plan facilitates coordination across multiple parts of our organization and is evaluated at least annually.

Notwithstanding our defensive measures and processes, the threat posed by cyber-attacks is severe. Our internal systems, processes, and controls are designed to mitigate loss from cyber-attacks. At this time, we have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition. For further discussion of risks from cybersecurity threats, see the section captioned “Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations” and “Our business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, our business and a negative impact on our results of operations” in Item 1A. Risk Factors.

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Governance

Our Chief Operations Officer and Information Security Officer, along with their departments, are accountable for managing our enterprise information security and delivering our information security program. Their responsibilities include cybersecurity risk assessment, defense operations, incident response, vulnerability assessment, threat intelligence, identity access governance, third-party risk management, and business resilience. Certain individuals within their departments are generally subject to professional education and certification requirements. In particular, our Information Security Officer and Director of Technology have relevant expertise in the areas of information security and cybersecurity risk management.

The Bank’s Technology Steering Committee provides oversight and governance of the Bank’s technology program and the information security program. Members of this committee include executive management, our Information Security Officer and Director of Technology. This committee meets monthly to provide oversight of the risk management strategy, standards, policies, practices, controls, and mitigation and prevention efforts employed to manage security risks. The Chief Operations Officer regularly reports summaries of key issues that would include cybersecurity incidents or other related information from the Technology Steering Committee to the Bank Board.

The Bank Board is ultimately responsible for overseeing our information security and technology programs, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks. Our Information Security Officer and Director of Technology provide reports to the Bank Board, at least annually, regarding the information security program and the technology program, key enterprise cybersecurity initiatives, and other matters relating to cybersecurity processes. The Bank Board reviews and approves our information security and technology policies annually.

ITEM 2. PROPERTIES

At December 31, 2025, the Company and the Bank conducted their business from their headquarters office in Newton, North Carolina and the Bank’s 15 branch offices in Lincolnton, Hickory, Newton, Catawba, Conover, Claremont, Maiden, Denver, Triangle, Hiddenite, Charlotte, Huntersville and Mooresville, North Carolina. The Bank also operates loan production offices in Charlotte, Denver, Salisbury and Winston-Salem, North Carolina. The following table sets forth certain information regarding the Bank’s properties at December 31, 2025.

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Owned	Leased
---	---
Corporate Office<br><br>518 West C Street<br><br>Newton, North Carolina 28658	1333 2nd Street NE<br><br>Hickory, North Carolina 28601
420 West A Street<br><br>Newton, North Carolina 28658	6350 South Boulevard<br><br>Charlotte, North Carolina 28217
213 1st Street, West<br><br>Conover, North Carolina 28613	3752/3754 Highway 16 North<br><br>Denver, North Carolina 28037
3261 East Main Street<br><br>Claremont, North Carolina 28610	9617 Holly Point Drive<br><br>Huntersville, NC 28078
6125 Highway 16 South<br><br>Denver, North Carolina 28037	13840 Ballantyne Corporate Place<br><br>Suite 150 Charlotte, North Carolina 28277
5153 N.C. Highway 90E<br><br>Hiddenite, North Carolina 28636	118 East Council Street<br><br>Suite 1 Salisbury, NC 28144
200 Island Ford Road<br><br>Maiden, North Carolina 28650	380 Knollwood Street<br><br>Suite D Winston-Salem, NC 27103
3310 Springs Road NE<br><br>Hickory, North Carolina 28601	615 East 6^th^ Street<br><br>Suite 118 Charlotte, NC 28202
142 South Highway 16<br><br>Denver, North Carolina 28037
106 North Main Street<br><br>Catawba, North Carolina 28609
2050 Catawba Valley Boulevard<br><br>Hickory, North Carolina 28601
163 Plantation Ridge Drive<br><br>Mooresville, North Carolina 28117
1910 East Main Street<br><br>Lincolnton, North Carolina 28092

ITEM 3. LEGAL PROCEEDINGS

In the opinion of management, the Company is not involved in any material legal proceedings other than routine proceedings occurring in the ordinary course of business.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is listed on the NASDAQ Global Market, under the symbol “PEBK.” Market makers for the Company’s shares include Raymond James Financial, Inc. and Hovde Group, LLC.

The ability of the Company to pay dividends and repurchase shares is largely dependent upon the Company’s receipt of dividends from the Bank. The Bank’s ability to pay dividends is limited. North Carolina commercial banks, such as the Bank, are subject to legal limitations on the amount of dividends they are permitted to pay. Dividends may be paid by the Bank from undivided profits, which are determined by deducting and charging certain items against actual profits, including any contributions to surplus required by North Carolina law. Also, an insured depository institution, such as the Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is defined in the applicable law and regulations). For further discussion, see Supervision and Regulation under Item 1 Business.

As of February 28, 2026, the Company had 642 shareholders of record, not including the number of persons or entities **** whose stock is held in nominee or street name through various brokerage firms or banks.

STOCK PERFORMANCE GRAPH

The following graph compares the Company’s cumulative shareholder return on its common stock with a NASDAQ index and with a southeastern bank index. The graph was prepared by S&P Global Market Intelligence, using data as of December 31, 2025.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS

Performance Report for

Peoples Bancorp of North Carolina, Inc.

	Period Ending
Index	12/31/20		12/31/21		12/31/22		12/31/23		12/31/24		12/31/25
Peoples Bancorp of North Carolina, Inc.		100.00		122.91		149.71		147.68		153.96		184.35
NASDAQ Composite Index		100.00		122.18		82.43		119.22		154.48		187.14
S&P U.S. BMI Banks - Southeast Region Index		100.00		142.83		116.18		119.85		155.47		187.40
Source:  S&P Global Market Intelligence
© 2026
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The information required by Item 201(d) concerning securities authorized for issuance under equity compensation plans is set forth in Item 12 hereof.

ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (3)
October 1 - 31, 2025		-	$	-		-	$	3,000,000
November 1 - 30, 2025		995	$	29.78		-	$	3,000,000
December 1 - 31, 2025		70	$	33.59		-	$	3,000,000
Total		1,065	$	30.03		-
(1)	The Company purchased 1,065 shares on the open market in the three months ended December 31, 2025 for its deferred compensation plan. All purchases were funded by participant contributions to the plan.
---	---
(2)	Reflects shares purchased under the Company's publicly announced stock repurchase program.
(3)	Reflects dollar value of balance available for repurchase at end of period under the Company's stock repurchase program, which was authorized in March 2025 and expired February 28, 2026.

ITEM 6. RESERVED

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by this Item is set forth in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages A-4 through A-19 of the Annual Report, which section is filed with this Form 10-K as Exhibit (13). The section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company and supplementary data are set forth on pages A-20 through A-63 of the Annual Report, which Annual Report is filed with this Form 10-K as Exhibit (13). The consolidated financial statements of the Company and supplementary data set forth on pages A-20 through A-62 of the Annual Report are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer of the Company, has concluded, based on their evaluation as of the end of the period covered by this Report, that the Company’s disclosure controls and procedures (as defined in Rule 13A-15(e) promulgated under the Exchange Act) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management including the Chief Executive Officer and the Chief Financial Officer of the Company as appropriate to allow timely decisions regarding required disclosure.

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Changes in Internal Controls over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Annual Report on Internal Controls over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act.  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025. In making this assessment, management used the criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2025.

Forvis Mazars, LLP, an independent, registered public accounting firm, has audited the Company’s consolidated financial statements as of and for the year ended December 31, 2025, and audited the Company’s effectiveness of internal control over financial reporting as of December 31, 2025, as stated in their reports, which are included in Item 8 hereof.

ITEM 9B. OTHER INFORMATION

Trading Arrangements of Section 16 Reporting Persons.

During the quarter ended December 31, 2025, no person who is required to file reports pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as amended, with respect to holdings of, and transactions in, the Company’s common shares (i.e. directors and certain officers of the Company) maintained,

adopted, modified or

terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1(c) arrangement”, as those terms are defined in Section 229.408 of the regulations of the SEC.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is set forth under the sections captioned “Director Nominees”, “Executive Officers of the Company “, “Security Ownership Of Certain Beneficial Owners and Management, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Code of Business Conduct and Ethics”, “Board Committees – Governance Committee”, “Insider Trading Plans” and “Board Committees – Audit and Enterprise Risk Committee” contained in the Proxy Statement, which sections are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is set forth under the section captioned “Compensation Discussion and Analysis”, “Summary Compensation Table”, “Grants of Plan-Based Awards”, “Outstanding Equity Awards at Fiscal Year End”, “Option Exercises and Stock Vested”, “Pension Benefits”, “Nonqualified Deferred Compensation”, “Employment Agreements”, “Potential Payments upon Termination or Change in Control”, “Omnibus Stock Option and Long Term Incentive Plan”, “Director Compensation”, “Compensation Committee – Compensation Committee Interlocks and Insider Participation”, “Compensation Committee – Compensation Committee Report”, and “Pay versus Performance”, contained in the Proxy Statement, which sections are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

For the information required by the Item see the section captioned “Security Ownership of Certain Beneficial Owners and Management” contained in the Proxy Statement, which section is incorporated herein by reference.

The following table presents the number of shares of Company common stock to be issued upon the exercise of outstanding options, warrants and rights; the weighted-average price of the outstanding options, warrants and rights; and the number of options, warrants and rights remaining that may be issued under the Company’s 2020 Omnibus Stock Ownership and Long Term Incentive Plans (the “Omnibus Plan”), in each case as of December 31, 2025.

	As of December 31, 2025
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)		Weighted-average exercise price of outstanding options, warrants and rights (2)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		20,665	$	0.00		264,640
Equity compensation plans not approved by security holders		-		-		-
Total		20,665	$	0.00		264,640
(1)	Includes: 5,385 restricted stock units granted on January 20, 2022, all of which vested on January 20, 2026; 4,760 restricted stock units granted on January 19, 2023, all of which vest on January 19, 2027; 5,940 restricted stock units granted on January 22, 2024, all of which vest on January 22, 2028; and 4,580 restricted stock units granted on February 3, 2025, all of which vest on February 3, 2029.
---	---
(2)	The restricted stock units granted by the Company under the Omnibus Plan do not have an exercise price.

The above table excludes shares awarded from time to time pursuant to the Service Recognition Program.  The Service Recognition Program is described under the section captioned “Discretionary Bonus and Service Awards” contained in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

See the sections captioned “Indebtedness of and Transactions with Management and Directors” and “Board Leadership Structure and Risk Oversight” contained in the Proxy Statement, which sections are incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

See the section captioned “Proposal 2 - Ratification of Selection of Independent Registered Public Accounting Firm” contained in the Proxy Statement, which section is incorporated herein by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

15(a)1.	Consolidated Financial Statements (contained in the Annual Report attached hereto as Exhibit (13) and incorporated herein by reference)
(a)	Reports of Independent Registered Public Accounting Firm
---	---
(b)	Consolidated Balance Sheets as of December 31, 2025 and 2024
(c)	Consolidated Statements of Earnings for the Years Ended December 31, 2025 and 2024
(d)	Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2025 and 2024
(e)	Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2025 and 2024
(f)	Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024
(g)	Notes to Consolidated Financial Statements
15(a)2.	Consolidated Financial Statement Schedules
---	---
	All schedules have been omitted, as the required information is either inapplicable or included in the Notes to Consolidated Financial Statements.
15(a)3.	Exhibits
Exhibit (3)(i)(a)	Articles of Incorporation of the Registrant, incorporated by reference to Exhibit (3)(i) to the Form 8-A filed with the Securities and Exchange Commission on September 2, 1999
---	---
Exhibit (3)(i)(b)	Articles of Amendment dated December 19, 2008, regarding the Series A Preferred Stock, incorporated by reference to Exhibit (3)(1) to the Form 8-K filed with the Securities and Exchange Commission on December 29, 2008
Exhibit (3)(i)(c)	Articles of Amendment dated February 26, 2010, incorporated by reference to Exhibit (3)(2) to the Form 10-K filed with the Securities and Exchange Commission on March 25, 2010
Exhibit (3)(i)(d)	Articles of Amendment dated February 25, 2022, incorporated by reference to Exhibit (3)(i)(d) to the Form 10-K filed with the Securities and Exchange Commission on March 18, 2022
Exhibit (3)(ii)	Third Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit (3)(iii) to the Form 8-K filed with the Securities and Exchange Commission on January 17, 2025
Exhibit (4)(i)	Specimen Stock Certificate, incorporated by reference to Exhibit (4) to the Form 8-A filed with the Securities and Exchange Commission on September 2, 1999
Exhibit (4)(ii)	Description of Registrant’s Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, incorporated by reference to Exhibit (4)(ii) to the Form 10-K filed with the Securities and Exchange Commission on March 7, 2024
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Exhibit (10)(i)	Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and William D. Cable, Sr. dated December 18, 2008, incorporated by reference to Exhibit (10)(c)(iii) to the Form 8-K filed with the Securities and Exchange Commission on December 29, 2008 (*)
---	---
Exhibit (10)(ii)	Peoples Bank Directors’ and Officers’ Deferral Plan, incorporated by reference to Exhibit 10(h) to the Form 10-K filed with the Securities and Exchange Commission on March 28, 2002 (*)
Exhibit (10)(iii)	Rabbi Trust for the Peoples Bank Directors’ and Officers’ Deferral Plan, incorporated by reference to Exhibit 10(i) to the Form 10-K filed with the Securities and Exchange Commission on March 28, 2002 (*)
Exhibit (10)(iv)	Description of Service Recognition Program maintained by Peoples Bank, incorporated by reference to Exhibit 10(i) to the Form 10-K filed with the Securities and Exchange Commission on March 27, 2003 (*)
Exhibit (10)(v)	Capital Securities Purchase Agreement dated as of June 26, 2006, by and among the Registrant, PEBK Capital Trust II and Bear, Stearns Securities Corp., incorporated by reference to Exhibit 10(j) to the Form 10-Q filed with the Securities and Exchange Commission on November 13, 2006
Exhibit (10)(vi)	Amended and Restated Trust Agreement of PEBK Capital Trust II, dated as of June 28, 2006, incorporated by reference to Exhibit 10(k) to the Form 10-Q filed with the Securities and Exchange Commission on November 13, 2006
Exhibit (10)(vii)	Guarantee Agreement of the Registrant dated as of June 28, 2006, incorporated by reference to Exhibit 10(l) to the Form 10-Q filed with the Securities and Exchange Commission on November 13, 2006
Exhibit (10)(viii)	Indenture, dated as of June 28, 2006, by and between the Registrant and LaSalle Bank National Association, as Trustee, relating to Junior Subordinated Debt Securities Due September 15, 2036, incorporated by reference to Exhibit 10(m) to the Form 10-Q filed with the Securities and Exchange Commission on November 13, 2006
Exhibit (10)(ix)	Form of Amended and Restated Director Supplemental Retirement Agreement between Peoples Bank and Directors Robert C. Abernethy, James S. Abernethy, Douglas S. Howard, John W. Lineberger, Jr., Gary E. Matthews, Dr. Billy L. Price, Jr., Larry E Robinson, W. Gregory Terry, Dan Ray Timmerman, Sr., and Benjamin I. Zachary, incorporated by reference to Exhibit (10)(n) to the Form 8-K filed with the Securities and Exchange Commission on December 29, 2008 (*)
Exhibit (10)(x)	First Amendment to Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and Lance A. Sellers dated February 16, 2018, incorporated by reference to Exhibit (10)(xx) to the Form 10-Q filed with the Securities and Exchange Commission on March 18, 2018 (*)
Exhibit (10)(xi)	First Amendment to Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and William D. Cable, Sr. dated February 16, 2018, incorporated by reference to Exhibit (10)(xxii) to the Form 10-Q filed with the Securities and Exchange Commission on March 18, 2018 (*)
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Exhibit (10)(xii)	2020 Omnibus Stock Ownership and Long Term Incentive Plan incorporated by reference to Exhibit (10)(xxi) to the Form 10-K filed with the Securities and Exchange Commission on March 19, 2022 (*)
---	---
Exhibit (10)(xiii)	Employment Agreement dated August 19, 2021 by and among the Registrant, Peoples Bank and Jeffrey N. Hooper, incorporated by reference to Exhibit (10)(a) to the Form 8-K filed with the Securities and Exchange Commission on August 20, 2021 (*)
Exhibit (10)(xiv)	Amended and Restated Employment Agreement by and among Peoples Bancorp of North Carolina, Inc., Peoples Bank and William D. Cable, Sr., dated as of September 19, 2024 incorporated by reference to Exhibit 10(1) to the Form 8-K filed with the Securities and Exchange Commission on September 20, 2024 (*)
Exhibit (10)(xv)	Second Amendment To Amended and Restated Executive Salary Continuation Agreement by and between Peoples Bank and William D. Cable, Sr., dated as of September 19, 2024 incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the Securities and Exchange Commission on September 20, 2024 (*)
Exhibit (10)(xvi)	First Amendment To Executive Salary Continuation Agreement by and between Peoples Bank and Jeffrey N. Hooper, dated as of September 19, 2024 incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the Securities and Exchange Commission on September 20, 2024 (*)
Exhibit (10)(xvii)	First Amendment to Employment Agreement with each of the Company’s then named executive officers: Lance A. Sellers, President and Chief Executive Officer; Jeffrey N. Hooper, Executive Vice President and Chief Financial Officer; and William D. Cable, Sr., Executive Vice President and Chief Operating Officer, incorporated by reference to Exhibit (10)(i) to the Form 10-Q filed with the Securities and Exchange Commission on November 7, 2024
Exhibit (10)(xviii)	Executive Salary Continuation Agreement between Peoples Bank and Jeffrey N. Hooper dated July 1, 2020, incorporated by reference to Exhibit (10)(xxi) to the Form 10-K filed with the Securities and Exchange Commission on March 12, 2025 (*)
Exhibit (10)(xiv)	Form of Amended and Restated Director Supplemental Retirement Agreement by and between Peoples Bank and members of the board of directors of Peoples Bank, dated December 5, 2025. (*)
Exhibit (13)	2025 Annual Report of Peoples Bancorp of North Carolina, Inc.
Exhibit (19)(i)	Amended and Restated Insider Trading and Section 16 Reporting Policy, incorporated by reference to Exhibit (19)(i) to the Form 10-K filed with the Securities and Exchange Commission on March 12, 2025
Exhibit (19)(ii)	Amended and Restated Securities Law Compliance Policy, incorporated by reference to Exhibit (19)(ii) to the Form 10-K filed with the Securities and Exchange Commission on March 12, 2025
Exhibit (21)	Subsidiaries of the Registrant
Exhibit (23)	Consent of Forvis Mazars, LLP
Exhibit (31)(i)	Certification of principal executive officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit (31)(ii)	Certification of principal financial officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit (32)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit (97)	Excess Incentive-Based Compensation Recovery Policy, , incorporated by reference to Exhibit (97) to the Form 10-K filed with the Securities and Exchange Commission on March 7, 2024
Exhibit (101)	The following materials from the Company’s 10-K Report for the annual period ended December 31, 2025, formatted in eXtensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings, (iii) the Condensed Consolidated Statements of Comprehensive Income (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to the Condensed Consolidated Financial Statements.

Management contracts, compensatory plans and arrangement are marked with an asterisk (*)

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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.

PEOPLES BANCORP OF NORTH CAROLINA, INC.
(Registrant)
By:	/s/ William D. Cable, Sr.
William D. Cable, Sr.
President and Chief Executive Officer
Date: March 11, 2026

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 and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ William D. Cable, Sr.	President and Chief Executive Officer	March 11, 2026
William D. Cable, Sr.	(Principal Executive Officer)
/s/ Jeffrey N. Hooper	Executive Vice President and Chief	March 11, 2026
Jeffrey N. Hooper	Financial Officer (Principal Financial<br><br>and Principal Accounting Officer)
/s/ Robert C. Abernethy, Sr.	Chairman of the Board and Director	March 11, 2026
Robert C. Abernethy. Sr.
/s/ James S. Abernethy	Vice Chairman of the Board and	March 11, 2026
James S. Abernethy	Director
/s/ Douglas S. Howard	Director	March 11, 2026
Douglas S. Howard
/s/ John W. Lineberger, Jr.	Director	March 11, 2026
John W. Lineberger, Jr.
/s/ Gary E. Matthews	Director	March 11, 2026
Gary E. Matthews
/s/ Billy L. Price, Jr., M.D.	Director	March 11, 2026
Billy L. Price, Jr., M.D.
/s/ William Gregory Terry	Director	March 11, 2026
William Gregory Terry
/s/ Benjamin I. Zachary	Director	March 11, 2026
Benjamin I. Zachary
/s/ Ashton V. Abernethy	Director	March 11, 2026
Ashton V. Abernethy
/s/ Robert C. Abernethy, Jr.	Director	March 11, 2026
Robert C. Abernethy, Jr.
/s/ Dan Ray Timmerman, Jr.	Director	March 11, 2026
Dan Ray Timmerman, Jr.
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pebk_ex10xiv.htm EXHIBIT (10)(xiv)

AMENDED AND RESTATED

DIRECTOR SUPPLEMENTAL RETIREMENT AGREEMENT

THIS AGREEMENT, made and entered into this ___ day of _______, 2025, by and between Peoples Bank, a bank organized and existing under the laws of the State of North Carolina (hereinafter referred to as the “Bank”), and _______, member of the Board of Directors of the Bank (hereinafter referred to as the “Director”).

WITNESSETH:

WHEREAS, the Bank and the Director entered a Director Supplemental Retirement Plan Director Agreement dated the _______ between Peoples Bank and _______ that provides for the payment of certain benefits;

WHEREAS, the **** Bank and the Director thereafter entered into a Director Fee Continuation Agreement dated December 31, 2003 (the “2003 Agreement”), which replaced and superseded the Director Supplemental Retirement Plan Director Agreement dated January 1, 2002 and the benefits provided thereunder;

WHEREAS, the Bank and the Director entered into a Director Supplemental Retirement Agreement dated December 18, 2008, which replaced and superseded the 2003 Agreement in order to bring it into compliance with Section 409A of the Internal Revenue Code, as amended, including regulations and guidance issued thereunder (“Section 409A”).

WHEREAS, it is the consensus of the Board of Directors (hereinafter referred to as the “Board”) that the Director’s services to the Bank in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Bank and in bringing it to its present status of operating efficiency, and its present position in its field of activity;

WHEREAS, the Director’s experience, knowledge of the affairs of the Bank, reputation, and contacts in the industry are so valuable that assurance of the Director’s continued services is essential for the future growth and profits of the Bank and it is in the best interests of the Bank to arrange terms of continued service for the Director so as to reasonably assure the Director’s remaining in the Bank’s service during the Director’s lifetime or until retirement;

WHEREAS, it is the desire of the Bank that the Director’s services be retained as herein provided; and

WHEREAS, the Director is willing to continue to serve the Bank provided the Bank agrees to pay the Director or the Director’s beneficiary(ies), certain benefits in accordance with the terms and conditions hereinafter set forth.

ACCORDINGLY, it is the desire of the Bank and the Director to enter into this Agreement to clarify that a Director may retire on or after age 70 with no further accrual of benefits after age 70, and under which the Bank will agree to make certain payments to the Director at retirement or the Director’s beneficiary(ies) in the event of the Director’s death pursuant to this Agreement;

FURTHERMORE, it is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Director, and to be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Director is fully advised of the Bank’s financial status and has had substantial input in the design and operation of this benefit plan.

NOW, THEREFORE, in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows:

I. SERVICE

The Director will continue to serve the Bank in such capacity and with such duties and responsibilities as may be assigned, and with such compensation as may be determined from time to time by the Board of Directors of the Bank.

II. FRINGE BENEFITS

The fee continuation benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Director and are not part of any fee reduction plan or an arrangement deferring a bonus or a fee increase. The Director has no option to take any current payment or bonus in lieu of these fee continuation benefits except as set forth hereinafter.

III. RETIREMENT DATE AND NORMAL RETIREMENT AGE

A. Retirement Date:

If the Director continuously serves the Bank, the Director may retire from active service with the Bank on or after the Director’s seventieth (70th) birthday.

B. Normal Retirement Age

Normal Retirement Age shall mean the date on which the Director attains age seventy (70).

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IV. RETIREMENT BENEFIT AND POST-RETIREMENT DEATH BENEFIT

Upon said retirement, the Bank, commencing with the first (1st) day of the month following the date of such retirement, shall pay the Director an annual benefit amount equal to Twelve Thousand and 00/100 Dollars ($12,000.00). Said benefit shall be paid in equal monthly installments (1/12th of the annual benefit) for a period of one hundred eighty (180) months; provided, that if less than one hundred eighty (180) of such monthly payments have been made prior to the death of the Director, the Bank shall make the total amount of said payments due in a lump sum reduced to present value as set forth in Subparagraph XI(K) to such individual or individuals as the Director may have designated in writing and filed with the Bank. Said payment shall be made on the first day of the second month following the death of the Director. In the absence of any effective beneficiary designation, any such amount becoming due and payable upon the death of the Director shall be payable to the duly qualified executor or administrator of the Director’s estate. Said payment shall be made on the first day of the second month following the death of the Director.

V. DEATH BENEFIT PRIOR TO RETIREMENT

In the event the Director should die while actively serving the Bank at any time after the date of this Agreement but prior to the Director’s retirement, the Bank will pay the balance of the Pre-Retirement Account in a lump sum reduced to present value as set forth in Subparagraph XI(K), to such individual or individuals as the Director may have designated in writing and filed with the Bank. Said payment shall be made on the first day of the second month following the death of the Director. In the absence of any effective beneficiary designation, any such amount becoming due and payable upon the death of the Director shall be payable to the duly qualified executor or administrator of the Director’s estate. Said payment shall be made on the first day of the second month following the death of the Director.

VI. BENEFIT ACCOUNTING

The Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary federal regulator and the Generally Accepted Accounting Principles. The Bank shall establish an accrued liability retirement account (a bookkeeping entry) for the Director into which appropriate reserves shall be accrued. Benefits will accrue for the Director until the Director’s attainment of Normal Retirement Age, after which time no further benefits will accrue for the Director under this Agreement.

VII. VESTING

Director’s interest in the benefits that are the subject of this Agreement shall be subject to a vesting schedule over the five (5) full years of service with the Bank from the date first elected to the Board of the Bank (to a maximum of 100%).

Years of Service Completed Since First Elected as Director	Total Percentage Vested

| 1 | 20% |

| 2 | 40% |

| 3 | 60% |

| 4 | 80% |

| 5 | 100% |

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VIII. OTHER TERMINATION OF SERVICE

Subject to Subparagraph VIII(ii) hereinbelow, should the Director suffer a Termination of Service, the Director shall be entitled to receive the vested balance of the accrued liability account paid to the Director in equal monthly installments (1/12th of the annual benefit) for a period of one hundred eighty (180) monthly installments commencing at the Normal Retirement Age [Subparagraph III(B)] accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following the Normal Retirement Age. Provided, however, that if the vested balance of the accrued liability account is $10,000 or less, the Director shall be paid the entire vested balance of the accrued liability account in a lump sum payment.

Should the Director die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to such individual or individuals as the Director may have designated in writing and filed with the Bank. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Director shall be payable to the duly qualified executor or administrator of the Director’s estate. Said payment hereunder shall be made on the first day of the second month following the death of the Director. If, upon death, the Director shall have received the total annual benefit as provided herein, then no further benefit shall be due hereunder.

(i) Termination of Service. Termination of Service shall be defined as voluntary resignation of service by the Director or the Bank’s discharge of the Director without cause [“cause” defined in Subparagraph (VIII)(ii) below], prior to the Normal Retirement Age (described in Subparagraph III(B)).

(ii) Discharge for Cause: In the event the Director shall be discharged for cause at any time, all benefits provided herein shall be forfeited. The term “cause” includes termination because of the Director’s personal dishonesty, incompetence, willful misconduct, breach of duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses), or final cease and desist order, or any material breach of any provision of this Agreement. Discharge for “cause” shall also include any termination pursuant to a resolution of the Board of Directors approved by a vote of at least eighty-five percent (85%) of directors entitled to vote, finding that termination^-^of the Director’s Agreement is in the best interests of the Bank or the Holding Company.

IX. CHANGE IN CONTROL

For purposes of this Agreement, the term “Change in Control” shall mean: (i) a Change of Ownership; (ii) a Change in Effective Control; or (iii) a Change of Asset Ownership; in each case, as defined herein and as further defined and interpreted in Section 409A.

(i) For purposes of this Paragraph IX, “Change in Effective Control” shall mean the date either (A) one person (or group) acquires (or has acquired during the proceeding twelve (12) months) ownership of stock of the Bank possessing thirty percent (30%) or more of the total voting power of the Bank’s stock or (B) a majority of the Bank’s board of directors is replaced during any twelve (12) month period by directors whose election is not endorsed by a majority of the members of the Bank’s board of directors prior to such election.

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(ii) For purposes of this Paragraph IX, “Change of Asset Ownership” shall mean the date one person (or group) acquires (or has acquired during the preceding twelve (12) months) assets from the Bank that have a total gross fair market value that is equal to or exceeds forty percent (40%) of the total gross fair market value of all the Bank’s assets immediately prior to such acquisition.

(iii) For purposes of this Paragraph IX, “Change of Ownership” shall mean the date one person (or group) acquires ownership of stock of the Bank that, together with stock previously held, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Bank; provided that such person (or group) did not previously own fifty percent (50%) or more of the value or voting power of the stock of the Bank.

For purposes of determining whether the Bank has undergone a Change in Control under this Paragraph IX, the term Bank shall include any corporation that is a majority shareholder of the Bank within the meaning of Section 409A (owning more than fifty percent (50%) of the total fair market value and total voting power of the Bank).

Upon a Change in Control (as defined above), the Director shall become fully vested in and be entitled to receive the benefits promised in Subparagraph IV of this Agreement upon attaining Normal Retirement Age (Subparagraph III[B]), as if the Director had served the Bank until Normal Retirement Age. Payments will commence thirty (30) days following the Director’s attainment of Normal Retirement Age. The Director will also remain eligible for all promised death benefits in this Agreement. In addition, no sale, merger, consolidation or conversion of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Agreement and agrees to abide by its terms.

X. RESTRICTIONS ON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Directors, their beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

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XI. MISCELLANEOUS

A. Alienability and Assignment Prohibition.

Neither the Director, nor the Director’s surviving spouse, nor any other beneficiary(ies) under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Director or the Director’s beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Director or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of the Bank and any Successor in Interest.

The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives.

C. Amendment or Revocation.

Subject to Paragraph XIV, it is agreed by and between the parties hereto that, during the lifetime of the Director, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Director and the Bank. Amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Section 409A. If an amendment to this Agreement is required by any future guidance or regulations issued pursuant to Section 409A, then the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes.

D. Gender.

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

E. Effect on Other Bank Benefit Plans.

Nothing contained in this Agreement shall affect the right of the Director to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

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F. Headings.

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

G. Applicable Law.

The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina without respect to any choice-of-law or conflict-of-laws principles or provisions that would cause another jurisdiction’s laws to apply and except to the extent preempted by federal law.

H. 12 U.S.C. § 1828(k).

Any payments made to the Director pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) or any regulations promulgated thereunder.

I. Partial Invalidity.

If any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.

J. **** Continuation as Director.

Neither this Agreement nor the payments of any benefits hereunder shall be construed as giving to the Director any right to be retained as a member of the Board of Directors of the Bank.

K. Present Value.

All present value calculations under this Agreement shall be based on the following discount rate: The discount rate as used in the FASB 87 calculations for the Agreement.

L. Supersede and Constitute Entire Agreement.

This Agreement shall supersede the 2008 Agreement, which, in turn, superseded the 2003 Agreement, which superseded the Director Supplemental Retirement Plan Director Agreement dated the 1st day of January, 2002. This Agreement shall, along with any amendments executed thereto, constitute the entire agreement of the parties pertaining to retirement benefits provided hereunder.

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M. Interpretation.

It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Director acknowledges that the Bank has not made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

N. Certain Payments Delayed for a Specified Employee.

If the Director is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “separation from service” as defined in Section 409A shall be made and/or shall begin on the first day of the seventh month following the date of the Director’s separation from service to the extent such payments are not exempt from Section 409A, and the six month delay in payment is required by Section 409A.

O. Payments Upon Income Inclusion.

If at any time any amount or payment under the Agreement becomes taxable to the Director for failure to comply with Section 409A, a payment shall be made to the Director within 60 days of the determination by the Internal Revenue Service that the amount or payment is includible in income. The payment under this Paragraph XI(O) shall be equal to the amount required to be included in income as a result of the failure to comply with Section 409A as determined by the Internal Revenue Service.

P. Separation from Service.

Any reference to “retirement,” “retirement from service,” “early retirement,” “termination of service,” or any variations thereof requires that the Director has incurred a “separation from service” as interpreted in accordance with Section 409A. The Director will not be considered to have had a “separation from service” if he is on military leave, sick leave or other bona fide leave of absence if the period of such absence does not exceed six (6) months or, if longer, so long as the Director has a right to reemployment that is provided by statute or contract.

XII. ERISA PROVISION

The “Named Fiduciary and Plan Administrator” of this Agreement shall be Peoples Bank until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Agreement. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Agreement including the employment of advisors and the delegation of ministerial duties to qualified individuals.

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As a participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA provides that all Plan participants shall be entitled to:

A. Receive Information About Your Plan and Benefits.

1.	Examine, without charge, at the Plan Administrator’s office and at other specified locations (such as work sites and union halls) all documents governing the Plan, including insurance contracts and collective bargaining agreements (if any), and a copy of the latest annual report (Form 5500 Series) (if applicable) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.
2.	Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) (if applicable) and an updated summary plan description (if applicable). The Plan Administrator may make a reasonable charge for the copies.
3.	Receive a summary of the Plan’s annual financial report (if applicable). The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.
4.	Obtain a statement telling you that you have a right to receive a retirement benefit at the normal retirement age under the Plan and what your benefit could be at normal retirement age if you stop working under the Plan now. If you do not have a right to a retirement benefit, the statement will advise you of the number of additional years you must work to receive a retirement benefit. You must request this statement in writing. The law does not require the Plan Administrator to give this statement more than once a year. The Plan must provide the statement free of charge.

B. Prudent Actions by Plan Fiduciaries.

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate this Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union or any other person may fire you or otherwise discriminate against you in any way to prevent you from obtaining a retirement benefit or from exercising your rights under ERISA.

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C. Enforce Your Rights.

If your claim for a retirement benefit is denied in whole or in part, you have the right to know why this was done, to obtain documents relating to the decision without charge and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights.

For instance, if you request materials from the Plan and do not receive the materials within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical support order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

D. Assistance with Your Questions.

If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration at 1-866-444-3272.

XIII. CLAIMS PROCEDURE

The following Claims Procedure shall control the determination of benefit payments under the Plan.

A. Filing of a Claim for Benefits.

Any insured, beneficiary or other individual (“Claimant”) entitled to benefits under the Plan will file a claim request with the Administrator. The Administrator will, upon request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained. A Claimant’s request for Plan benefits will be considered a claim for Plan benefits, and it will be subject to a full and fair review.

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B. Denial of Claim.

If a Claimant’s claim is wholly or partially denied, the Administrator will furnish the Claimant with a written or electronic notification of the Plan’s adverse determination. This written or electronic notification must be provided within a reasonable period of time, but not later than 90 days after the receipt of the claim by the Administrator, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 90-day period. In no event will such extension exceed a period of 90 days from the end of such initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefit determination.

In the case of a claim for disability benefits, if disability is determined by a physician chosen by the Administrator (rather than relying upon a determination of disability for Social Security purposes), then instead of the above, the Administrator will provide the Claimant with written or electronic notification of the Plan’s adverse benefit determination within a reasonable period of time, but not later than 45 days after receipt of the claim by the Plan. This period may be extended by the Plan for up to 30 days, provided that the Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If, prior to the end of the first 30-day extension period the Administrator determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional 30 days, provided that the Administrator notifies the Claimant, prior to the expiration of the first 30-day extension period, of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. In the case of any such extension, the notice of extension will specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the Claimant will be afforded at least 45 days within which to provide the specified information.

C. Content of Notice.

The Administrator’s written or electronic notification of any adverse benefit determination must contain the following information:

(1)	The specific reason or reasons for the adverse determination.
(2)	Reference to the specific Plan provisions on which the denial is based.

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(3)	A description of any additional information or material necessary to correct the claim and an explanation of why such material or information is necessary.
(4)	Appropriate information as to the steps to be taken if the Claimant or beneficiary wishes to submit the claim for review.
(5)	In the case of disability benefits where the disability is determined by a physician chosen by the Administrator:

(i)	If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge upon request.
(ii)	If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided to the Claimant free of charge upon request.
	If the claim has been denied or deemed denied, and the Claimant wants to submit the claim for review, the Claimant must follow the Claims Review Procedure below.

D. Claims Review Procedure.

Upon the denial of a claim for benefits, the Claimant may file a claim for review, in writing, with the Administrator.

(1) THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER THE CLAIMANT HAS RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF THE CLAIM FOR BENEFITS.

HOWEVER, IF THE CLAIM IS FOR DISABILITY BENEFITS AND DISABILITY IS DETERMINED BY A PHYSICIAN CHOSEN BY THE ADMINISTRATOR, THEN INSTEAD OF THE ABOVE, THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 180 DAYS FOLLOWING RECEIPT OF NOTIFICATION OF AN ADVERSE BENEFIT DETERMINATION.

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(2) The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits.

(3) The Claimant may review all pertinent documents relating to the denial of the claim and submit any issues and comments, in writing, to the Administrator.

(4) The Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(5) The claim for review must be given a full and fair review. This review will take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

In addition to the Claims Review Procedure above, if the claim is for disability benefits and disability is determined by a physician chosen by the Administrator, then the Claims Review Procedure provides that:

(1) The claim will be reviewed without deference to the initial adverse benefit determination and the review will be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.

(2) In deciding an appeal of any adverse benefit determination that is based in whole or in part on medical judgment, the appropriate named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.

(3) Any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination will be identified, without regard to whether the advice was relied upon in making the benefit determination.

(4) The health care professional engaged for purposes of a consultation in (2) above will be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

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The Administrator will provide the Claimant with written or electronic notice of the Plan’s benefit determination on review. The Administrator must provide the Claimant with notification of this denial within 60 days after the Administrator’s receipt of the written claim for review, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 60-day period. In no event will such extension exceed a period of 60 days from the end of the initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination on review. However, if the claim relates to disability benefits and disability is determined by a physician chosen by the Administrator, then 45 days will apply instead of 60 days in the preceding sentences. In the case of an adverse benefit determination, the notification will set forth:

(a) The specific reason or reasons for the adverse determination.

(b) Reference to the specific Plan provisions on which the benefit determination is based.

(c) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(d) In the case of disability benefits where disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided to you free of charge upon request.

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

If the Claimant has a claim for benefits that is denied or ignored, in whole or in part, the Claimant may file suit in a state or federal court. However, in order to do so, the Claimant must file the suit no later than one hundred eighty (180) days after the Administrator makes a final determination to deny the claim.

XIV. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect to the Bank or the Agreement, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change in Control (Paragraph IX), this paragraph shall become null and void effective immediately upon said Change in Control. Provided, however, that no amendment or termination will be adopted unless it complies with Section 409A.

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IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy.

	PEOPLES BANK
	By:	(SEAL)
	Name:
Witness:	Title:
Witness:		(SEAL)

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BENEFICIARY DESIGNATION FORM FOR THE

AMENDED AND RESTATED DIRECTOR SUPPLEMENTAL RETIREMENT AGREEMENT

---

I. PRIMARY DESIGNATION

(You may refer to the beneficiary designation information prior to completion.)

A. Person(s) as a Primary Designation:

(Please indicate the percentage for each beneficiary.)

Name		Relationship_____________________________ /____________ %
Address:

| | (Street) | (City)                (State)                (Zip) | | Name | | Relationship_____________________________ /____________ % | | Address: | | |

| | (Street) | (City)                (State)                (Zip) | | Name | | Relationship_____________________________ / ____________ % | | Address: | | |

| | (Street) | (City)                (State)                (Zip) | | Name | | Relationship_____________________________ /____________ % | | Address: | | |

| | (Street) | (City)                (State)                (Zip) |

B. Estate as a Primary Designation:

My Primary Beneficiary is The Estate of_______________________________ as set forth in the last will and testament dated the__________ day of ___________________________ and any codicils thereto.

C. Trust as a Primary Designation:

Name of the Trust:

Execution Date of the Trust:__________

Name of the Trustee:

Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):

_________________________________________________________________________

_________________________________________________________________________

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Is this an Irrevocable Life Insurance Trust? __________ Yes __________ No

(If yes and this designation is for a Split Dollar agreement, an Assignment of Rights form should be completed.)

II. SECONDARY (CONTINGENT) DESIGNATION

A. Person(s) as a Secondary (Contingent) Designation:

(Please indicate the percentage for each beneficiary.)

Name		Relationship ___________________
Address:

| | (Street) | (City)                (State)                (Zip) | | Name | | Relationship ___________________ | | Address: | | |

| | (Street) | (City)                (State)                (Zip) | | Name | | Relationship ___________________ /__________ % | | Address: | | |

| | (Street) | (City)                (State)                (Zip) | | Name | | Relationship ___________________ | | Address: | | |

| | (Street) | (City)                (State)                (Zip) |

B. Estate as a Secondary (Contingent) Designation:

My Secondary Beneficiary is The Estate of___________________________________ as set forth in my last will and testament dated the_____________ day of _________________________ and any codicils thereto.

C. Trust as a Secondary (Contingent) Designation:

Name of the Trust: ____________________________________________________________________

Execution Date of the Trust: __________ /______ /___________

Name of the Trustee:

Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):

All sums payable under the Director Supplemental Retirement Agreement by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing.

Date

17

pebk_ex13.htm EXHIBIT (13)

The 2025 Annual Report to Security Holders is Appendix A to the Proxy Statement for the 2026 Annual Meeting of Shareholders and is incorporated herein by reference.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

General Description of Business

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

The Bank, founded in 1912, is a state-chartered commercial bank serving the citizens and business interests of the Catawba Valley and surrounding communities through 15 banking offices, located in Lincolnton, Newton, Denver, Catawba, Conover, Maiden, Claremont, Hiddenite, Hickory, Charlotte, Huntersville and Mooresville, North Carolina. The Bank also operates loan production offices in Charlotte, Denver, Salisbury and Winston-Salem, North Carolina. The Company’s fiscal year ends December 31. At December 31, 2025, the Company had total assets of $1.70 billion, net loans of $1.20 billion, deposits of $1.51 billion, total securities of $380.0 million, and shareholders’ equity of $157.1 million.

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

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

At December 31, 2025, the Company employed 268 full-time employees and eight part-time employees, which equated to 273 full-time equivalent employees.

Subsidiaries

The Bank is a subsidiary of the Company.  At December 31, 2025, the Bank had four subsidiaries, Peoples Investment Services, Inc., Real Estate Advisory Services, Inc., Community Bank Real Estate Solutions, LLC (“CBRES”) and PB Real Estate Holdings, LLC.  Through a relationship with Raymond James Financial Services, Inc., Peoples Investment Services, Inc. provides the Bank’s customers access to investment counseling and non-deposit investment products such as stocks, bonds, mutual funds, tax deferred annuities, and related brokerage services. Real Estate Advisory Services, Inc. provides real estate appraisal and real estate brokerage services.  CBRES serves as a “clearing-house” for appraisal services for community banks.  Other banks are able to contract with CBRES to find and engage appropriate appraisal companies.   As a separate legal entity, CBRES’s services and the appraisal process are conducted independent from the financing process of the Bank.  PB Real Estate Holdings, LLC acquires, manages and disposes of real property, other collateral and assets obtained in the ordinary course of collecting debts previously contracted.  All of the Bank’s subsidiaries are incorporated in the state of North Carolina.

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

A-1

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

A-2
SELECTED FINANCIAL DATA
---	---	---	---	---	---	---
Dollars in Thousands Except Per Share Amounts
	2025			2024
Summary of Operations
Interest income	$	83,618			80,733
Interest expense		24,601			26,654
Net interest income		59,017			54,079
Provision for (recovery of) credit losses		938			(285	)
Net interest income after provision for credit losses		58,079			54,364
Non-interest income		30,980			27,715
Non-interest expense		63,209			61,150
Earnings before income taxes		25,850			20,929
Income tax expense		6,020			4,576
Net earnings	$	19,830			16,353
Selected Year-End Balances
Assets	$	1,702,148			1,651,962
Investment securities available for sale		377,363			388,003
Net loans		1,194,262			1,128,409
Mortgage loans held for sale		1,136			1,367
Interest-earning assets		1,616,330			1,559,313
Deposits		1,509,225			1,484,731
Interest-bearing liabilities		1,130,126			1,097,941
Shareholders' equity	$	157,118			130,563
Shares outstanding		5,459,441			5,457,646
Selected Average Balances
Assets	$	1,695,711			1,653,356
Investment securities available for sale		418,469			442,097
Loans		1,165,212			1,113,488
Interest-earning assets		1,653,293			1,611,816
Deposits		1,525,479			1,465,965
Interest-bearing liabilities		1,128,387			1,094,699
Shareholders' equity	$	148,795			129,866
Shares outstanding		5,305,272			5,300,964
Profitability Ratios
Return on average total assets		1.17	%		0.99	%
Return on average shareholders' equity		13.33	%		12.59	%
Dividend payout ratio		26.46	%		30.86	%
Liquidity and Capital Ratios (averages)
Loan to deposit		76.38	%		75.96	%
Shareholders' equity to total assets		8.77	%		7.85	%
Per share of Common Stock
Basic net earnings	$	3.74			3.08
Diluted net earnings	$	3.62			2.98
Cash dividends	$	0.96			0.92
Book value	$	29.59			24.64
A-3
---

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

The following is a discussion of our financial position and results of operations and should be read in conjunction with the information set forth under Item 1A Risk Factors in the Company’s Annual Report on Form 10-K and the Company’s consolidated financial statements and notes thereto on pages A-20 through A-62.

Introduction

Management’s discussion and analysis of earnings and related data are presented to assist in understanding the consolidated financial condition and results of operations of the Company, for the years ended December 31, 2025 and 2024. The Company is a registered bank holding company operating under the supervision of the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the parent company of the “Bank. The Bank is a North Carolina-chartered bank, with offices in Catawba, Lincoln, Alexander, Mecklenburg, Iredell, Rowan and Forsyth counties, operating under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation (the “FDIC”).

Overview

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

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

The Federal Reserve Federal Open Market Committee (“FOMC”) increased the target federal funds rate 500 basis points between March 2022 and July 2023 to address the supply-chain disruption and rising inflation that had developed in the markets.  In 2024, the FOMC reduced the target federal funds rate to a range of 4.25% to 4.50%.  As of December 31, 2025, the target federal funds rate had been lowered to a range of 3.50% to 3.75%.  We believe that economic conditions in our market area continue to be relatively stable and as a result businesses in our market area continue to grow and invest.  Our experience is that the uncertainty expressed in the national and international markets through the primary economic indicators of activity are not as pronounced in our local market, and as a result we expect continued moderate economic growth in our market area.

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

A-4

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

The Company does not have specific plans to open additional offices in 2026, but will continue to look for and consider growth opportunities in nearby markets.

Summary of Critical Accounting Policies

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

The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. The following is a summary of the Company’s critical accounting policy, which is the most subjective and complex accounting policies of the Company. A more complete description of the Company’s significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements in the Company’s 2025 Annual Report to Shareholders which is Appendix A to the Proxy Statement for the May 7, 2026 Annual Meeting of Shareholders.

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

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

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

Results of Operations

Summary. The Company reported net earnings of $19.8 million or $3.74 per share and $3.62 per diluted share for the year ended December 31, 2025, as compared to $16.4 million or $3.08 per share and $2.98 per diluted share for the year ended December 31, 2024. The increase in net earnings is primarily attributable to increases in net interest income and non-interest income, which were partially offset by an increase in the provision for credit losses and an increase in non-interest expense, compared to the prior year, as discussed below.

The return on average assets for the year ended December 31, 2025 was 1.17%, as compared to 0.99% for the year ended December 31, 2024. The return on average shareholders’ equity was 13.33% for the year ended December 31, 2025, as compared to 12.59% for the year ended December 31, 2024.

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

A-5

Net interest income was $59.0 million for the year ended December 31, 2025, compared to $54.1 million for the year ended December 31, 2024.  The increase in net interest income is due to a $2.9 million increase in interest income and a $2.1 million decrease in interest expense.  The increase in interest income is primarily due to a $4.3 million increase in interest income and fees on loans and a $44,000 increase in interest income on balances due from banks, which was partially offset by a $1.5 million decrease in interest income on investment securities.  The increase in interest income and fees on loans is primarily due to an increase in total loans.  The increase in interest income on balances due from banks is primarily due to an increase in average balances outstanding.  The decrease in interest income on investment securities is due to a reduction in balances outstanding and decreases in yields on variable rate securities.  The decrease in interest expense is primarily due to a decrease in rates paid on interest-bearing liabilities resulting from rate decreases implemented by the Federal Reserve.

Table 1 sets forth for each category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding, the interest incurred on such amounts and the average rate earned or incurred for the years ended December 31, 2025 and 2024. The table also sets forth the average rate earned on total interest-earning assets, the average rate paid on total interest-bearing liabilities, and the net yield on total average interest-earning assets for the same periods.  Yield information does not give effect to changes in fair value of available for sale investment securities that are reflected as a component of shareholders’ equity.  Yields and interest income on tax-exempt investments for the years ended December 31, 2025 and 2024 have been adjusted to a tax equivalent basis using an effective tax rate of 22.78% for securities that are both federal and state tax exempt and an effective tax rate of 20.53% for federal tax-exempt securities.  Non-accrual loans and the interest income that was recorded on non-accrual loans, if any, are included in the yield calculations for loans in all periods reported.  The Company believes the presentation of net interest income on a tax-equivalent basis provides comparability of net interest income from both taxable and tax-exempt sources and facilitates comparability within the industry.  Although the Company believes these non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.  The reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are presented below.

A-6
Table 1 - Average Balance Table
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
								December 31, 2024
(Dollars in thousands)			Interest		Yield / Rate			Average Balance			Interest		Yield / Rate
Interest-earning assets:
Loans receivable	1,165,212			67,251		5.77	%		1,113,488			62,920		5.65	%
Investments - taxable	411,134			13,193		3.21	%		431,205			14,592		3.38	%
Investments - nontaxable*	10,442			354		3.39	%		14,146			449		3.17	%
Due from banks	66,505			2,840		4.27	%		52,977			2,796		5.28	%
Total interest-earning assets	1,653,293			83,638		5.06	%		1,611,816			80,757		5.01	%
Cash and due from banks	28,454								30,207
Other assets	23,962								21,919
Allowance for credit losses	(9,998	)							(10,586	)
Total assets	1,695,711								1,653,356
Interest-bearing liabilities:
Interest-bearing demand, MMDA & savings deposits	760,441			11,113		1.46	%		699,690			10,237		1.46	%
Time deposits	352,482			12,529		3.55	%		346,246			14,316		4.13	%
Junior subordinated debentures	15,464			959		6.20	%		15,464			1,116		7.22	%
Other	-			-		-			33,299			985		2.96	%
Total interest-bearing liabilities	1,128,387			24,601		2.18	%		1,094,699			26,654		2.43	%
Demand deposits	412,556								420,029
Other liabilities	5,973								8,762
Shareholders' equity	148,795								129,866
Total liabilities and shareholder's equity	1,695,711								1,653,356
Net interest spread			$	59,037		2.88	%				$	54,103		2.58	%
Net yield on interest-earning assets						3.57	%							3.36	%
Taxable equivalent adjustment
Investment securities			$	20							$	24
Net interest income			$	59,017							$	54,079
*Includes U.S. Government agency securities that are non-taxable for state income tax purposes of 10.2 million in 2025 and 10.2 million in 2024.  Tax rates of 2.25% and 2.50% were used to calculate the tax equivalent yields on these securities in 2025 and 2024, respectively.

All values are in US Dollars.

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

A-7
Table 2 - Rate/Volume Variance Analysis-Tax Equivalent Basis
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	December 31, 2025									December 31, 2024
(Dollars in thousands)	Changes in average volume			Changes in average rates			Total Increase (Decrease)			Changes in average volume			Changes in average rates			Total Increase (Decrease)
Interest income:
Loans: Net of unearned income	$	2,954			1,377			4,331		$	2,852			4,561			7,413
Investments - taxable		(662	)		(737	)		(1,399	)		(158	)		1,376			1,218
Investments - nontaxable		(122	)		27			(95	)		(271	)		(116	)		(387	)
Due from banks		646			(602	)		44			535			45			580
Total interest income		2,816			65			2,881			2,958			5,866			8,824
Interest expense:
Interest-bearing demand, MMDA & savings deposits		888			(12	)		876			121			3,385			3,506
Time deposits		240			(2,027	)		(1,787	)		4,483			1,917			6,400
Junior subordinated debentures		-			(157	)		(157	)		-			37			37
Other		(985	)		-			(985	)		(913	)		481			(432	)
Total interest expense		143			(2,196	)		(2,053	)		3,691			5,820			9,511
Net interest income	$	2,673			2,261			4,934		$	(733	)		46			(687	)

Net interest income on a tax equivalent basis totaled $59.0 million in 2025, as compared to $54.1 million in 2024. The net interest spread, which represents the rate earned on interest-earning assets less the rate paid on interest-bearing liabilities, was 2.88% in 2025, as compared to 2.58% in 2024. The net yield on interest-earning assets was 3.57% in 2025 and 3.36% in 2024.

Tax equivalent interest income increased $2.9 million in 2025 primarily due to a $4.3 million increase in interest income and fees on loans and a $44,000 increase in interest income on balances due from banks, which were partially offset by a $1.5 million decrease in tax equivalent interest income on investment securities. The increase in interest income and fees on loans is primarily due to an increase in average total loans. The increase in interest income on balances due from banks is primarily due to an increase in average balances outstanding. The decrease in interest income on investment securities is due to a reduction in balances outstanding and decreases in yields on variable rate securities. Average interest-earning assets increased by $41.5 million to $1.65 billion in 2025, as compared to $1.61 billion in 2024. The yield on interest-earning assets was 5.06% in 2025, as compared to 5.01% in 2024.

Interest expense totaled $24.6 million in 2025, as compared to $26.7 million in 2024.  The decrease in interest expense is primarily due to a decrease in rates paid on interest-bearing liabilities resulting from rate decreases implemented by the FOMC.  Average interest-bearing liabilities increased by $33.7 million to $1.13 billion in 2025, as compared to $1.09 billion in 2024.  The cost of funds decreased to 2.18% in 2025 from 2.43% in 2024.

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

The provision for credit losses for the year ended December 31, 2025 was an expense of $938,000, compared to a recovery of $285,000 for the year ended December 31, 2024.  The increase in the provision for credit losses is primarily attributable to a $66.0 million increase in total loans and a $18.0 million increase in unfunded loan commitments from December 31, 2024 to December 31, 2025, which were partially offset by a $925,000 decrease in net charge-offs during the year ended December 31, 2025, compared to the year ended December 31, 2024.

Net charge-offs for the year ended December 31, 2025 were $505,000, compared to $1.4 million for the year ended December 31, 2024.  The decrease in net charge-offs during the year ended December 31, 2025, compared to the year ended December 31, 2024 is primarily due a $825,000 decrease in net charge-offs on commercial and industrial loans.

The ratio of net charge-offs/(recoveries) to average total loans was 0.05% and 0.13% in 2025 and 2024, respectively.  The allowance for credit losses on loans was $10.1 million or 0.84% of total loans at December 31, 2025, compared to $10.0 million or 0.88% of total loans at December 31, 2024.  The allowance for credit losses on loans increased $131,000 primarily due to a $66.0 million increase in total loans from December 31, 2024 to December 31, 2025, which was partially offset by a $925,000 decrease in net charge-offs during the year ended December 31, 2025, compared to the year ended December 31, 2024.

A-8

Table 3 presents a summary of net charge off activity for the years ended December 31, 2025 and 2024

Table 3 - Net Charge-off Analysis
	Net charge-offs/(recoveries)						Net charge-offs/(recoveries) as a percent of average loans outstanding
	Years ended December 31,						Years ended December 31,
(Dollars in thousands)	2025			2024			2025			2024
Real estate loans
Construction and land development	$	-			-			0.00	%		0.00	%
Single-family residential		(49	)		4			-0.01	%		0.00	%
Commercial		-			(202	)		0.00	%		-0.05	%
Multifamily and farmland		-			-			0.00	%		0.00	%
Total real estate loans		(49	)		(198	)		0.00	%		-0.02	%
Loans not secured by real estate
Commercial loans		210			1,078			0.33	%		1.60	%
Farm loans		-			-			0.00	%		0.00	%
Consumer loans (1)		344			444			5.41	%		6.57	%
All other loans		-			107			0.00	%		0.58	%
Total loans	$	505			1,431			0.04	%		0.14	%
Provision for (recovery of) credit losses for the period	$	938			(285	)
Allowance for credit losses at end of period	$	10,126			9,995
Total loans at end of period	$	1,204,388			1,138,404
Non-accrual loans at end of period	$	4,176			4,440
Allowance for credit losses as a percent of total loans outstanding at end of period		0.84	%		0.88	%
Non-accrual loans as a percent of total loans outstanding at end of period		0.35	%		0.39	%
Allowance for credit losses as a percent of nonaccrual loans at end of period		242.48	%		225.11	%
(1) The loss ratio for consumer loans is elevated because overdraft charge-offs related to DDA and NOW accounts are reported in consumer loan charge-offs and recoveries.  The net overdraft charge-offs are not considered material and are therefore not shown separately.

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

Non-Interest Income. Non-interest income was $31.0 million for the year ended December 31, 2025, compared to $27.7 million for the year ended December 31, 2024. The increase in non-interest income is primarily attributable to a $3.0 million net gain during the year ended December 31, 2025 on the North Carolina Department of Transportation (“NCDOT”) eminent domain acquisition of the Bank’s former Mooresville branch office and a $2.0 million increase in appraisal management fee income due to an increase in appraisal volume. The increases in non-interest income were partially offset by a $1.6 million decrease in miscellaneous non-interest income primarily due to a decrease in income on small business investment company (SBIC) investments and a decrease in deferred compensation income.

The Company periodically evaluates its investments for credit losses. There were no credit losses on investments in 2025 or 2024.

A-9

Table 4 presents a summary of non-interest income for the years ended December 31, 2025 and 2024.

Table 4 - Non-Interest Income
(Dollars in thousands)	2025			2024
Service charges	$	5,579			5,653
Other service charges and fees		696			685
Gain (loss) on sale of securities, net		(78	)		5
Mortgage banking income		327			357
Insurance and brokerage commissions		1,026			989
Gain/(loss) on sale of premises and equipment, net		3,009			-
Bank owned life insurance income		602			783
Visa debit card income		4,466			4,417
Appraisal management fee income		13,684			11,691
Income on mutual funds held in deferred compensation trust		129			555
Miscellaneous		1,540			2,580
Total non-interest income	$	30,980			27,715

Non-Interest Expense. Non-interest expense was $63.2 million for the year ended December 31, 2025, compared to $61.2 million for the year ended December 31, 2024. The increase in non-interest expense is primarily attributable to a $1.6 million increase in appraisal management fee expense due to an increase in appraisal volume, a $386,000 increase in professional fees primarily due to an increase in consulting fees, a $299,000 increase in debit card expense, a $262,000 increase in occupancy expense primarily due to an increase in furniture and equipment maintenance/services expenses and a $219,000 increase in advertising expense.

Table 5 presents a summary of non-interest expense for the years ended December 31, 2025 and 2024.

Table 5 - Non-Interest Expense
(Dollars in thousands)	2025		2024
Salaries and employee benefits	$	28,245		28,209
Occupancy expense		8,948		8,686
Office supplies		529		534
FDIC deposit insurance		776		764
Visa debit card expense		1,690		1,391
Professional services		832		673
Postage		206		202
Telephone		498		595
Director fees and expense		554		564
Advertising		1,010		791
Consulting fees		1,870		1,643
Taxes and licenses		216		202
Foreclosure/OREO expense		17		19
Internet banking expense		1,193		1,067
Appraisal management fee expense		10,884		9,263
Deferred comp expense (benefit)		129		555
Other operating expense		5,612		5,992
Total non-interest expense	$	63,209		61,150

Income Taxes. Income tax expense was $6.0 million for the year ended December 31, 2025, compared to $4.6 million for the year ended December 31, 2024. The effective tax rate was 23.29% for the year ended December 31, 2025, compared to 21.86% for the year ended December 31, 2024. The increase in the effective tax rate is primarily due to a $322,000 interest receivable booked during the year ended December 31, 2024 on a deposit for taxes paid prior to a settlement with the North Carolina Department of Revenue to withdraw the disallowance of certain tax credits previously purchased by the Bank.

A-10

Liquidity. The objectives of the Company’s liquidity policy are to provide for the availability of adequate funds to meet the needs of loan demand, deposit withdrawals, maturing liabilities and to satisfy regulatory requirements. Both deposit and loan customer cash needs can fluctuate significantly depending upon business cycles, economic conditions and yields and returns available from alternative investment opportunities. In addition, the Company’s liquidity is affected by off-balance sheet commitments to lend in the form of unfunded commitments to extend credit and standby letters of credit. As of December 31, 2025, such unfunded commitments to extend credit were $366.5 million, while commitments in the form of standby letters of credit totaled $1.6 million.

The Company uses several funding sources to meet its liquidity requirements. The primary funding source is core deposits, a non-GAAP measure, which includes demand deposits, savings accounts and non-brokered certificates of deposits of denominations less than $250,000. Management believes it is useful to calculate and present core deposits because of the positive impact this low cost funding source provides to the Bank’s funding base The Company considers these to be a stable portion of the Company’s liability mix and the result of on-going consumer and commercial banking relationships. As of December 31, 2025, the Company’s core deposits totaled $1.35 billion, or 89.44% of total deposits.

The Bank’s two largest deposit relationships amounted to $122.7 million and $117.0 million at December 31, 2025 and 2024, respectively. These balances represent 8.13% and 7.88% of total deposits at December 31, 2025 and 2024, respectively.

The other sources of funding for the Company are through large denomination certificates of deposit, including brokered deposits, federal funds purchased, securities under agreement to repurchase and FHLB borrowings. The Bank is also able to borrow from the Federal Reserve Bank (“FRB”) on a short-term basis. The Bank’s policies include the ability to access wholesale funding up to 40% of total assets. The Bank’s wholesale funding includes FHLB borrowings, FRB borrowings, brokered deposits and internet certificates of deposit. The Bank did not have any wholesale funding at December 31, 2025.

The Bank has a line of credit with the FHLB equal to 20% of the Bank’s total assets, with no balances outstanding at December 31, 2025. At December 31, 2025, the carrying value of loans pledged as collateral to the FHLB totaled approximately $247.8 million. The availability under the line of credit with the FHLB was $148.5 million at December 31, 2025. FRB borrowings are collateralized by a blanket assignment on all qualifying loans that the Bank owns that are not pledged to the FHLB. At December 31, 2025, the carrying value of loans pledged as collateral to the FRB totaled approximately $689.9 million. Availability under the line of credit with the FRB was $583.8 million at December 31, 2025.

The Bank also had the ability to borrow up to $110.5 million for the purchase of overnight federal funds from five correspondent financial institutions as of December 31, 2025.

The liquidity ratio for the Bank, which is defined as net cash, interest-bearing deposits with banks, federal funds sold and certain investment securities, as a percentage of net deposits and short-term liabilities was 26.86%, and 28.16% at December 31, 2025 and 2024, respectively.  The minimum required liquidity ratio as defined in the Bank’s Asset/Liability and Interest Rate Risk Management Policy for on balance sheet liquidity was 10% at December 31, 2025 and 2024.

As disclosed in the Company’s Consolidated Statements of Cash Flows, net cash provided by operating activities was $21.5 million during 2025.  Net cash used in investing activities was $41.9 million during 2025 and net cash provided by financing activities was $19.3 million during 2025.

Asset Liability and Interest Rate Risk Management. The objective of the Company’s Asset Liability and Interest Rate Risk strategies is to identify and manage the sensitivity of net interest income to changing interest rates and to minimize the interest rate risk between interest-earning assets and interest-bearing liabilities at various maturities.  This is done in conjunction with the need to maintain adequate liquidity and the overall goal of maximizing net interest income. Table 6 presents an interest rate sensitivity analysis for the interest-earning assets and interest-bearing liabilities for the year ended December 31, 2025.

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Table 6 - Interest Sensitivity Analysis
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
(Dollars in thousands)	Immediate			1-3 months			4-12 months			Total Within One Year			Over One Year & Non-sensitive			Total
Interest-earning assets:
Loans	$	190,587			2,832			13,568			206,987			997,401			1,204,388
Mortgage loans held for  sale		1,136			-			-			1,136			-			1,136
Investment securities available for sale		-			70,140			1,218			71,358			306,005			377,363
Interest-bearing deposit accounts		30,384			-			-			30,384			-			30,384
Other interest-earning assets		-			-			-			-			3,059			3,059
Total interest-earning assets		222,107			72,972			14,786			309,865			1,306,465			1,616,330
Interest-bearing liabilities:
NOW, savings, and money market deposits		760,883			-			-			760,883			-			760,883
Time deposits		53,596			98,152			175,146			326,894			26,885			353,779
Trust preferred securities		-			15,464			-			15,464			-			15,464
Total interest-bearing liabilities		814,479			113,616			175,146			1,103,241			26,885			1,130,126
Interest-sensitive gap	$	(592,372	)		(40,644	)		(160,360	)		(793,376	)		1,279,580			486,204
Cumulative interest-sensitive gap	$	(592,372	)		(633,016	)		(793,376	)		(793,376	)		486,204
Interest-earning assets as a percentage of interest-bearing liabilities		27.27	%		64.23	%		8.44	%		28.09	%		4,859.46	%

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

The Company’s rate sensitive assets are those earning interest at variable rates and those with contractual maturities within one year. Rate sensitive assets therefore include both loans and available for sale (“AFS”) securities. Rate sensitive liabilities include interest-bearing checking accounts, money market deposit accounts, savings accounts, time deposits and borrowed funds. At December 31, 2025, rate sensitive assets and rate sensitive liabilities totaled $1.65 billion and $1.12 billion, respectively.

Included in the rate sensitive assets are $179.3 million in variable rate loans indexed to prime rate subject to immediate repricing upon changes by the FOMC. The Bank utilizes interest rate floors on certain variable rate loans to protect against further downward movements in the prime rate. At December 31, 2025, the Bank had $125.0 million in loans with interest rate floors. Floors were in effect on four loans, totaling $11,000, at December 31, 2025.

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

Analysis of Financial Condition

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

All of the Company’s investment securities are held in the available for sale (“AFS”) category*.* At December 31, 2025 the market value of AFS securities totaled $377.4 million, as compared to $388.0 million at December 31, 2024.

The Company’s investment portfolio consists of U.S. Government sponsored enterprise securities, municipal securities, U.S. Treasury securities, U.S. Government sponsored enterprise mortgage-backed securities, private label mortgage-backed securities, trust preferred securities and equity securities. AFS securities averaged $418.5 million in 2025 and $442.1 million in 2024.

A-12

Table 7 presents the book value of AFS securities held by the Company by maturity category at December 31, 2025. Yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity. Yields are calculated on a tax equivalent basis. Yields and interest income on tax-exempt investments have been adjusted to a tax equivalent basis using an effective tax rate of 22.78% for securities that are both federal and state tax exempt and an effective tax rate of 20.53% for federal tax-exempt securities.

Table 7 - Maturity Distribution and Weighted Average Yield on Investments
						After One Year					After 5 Years
	One Year or Less					Through 5 Years					Through 10 Years					After 10 Years					Totals
(Dollars in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Book value:
U.S. Treasuries		-		-			7,609		1.20	%		-		-			-		-			7,609		1.20	%
U.S. Government sponsored enterprises		-		-			2,659		3.31	%		1,531		4.61	%		1,012		5.88	%		5,202		3.45	%
GSE - Mortgage-backed securities		-		-			15,564		2.30	%		15,103		2.23	%		181,249		3.63	%		211,916		3.36	%
Private label mortgage-backed securities		4,938		0.41	%		-		-			-		-			37,124		4.49	%		42,062		4.12	%
State and political subdivisions		-		-			20,910		2.40	%		66,620		1.82	%		23,044		2.22	%		110,574		1.85	%
Total securities	$	4,938		0.41	%		46,742		2.09	%		83,254		2.35	%		242,429		4.23	%		377,363		2.97	%

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

Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by real estate, which is dependent upon the real estate market. Real estate mortgage loans include both commercial and residential mortgage loans. At December 31, 2025, the Bank had $133.7 million in residential mortgage loans, $123.1 million in home equity loans and $742.6 million in commercial mortgage loans, which include $596.2 million secured by commercial property and $146.4 million secured by residential property. All residential mortgage loans are originated as fully amortizing loans, with no negative amortization. The Bank also had construction and land development loans totaling $124.1 million at December 31, 2025.

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

As of December 31, 2025, gross loans outstanding were $1.20 billion, as compared to $1.14 billion at December 31, 2024. Average loans represented 70% and 69% of average total earning assets for the years ended December 31, 2025 and 2024, respectively. The Bank had $1.1 million and $1.4 million in mortgage loans held for sale as of December 31, 2025 and 2024, respectively.

A-13

Table 8 identifies the maturities of all loans as of December 31, 2025 and addresses the sensitivity of these loans to changes in interest rates.

Table 8 - Maturity and Repricing Data for Loans
(Dollars in Thousands)	Within one year or less		After one year through five years		After five years through 15 years		After 15 years		Total Loans
Real estate loans
Construction and land development	$	41,504	$	65,552	$	17,033	$	-	$	124,089
Single-family residential		145,965		152,338		60,976		44,713		403,992
Commercial		53,138		371,636		96,349		3,976		525,099
Multifamily and farmland		2,556		33,465		19,750		17,590		73,361
Total real estate loans		243,163		622,991		194,108		66,279		1,126,541
Commercial loans (not secured by real estate)		18,776		27,556		16,703		-		63,035
Farm loans (not secured by real estate)		73		245		-		-		318
Consumer loans (not secured by real estate)		2,359		2,984		917		-		6,260
All other loans (not secured by real estate)		6,372		1,862		-		-		8,234
Total loans	$	270,743	$	655,638	$	211,728	$	66,279	$	1,204,388
Total fixed rate loans	$	63,757	$	633,648	$	174,267	$	66,279	$	937,951
Total floating rate loans		206,986		21,990		37,461				266,437
Total loans	$	270,743	$	655,638	$	211,728	$	66,279	$	1,204,388

In the normal course of business, there are various commitments outstanding to extend credit that are not reflected in the financial statements. At December 31, 2025, outstanding loan commitments totaled $368.0 million. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Additional information regarding commitments is provided below in the section entitled “Commitments and Contingencies” and in Note 11 to the Consolidated Financial Statements.

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

The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of December 31, 2025. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company calculates the allowance for credit losses using a Weighted Average Remaining Maturity (“WARM”) methodology.

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

The portion of the ACL balance attributable to qualitative factors was $5.3 million and $5.2 million at December 31, 2025 and December 31, 2024, respectively. The risk factors are weighted as follows: Local, State and National Economic Outlook – 30%, Concentrations of Credit – 5%, Interest Rate Risk – 5%, Trends in Terms of Volume, Mix and Size of Loans – 15%, Seasoning of the Loan Portfolio – 10%, Experience of Staff – 10%, and Levels and Trends of Delinquencies – 25%. No changes to the risk status of any of the risk factors was made during the year ended December 31, 2025.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate.

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

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

The allowance for credit losses on loans was $10.1 million or 0.84% of total loans at December 31, 2025, compared to $10.0 million or 0.88% of total loans at December 31, 2024. The allowance for credit losses on loans increased $131,000 primarily due to a $66.0 million increase in total loans from December 31, 2024 to December 31, 2025, which was partially offset by a $925,000 decrease in net charge-offs during the year ended December 31, 2025, compared to the year ended December 31, 2024.

The allowance for credit losses on unfunded commitments was $1.4 million at December 31, 2025, compared to $1.1 million at December 31, 2024. The increase in the allowance for credit losses on unfunded commitments was due to a $18.0 million increase in unfunded loan commitments from December 31, 2024 to December 31, 2025.

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

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

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

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

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

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

Table 9 - Analysis of Allowance for Credit Losses
(Dollars in thousands)	2025			2024
Allowance for Credit losses at beginning of year	$	11,096		$	12,811
Real estate loans:
Construction and land development		31			-
Single-family residential		5			131
Total real estate loans		36			131
Loans not secured by real estate:
Commercial loans		287			1,134
Consumer loans		529			716
Total chargeoffs		852			1,981
Recoveries of losses previously charged off:
Real estate loans:
Construction and land development		31			-
Single-family residential		54			129
Commercial		-			202
Total real estate loans		85			331
Loans not secured by real estate:
Commercial loans		77			55
Consumer loans		185			165
Total recoveries		347			551
Net loans charged off		505			1,430
Provision for (recovery of) credit losses		938			(285	)
Allowance for credit losses at end of year	$	11,529		$	11,096
Allowance for credit loss-loans	$	10,126		$	9,995
Allowance for credit loss-unfunded loan commitments		1,403			1,101
Total allowance for credit losses	$	11,529		$	11,096
Loans charged off net of recoveries, as a percent of average loans outstanding		0.04	%		0.13	%
Allowance for loan losses as a percent of total loans outstanding at end of year		0.84	%		0.88	%
A-16
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Table 10 presents the allocation of the allowance for credit losses on loans at December 31, 2025.

Table 10 - Allocation of Allowance for Credit Losses on Loans
(Dollars in thousands)
	December 31,<br><br>2025		Percent of Total Loans In Category to Total Loans Outstanding			December 31, 2024		Percent of Total Loans In Category to Total Loans Outstanding
Construction and land development	$	3,302		10	%		3,385		11	%
Single-family residential		3,497		33	%		3,386		34	%
Commercial		2,475		44	%		2,322		41	%
Multifamily and farmland		234		6	%		246		6	%
Commercial		453		5	%		446		5	%
Farm		1		0	%		1		0	%
Consumer		126		1	%		134		1	%
All other		38		1	%		75		2	%
Total allowance for credit losses on loans	$	10,126		100	%		9,995		100	%

Non-performing Assets. Non-performing assets were $4.2 million or 0.25% of total assets at December 31, 2025, compared to $4.8 million or 0.29% of total assets at December 31, 2024. Non-performing assets comprise $3.6 million in residential mortgage loans and $533,000 in commercial mortgage loans at December 31, 2025, compared to $3.7 million in residential mortgage loans, $463,000 in commercial mortgage loans, $257,000 in other loans, and $369,000 in other real estate owned at December 31, 2024. The Bank had no repossessed assets as of December 31, 2025 and 2024.

At December 31, 2025, the Bank had non-performing loans, defined as non-accrual and accruing loans past due more than 90 days, of $4.2 million or 0.35% of total loans. Non-performing loans at December 31, 2024 were $4.4 million or 0.39% of total loans.

Management continually monitors the loan portfolio to ensure that all loans potentially having a material adverse impact on future operating results, liquidity or capital resources have been classified as non-performing. Should economic conditions deteriorate, the inability of distressed customers to service their existing debt could cause higher levels of non-performing loans. Management expects the future level of non-accrual loans to continue to be in-line with the level of non-accrual loans at December 31, 2025 and 2024.

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

Deposits. The Bank primarily uses deposits to fund its loan and investment portfolios. The Bank offers a variety of deposit accounts to individuals and businesses. Deposit accounts include checking, savings, money market and time deposits. Deposits were $1.51 billion as of December 31, 2025, compared to $1.48 billion as of December 31, 2024. Core deposits, a non-GAAP measure, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations of $250,000 or less, were $1.35 billion at December 31, 2025, compared to $1.34 billion at December 31, 2024. Management believes it is useful to calculate and present core deposits because of the positive impact this low cost funding source provides to the Bank’s overall cost of funds and profitability.

Certificates of deposit in amounts of more than $250,000 totaled $159.4 million at December 31, 2025, compared to $145.9 million December 31, 2024. Other time deposits totaled $194.4 million at December 31, 2025, compared to $195.2 million at December 31, 2024.

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Table 11 is a summary of the maturity distribution of time deposits in amounts of more than $250,000 as of December 31, 2025.

Table 11 - Maturities of Time Deposits over 250,000
(Dollars in thousands)
Three months or less	63,979
Over three months through six months	81,257
Over six months through twelve months	14,153
Over twelve months	-
Total	159,389

All values are in US Dollars.

Estimated uninsured deposits totaled $358.5 million, or 23.75% of total deposits, at December 31, 2025, compared to $396.5 million, or 26.71% of total deposits, at December 31, 2024. Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance limits. The Bank did not have any significant deposit concentrations based on the North American Industry Classification System at December 31, 2025 and 2024. The Bank has two customer relationships that had deposits totaling $122.7 million, or 8.13% of total deposits, at December 31, 2025, and $117.0 million, or 7.88% of total deposits, at December 31, 2024.

Borrowed Funds. The Bank has access to various short-term borrowings, including the purchase of federal funds and borrowing arrangements from the FHLB and other financial institutions. There were no FHLB borrowings outstanding at December 31, 2025 and 2024. Average FHLB borrowings for 2025 and 2024 were zero. Additional information regarding FHLB borrowings is provided in Note 7 to the Consolidated Financial Statements.

The Bank had no borrowings from the FRB at December 31, 2025 and 2024. FRB borrowings are collateralized by a blanket assignment on all qualifying loans that the Bank owns which are not pledged to the FHLB.

Junior subordinated debentures were $15.5 million at December 31, 2025 and December 31, 2024.

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

Capital Resources.  Shareholders’ equity was $157.1 million, or 9.23% of total assets, at December 31, 2025, compared to $130.6 million, or 7.90% of total assets, at December 31, 2024.  The increase in shareholders’ equity is primarily due to an increase in net income and a decrease in the unrealized loss on investment securities available for sale due to rate changes between December 31, 2024 and December 31, 2025.

Average shareholders’ equity as a percentage of total average assets was 8.77% and 7.85% at December 31, 2025 and 2024, respectively.   The return on average shareholders’ equity was 13.33% and 12.59% for the years ended December 31, 2025 and 2024, respectively.  Total cash dividends paid on common stock were $5.2 million and $5.0 million during the years ended December 31, 2025 and 2024, respectively.

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

In June 2024, the Board of Directors authorized a stock repurchase program, whereby up to $2.0 million may be allocated to repurchase the Company’s common stock.  The Company had not repurchased any shares of its common stock under this stock repurchase program through February 28, 2025, when the program expired.

In March 2025, the Board of Directors authorized a stock repurchase program, whereby up to $3.0 million may be allocated to repurchase the Company’s common stock.  Any purchases under the Company’s stock repurchase program may be made periodically as permitted by securities laws and other legal requirements in the open market or in privately-negotiated transactions. The timing and amount of any repurchase of shares will be determined by the Company’s management, based on its evaluation of market conditions and other factors. The stock repurchase program may be suspended at any time or from time-to-time without prior notice.  The Company had not repurchased any shares of its common stock under this stock repurchase program through February 28, 2026, when the program expired.

A-18

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

Under the regulatory capital guidelines, financial institutions are currently required to maintain a total risk-based capital ratio of 8.0% or greater, with a Tier 1 risk-based capital ratio of 6.0% or greater and a common equity Tier 1 capital ratio of 4.5% or greater, as required by the Basel III capital standards referenced above.  Tier 1 capital is generally defined as shareholders’ equity and trust preferred securities less all intangible assets and goodwill.  Tier 1 capital includes $15.0 million in trust preferred securities at December 31, 2025 and December 31, 2024.  The Company’s Tier 1 capital ratio was 14.96% and 14.47% at December 31, 2025 and December 31, 2024, respectively.  Total risk-based capital is defined as Tier 1 capital plus supplementary capital.  Supplementary capital, or Tier 2 capital, consists of the Company’s allowance for credit losses, not exceeding 1.25% of the Company’s risk-weighted assets. Total risk-based capital ratio is therefore defined as the ratio of total capital (Tier 1 capital and Tier 2 capital) to risk-weighted assets.  The Company’s total risk-based capital ratio was 15.82% and 15.34% at December 31, 2025 and December 31, 2024, respectively.  The Company’s common equity Tier 1 capital consists of common stock and retained earnings.   The Company’s common equity Tier 1 capital ratio was 13.83% and 13.29% at December 31, 2025 and December 31, 2024, respectively.  Financial institutions are also required to maintain a leverage ratio of Tier 1 capital to total average assets of 4.0% or greater.  The Company’s Tier 1 leverage capital ratio was 11.33% and 10.88% at December 31, 2025 and December 31, 2024, respectively.

The Bank’s Tier 1 risk-based capital ratio was 14.83% and 14.35% at December 31, 2025 and December 31, 2024, respectively.  The total risk-based capital ratio for the Bank was 15.70% and 15.22% at December 31, 2025 and December 31, 2024, respectively.   The Bank’s common equity Tier 1 capital ratio was 14.83% and 14.35% at December 31, 2025 and December 31, 2024, respectively.  The Bank’s Tier 1 leverage capital ratio was 11.13% and 10.71% at December 31, 2025 and December 31, 2024, respectively.

A bank is considered to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a common equity Tier 1 capital ratio of 6.5% or greater and a leverage ratio of 5.0% or greater.  Based upon these guidelines, the Bank was considered to be “well capitalized” at December 31, 2025.

A-19
PEOPLES BANCORP OF NORTH CAROLINA, INC.
---	---
Consolidated Financial Statements
December 31, 2025 and 2024
INDEX
	PAGE(S)
Reports of Independent Registered Public Accounting Firm on the Consolidated Financial Statements	A-21- A-24
Financial Statements
Consolidated Balance Sheets at December 31, 2025 and 2024	A-25
Consolidated Statements of Earnings for the years ended December 31, 2025 and 2024	A-26
Consolidated Statements of Comprehensive Income for the years ended December 31, 2025 and 2024	A-27
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2025 and 2024	A-28
Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024	A-29 - A-30
Notes to Consolidated Financial Statements	A-31 - A-62
A-20
---

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors

Peoples Bancorp of North Carolina, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Peoples Bancorp of North Carolina, Inc. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2025 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of the Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2026, expressed an unqualified opinion thereon.

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 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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

Critical Audit Matter

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

A-21

Allowance for Credit Losses on Loans

As further described in Notes 1 and 3 to the consolidated financial statements, the Company’s loan portfolio and the associated allowance for credit losses (“ACL”) were $1.2 billion and $10.1 million as of December 31, 2025, respectively. The ACL measures expected credit losses on a collective pool basis when similar risk characteristics exist. The Company calculates the ACL using a Weighted Average Remaining Maturity (“WARM”) methodology. The calculation of the ACL also includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience.  These qualitative adjustments may increase or reduce reserve levels and include adjustments for: local, state and national economic outlook; levels and trends of delinquencies; trends in volume, mix and size of loans; seasoning of the loan portfolio; experience of staff; concentrations of credit; and interest rate risk.

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

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

·	Obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over establishing the ACL, including controls that address: 1) governance of the credit loss methodology, including management’s review and approval of the qualitative factor adjustments related to local, state, and economic outlook applied within the qualitative framework and 2) the completeness and accuracy of key inputs and assumptions used related to this qualitative factor.
·	Evaluated the reasonableness of management’s application of the qualitative factor related to local, state, and economic outlook to the ACL and the completeness and accuracy of data utilized to develop such qualitative factor adjustments. We also considered if this qualitative factor was consistent with external macroeconomic factors.
·	Evaluated the mathematical accuracy of the ACL, including the mathematical application of the qualitative adjustments related to this qualitative factor and the reasonableness of assumptions and judgments used in the forecast components.

/s/ Forvis Mazars, LLP

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

Charlotte, North Carolina

March 11, 2026

A-22

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors

Peoples Bancorp of North Carolina, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Peoples Bancorp of North Carolina, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company, maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements as of December 31, 2025 and 2024, and for each of the two years in the period ended December 31, 2025, and our report dated March 11, 2026 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A-23

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.

/s/ Forvis Mazars, LLP

Charlotte, North Carolina

March 11, 2026

A-24
PEOPLES BANCORP OF NORTH CAROLINA, INC.
---	---	---	---	---	---
Consolidated Balance Sheets
December 31, 2025 and December 31, 2024
(Dollars in thousands)
			December 31,
Assets			2024
			(Audited)
Cash and due from banks	27,721			30,919
Interest-bearing deposits	30,384			28,347
Cash and cash equivalents	58,105			59,266
Investment securities available for sale	377,363			388,003
Other investments	2,595			2,728
Total securities	379,958			390,731
Mortgage loans held for sale	1,136			1,367
Loans	1,204,388			1,138,404
Less allowance for credit losses	(10,126	)		(9,995	)
Net loans	1,194,262			1,128,409
Premises and equipment, net	14,162			14,847
Cash surrender value of life insurance	17,837			17,675
Other real estate	-			369
Right of use lease asset	3,477			4,013
Accrued interest receivable and other assets	33,211			35,285
Total assets	1,702,148			1,651,962
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	394,563			402,254
Interest-bearing demand, MMDA & savings	760,883			741,363
Time, 250,000 and over	160,389			147,439
Other time	193,390			193,675
Total deposits	1,509,225			1,484,731
Junior subordinated debentures	15,464			15,464
Lease liability	3,615			4,136
Accrued interest payable and other liabilities	16,726			17,068
Total liabilities	1,545,030			1,521,399
Commitments and Contingencies
Shareholders' equity:
Preferred stock, no par value; authorized 5,000,000 shares; no shares issued and outstanding	-			-
Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,459,441 shares at December 31, 2025 and 5,457,646 shares at December 31, 2024	48,708			48,658
Common stock held by deferred compensation trust, at cost; 150,288 shares at December 31, 2025 and 158,580 shares at December 31, 2024	(1,510	)		(1,757	)
Deferred compensation	1,510			1,757
Retained earnings	135,645			121,062
Accumulated other comprehensive loss	(27,235	)		(39,157	)
Total shareholders' equity	157,118			130,563
Total liabilities and shareholders' equity	1,702,148			1,651,962
See accompanying Notes to Consolidated Financial Statements.

All values are in US Dollars.

A-25
PEOPLES BANCORP OF NORTH CAROLINA, INC.
---	---	---	---	---	---	---
Consolidated Statements of Earnings
For the Years Ended December 31, 2025 and 2024
(Dollars in thousands, except per share amounts)
	2025			2024
	(Audited)			(Audited)
Interest income:
Interest and fees on loans	$	67,251			62,920
Interest on due from banks		2,840			2,796
Interest on investment securities:
U.S. Government sponsored enterprises		8,411			9,979
States and political subdivisions		2,772			2,779
Other		2,344			2,259
Total interest income		83,618			80,733
Interest expense:
Now, MMDA & savings deposits		11,113			10,237
Time deposits		12,529			14,316
Junior subordinated debentures		959			1,116
Other		-			985
Total interest expense		24,601			26,654
Net interest income		59,017			54,079
Provision for (recovery of) credit losses		938			(285	)
Net interest income after provision for (recovery of) credit losses		58,079			54,364
Non-interest income:
Service charges		5,579			5,653
Other service charges and fees		696			685
Gain ( loss) on sale of securities, net		(78	)		5
Gain on sale of premises and equipment		3,009			-
Mortgage banking income		327			357
Insurance and brokerage commissions		1,026			989
Appraisal management fee income		13,684			11,691
Miscellaneous		6,737			8,335
Total non-interest income		30,980			27,715
Non-interest expense:
Salaries and employee benefits		28,245			28,209
Occupancy		8,948			8,686
Professional fees		2,702			2,316
Advertising		1,010			791
Debit card expense		1,690			1,391
FDIC insurance		776			764
Appraisal management fee expense		10,884			9,263
Other		8,954			9,730
Total non-interest expense		63,209			61,150
Earnings before income taxes		25,850			20,929
Income tax expense		6,020			4,576
Net earnings	$	19,830			16,353
Basic net earnings per share	$	3.74			3.08
Diluted net earnings per share	$	3.62			2.98
Cash dividends declared per share	$	0.96			0.92
See accompanying Notes to Consolidated Financial Statements.
A-26
---
Consolidated Statements of Comprehensive Income
---	---	---	---	---	---
For the Years Ended December 31, 2025 and 2024
(Dollars in thousands)
	2025		2024
Net earnings	$	19,830		16,353
Other comprehensive income:
Unrealized holding gains on securities available for sale		15,489		275
Reclassification adjustment for (gains) losses on securities available for sale included in net earnings, net		78		(5	)
Total other comprehensive income, before income taxes		15,567		270
Income tax expense related to other comprehensive income:
Unrealized holding gain on securities  available for sale		3,528		63
Reclassification adjustment for  (gains) losses on securities available for sale included in net earnings		18		(1	)
Reduction in state tax adjustment		99		-
Total income tax expense related to other comprehensive income		3,645		62
Total other comprehensive income, net of tax		11,922		208
Total comprehensive income	$	31,752		16,561
See accompanying Notes to Consolidated Financial Statements.
A-27
---
PEOPLES BANCORP OF NORTH CAROLINA, INC.
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 2025 and 2024
(Dollars in thousands)
												Common Stock
												Held By			Accumulated
			Common									Deferred			Other
			Stock			Retained			Deferred			Compensation			Comprehensive
			Amount			Earnings			Compensation			Trust			Income (Loss)			Total
Balance, December 31, 2023	5,534,499		$	50,625			109,756			1,910			(1,910	)		(39,365	)		121,016
Common stock repurchase	(78,500	)		(1,998	)		-			-			-			-			(1,998	)
Cash dividends declared on common stock (0.92 per share)	-			-			(5,047	)		-			-			-			(5,047	)
Restricted stock units exercised	1,647			51			-			-			-			-			51
Excise tax on stock repurchase	-			(20	)		-			-			-			-			(20	)
Equity incentive plan, net	-			-			-			(153	)		153			-			-
Net earnings	-			-			16,353			-			-			-			16,353
Other comprehensive income	-			-			-			-			-			208			208
Balance, December 31, 2024	5,457,646		$	48,658			121,062			1,757			(1,757	)		(39,157	)		130,563
Cash dividends declared on common stock (0.96 per share)	-			-			(5,247	)		-			-			-			(5,247	)
Restricted stock units exercised	1,795			50			-			-			-			-			50
Equity incentive plan, net	-			-			-			(247	)		247			-			-
Net earnings	-			-			19,830			-			-			-			19,830
Other comprehensive income	-			-			-			-			-			11,922			11,922
Balance, December 31, 2025	5,459,441		$	48,708			135,645			1,510			(1,510	)		(27,235	)		157,118
See accompanying Notes to Consolidated Financial Statements.

All values are in US Dollars.

A-28
PEOPLES BANCORP OF NORTH CAROLINA, INC.
---	---	---	---	---	---	---
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2025 and 2024
(Dollars in thousands)
	2025			2024
Cash flows from operating activities:
Net earnings	$	19,830			16,353
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation, amortization and accretion, net		2,739			2,890
Provision for (recovery of) credit losses		938			(285	)
Deferred income taxes		432			1,031
Gain on sale of held for sale mortgage loans		(277	)		(287	)
(Gain) loss on sale of investment securities, net		78			(5	)
Gain on sale of other real estate		(13	)		-
Write-down of other real estate		-			31
Gain on sale of premises and equipment		(3,009	)		-
Write-down of premises and equipment		71			362
Restricted stock expense		190			212
Proceeds from sales of loans held for sale		15,167			19,149
Origination of loans held for sale		(14,659	)		(19,543	)
Cash surrender value of life insurance		(602)			(470)
Change in:
Right of use lease asset		536			718
Other assets		1,005			80
Lease liability		(521	)		(696	)
Other liabilities		(532	)		1,018
Net cash provided by operating activities		21,373			20,558
Cash flows from investing activities:
Purchases of investment securities available for sale		(18,199	)		(29,052	)
Proceeds from calls and maturities of investment securities available for sale		3,035			3,010
Proceeds from sales of investment securities available for sale		20,396			11,713
Proceeds from paydowns of investment securities available for sale		20,100			17,671
Proceeds from paydowns of other investment securities		228			201
Purchase of FHLB Stock		(11	)		(10	)
Net change in loans		(66,789	)		(46,499	)
Purchases of premises and equipment		(1,413	)		(587	)
Proceeds from sale of other real estate and repossessions		382			-
Proceeds from bank owned life insurance		440			929
Net cash used by investing activities		(41,831	)		(42,624	)
Cash flows from financing activities:
Net change in deposits		24,494			92,686
Net change in securities sold under agreement to repurchase		-			(86,715	)
Proceeds from FRB borrowings		1			1
Repayments of FRB borrowings		(1	)		(1	)
Proceeds from Fed Funds Purchased		162			162
Repayments of Fed Funds Purchased		(162	)		(162	)
Restricted stock units vested		50			51
Excise tax on stock repurchased		-			(20	)
Common stock repurchased		-			(1,998	)
Cash dividends paid on common stock		(5,247	)		(5,047	)
Net cash (used) provided by financing activities		19,297			(1,043	)
Net change in cash and cash equivalents		(1,161	)		(23,109	)
Cash and cash equivalents at beginning of period		59,266			82,375
Cash and cash equivalents at end of period	$	58,105			59,266
A-29
---
PEOPLES BANCORP OF NORTH CAROLINA, INC.
---	---	---	---	---
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 2025 and 2024
(Dollars in thousands)
	2025		2024
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	24,656		28,079
Income taxes, federal		4,350		3,788
Income taxes, state		513		750
Noncash investing and financing activities:
Change in unrealized loss on investment securities available for sale, net		11,922		208
Transfer of loans to other real estate		-		400
Initial recognition of lease right of use asset and lease liability		263		-
DOT settlement receivable		3,009		-
See accompanying Notes to Consolidated Financial Statements.
A-30
---

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

Organization

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

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

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

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

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

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

Principles of Consolidation

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

Basis of Presentation

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

Business Segments

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

Cash and Cash Equivalents

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

Investment Securities

The Company uses three classifications for its investment securities: trading, available for sale, or held to maturity. Trading securities are bought and held principally for sale in the near term. Held to maturity securities are those securities for which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held to maturity are classified as available for sale. At December 31, 2025 and 2024, the Company classified all of its investment securities as available for sale.

A-31

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

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

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

Other Investments

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

Loans

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

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

Allowance for Credit Losses (ACL)

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

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

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

The portion of the ACL balance attributable to qualitative factors was $5.3 million and $5.2 million at December 31, 2025 and December 31, 2024, respectively. The risk factors are weighted as follows: Local, State and National Economic Outlook – 30%, Concentrations of Credit – 5%, Interest Rate Risk – 5%, Trends in Terms of Volume, Mix and Size of Loans – 15%, Seasoning of the Loan Portfolio – 10%, Experience of Staff – 10%, and Levels and Trends of Delinquencies – 25%. No changes to the risk status of any of the risk factors was made during year ended 2025.

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Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate.

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

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

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

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

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

Mortgage Banking Activities

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

The Bank originates certain fixed rate mortgage loans and commits these loans for sale. The commitments to

originate fixed rate mortgage loans are derivative contracts. The fair value of these derivative contracts is immaterial and has no effect on the recorded amounts in the financial statements.

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

Premises and Equipment

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

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

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

Income Taxes

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

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

Tax effects from an uncertain tax position can be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Previously recognized tax positions that no longer meet the more likely than not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company assessed the impact of this guidance and determined that it did not have a material impact on the Company’s financial position, results of operations or disclosures. The Company did not have any uncertain tax positions at December 31, 2025 and 2024.

Revenue Recognition

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

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Advertising Costs

Advertising costs are expensed as incurred.

Stock-Based Compensation

The Company has an Omnibus Stock Ownership and Long Term Incentive Plan that was approved by shareholders on May 7, 2020 (the “Plan”) whereby certain stock-based rights, such as stock options, restricted stock, restricted stock units, performance units, stock appreciation rights or book value shares, may be granted to eligible directors and employees. A total of 300,000 shares were reserved for issuance under the Plan when it was adopted. Excluding shares to be issued upon the exercise or vesting of existing awards, as of December 31, 2025, a total of 264,640 shares remain available for future awards that may be granted under the Plan. No new awards may be granted after May 7, 2030 (ten years from the Plan effective date).

The fair value of restricted stock units is determined based on the closing price of the Company’s common stock on the date of grant. The Company granted 7,635 restricted stock units under the Plan at a grant date fair value of $17.08 per share in 2020. The Company granted 7,060 restricted stock units under the Plan at a grant date fair value of $22.04 per share in 2021. The Company granted 5,385 restricted stock units under the Plan at a grant date fair value of $27.99 per share in 2022. The Company granted 5,370 restricted stock units under the Plan at a grant date fair value of $32.58 per share in 2023. The Company granted 6,450 restricted stock units under the Plan at a grant date fair value of $29.52 per share in 2024. The Company granted 4,580 restricted stock units under the Plan at a grant date fair value of $27.92 per share in 2025. The Company recognizes compensation expense on the restricted stock units over the four year vesting period, straight-line over the requisite service period, which is generally the vesting period of the award, and is adjusted for forfeitures as they occur. Each restricted stock unit is convertible into one share of the Company’s common stock or cash equivalent when vested. The liability-classified awards are remeasured to fair value at the end of each reporting period until settlement or expiration. As of December 31, 2025, the total unrecognized compensation expense related to the restricted stock unit grants under the Plan was $278,000.

The Company recognized compensation expense for restricted stock units granted under the Plan of $190,000 and $212,000 for the years ended December 31, 2025 and 2024, respectively.

Self Funded Insurance

The Company has a self-funded health insurance plan, which is administered by a third party provider (“TPP”). The TPP provides a monthly estimate of the cost of incurred but not reported (“IBNR”) claims. The Company’s unpaid claim liability for IBNR claims of $500,000 and $300,000 at December 31, 2025 and 2024, respectively, is separately classified on the balance sheets within Other Liabilities.

The Company has a stop-loss insurance policy to mitigate the risk of high self-funded health insurance claim amounts. This policy has a specific stop loss limit that covers individual claims in excess of $135,000 and an aggregating specific stop loss limit that covers aggregate claims in excess of $200,000. Due to large self-funded health insurance claims in process at December 31, 2024, the Company had an additional $1.3 million separately classified on the balance sheets within Other Liabilities at December 31, 2024, which was partially offset by a $968,000 stop loss insurance receivable separately classified on the balance sheets within Other Assets at December 31, 2024. There were no balances related to this large self-funded health insurance claim within Other Assets or Other Liabilities at December 31, 2025

Comprehensive Income

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

A-35

The following table presents the changes in accumulated other comprehensive loss for the year ended December 31, 2025 and 2024:

	Year Ended December 31,
(Dollars in thousands)	2025			2024
Beginning balance	$	(39,157	)		(39,365	)
Other comprehensive income before reclassifications, net		11,961			212
Amounts reclassified from accumulated other comprehensive (gain) loss, net		60			(4	)
Reduction in state tax adjustment, net		(99	)		-
Net current period other comprehensive income		11,922			208
Ending balance	$	(27,235	)		(39,157	)

Net Earnings Per Share

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

The reconciliations of the amounts used in the computation of both “basic earnings per common share” and “diluted earnings per common share” for the years ended December 31, 2025 and 2024 are as follows. There are no anti-dilutive shares to be excluded.

For the year ended December 31, 2025
	Net Earnings<br><br>(Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	19,830		5,305,272	$	3.74
Effect of dilutive securities:
Restricted stock units - unvested		-		11,468
Shares held in deferred comp plan by deferred compensation trust				154,434
Diluted earnings per share	$	19,830		5,471,174	$	3.62
For the year ended December 31, 2024
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	Net Earnings<br><br>(Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	16,353		5,300,964	$	3.08
Effect of dilutive securities:
Restricted stock units - unvested		-		20,682
Shares held in deferred comp plan by deferred compensation trust				161,141
Diluted earnings per share	$	16,353		5,482,787	$	2.98

Recent Accounting Pronouncements

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

ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2023-09 Income Taxes (Topic 740)	The ASU provides amendments to  improve the transparency<br><br>of income tax disclosures.	Annual reporting periods after December 15, 2024.	The adoption of this guidance did not have a material impact on the Company’s results of operations or financial position.  The adoption of this guidance had an immaterial impact on disclosures.  This guidance allows prospective and retrospective methods of adoption.  The Company utilized the retrospective method.
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The following table provides a summary of ASU’s issued by FASB that the Company has not adopted as of December 31, 2025, which may impact the Company’s financial statements.

ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)	The ASU requires disaggregated disclosure of income statement expenses for public business entities (PBEs).	Annual reporting periods after December 15, 2026.	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.  The adoption of this guidance is expected to have an immaterial impact on disclosures.
ASU 2025-01, Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures (Subtopic 220- 40)	The ASU clarifies that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.	Annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.  The adoption of this guidance is expected to have an immaterial impact on disclosures.

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

(2) Investment Securities

Investment securities available for sale at December 31, 2025 and 2024 are as follows:

(Dollars in thousands)
	December 31, 2025
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasuries	$	7,987		-		378		7,609
U.S. Government sponsored enterprises		5,545		-		343		5,202
GSE - Mortgage-backed securities		227,161		202		15,447		211,916
Private label mortgage-backed securities		42,575		153		666		42,062
State and political subdivisions		129,363		-		18,789		110,574
Total	$	412,631		355		35,623		377,363
(Dollars in thousands)
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	December 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasuries	$	7,981		-		724		7,257
U.S. Government sponsored enterprises		9,243		-		511		8,732
GSE - Mortgage-backed securities		248,837		162		23,207		225,792
Private label mortgage-backed securities		43,118		74		1,425		41,767
State and political subdivisions		129,659		-		25,204		104,455
Total	$	438,838		236		51,071		388,003
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The current fair value and associated unrealized losses on investments in debt securities with unrealized losses at December 31, 2025 and 2024 are summarized in the tables below, with the length of time the individual securities have been in a continuous loss position.

(Dollars in thousands)
	December 31, 2025
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasuries	$	-		-		7,609		378		7,609		378
U.S. government sponsored enterprises		-		-		5,202		343		5,202		343
GSE -Mortgage-backed securities		12,247		183		188,092		15,264		200,339		15,447
Private label mortgage-backed securities		14,156		28		15,858		638		30,014		666
State and political subdivisions		-		-		110,573		18,789		110,573		18,789
Total	$	26,403		211		327,334		35,412		353,737		35,623
(Dollars in thousands)
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	December 31, 2024
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasuries	$	-		-		7,257		724		7,257		724
U.S. government sponsored enterprises		-		-		8,732		511		8,732		511
GSE -Mortgage-backed securities		20,458		669		197,497		22,538		217,955		23,207
Private label mortgage-backed securities		4,010		9		21,727		1,416		25,737		1,425
State and political subdivisions		-		-		104,455		25,204		104,455		25,204
Total	$	24,468		678		339,668		50,393		364,136		51,071

At December 31, 2025, unrealized losses in the investment securities portfolio relating to debt securities totaled $35.6 million. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the December 31, 2025 tables above, both of the U.S. Treasury securities, all 108 of the securities issued by state and political subdivisions contained unrealized losses, all six of the securities issued by U.S. Government sponsored enterprises (“GSE”), 110 of the 116 GSE mortgage-backed securities, and 11 of the 17 private label mortgage-backed securities contained unrealized losses. The Company did not have any reserves on securities at December 31, 2025, as no credit related losses were identified in the Company’s December 31, 2025 analysis. At December 31, 2024, unrealized losses in the investment securities portfolio relating to debt securities totaled $51.1 million. The unrealized losses on these debt securities arose due to changing interest rates and were considered to be temporary. From the December 31, 2024 tables above, both of the U.S. Treasury securities, all 108 of the securities issued by state and political subdivisions contained unrealized losses, all seven of the securities issued by GSE’s, 114 of the 119 GSE mortgage-backed securities, and 11 of the 16 private label mortgage-backed securities contained unrealized losses. The Company did not have any reserves on securities at December 31, 2024, as no credit related losses were identified in the Company’s December 31, 2024 analysis.

The amortized cost and estimated fair value of investment securities available for sale, other than GSE mortgage-backed securities, at December 31, 2025, are shown below by contractual maturity. Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

December 31, 2025
(Dollars in thousands)
	Amortized Cost		Fair Value
Due within one year	$	4,920		4,939
Due from one to five years		46,428		43,371
Due from five to ten years		76,038		64,473
Due after ten years		58,084		52,664
Mortgage-backed securities		227,161		211,916
Total	$	412,631		377,363

During 2025, proceeds from sales of securities available for sale were $20.4 million and resulted in gross gains of $94,000 and gross losses of $172,000. During 2024, proceeds from sales of securities available for sale were $11.7 million and resulted in gross gains of $33,000 and gross losses of $28,000.

Securities with a fair value of approximately $40.7 million and $40.0 million at December 31, 2025 and 2024, respectively, were pledged to secure public deposits and for other purposes as required by law.

Taxable interest income on investment securities was $13.2 million and $14.6 million for the years ended December 31, 2025 and 2024, respectively. Non-taxable interest income on investment securities was $334,000 and $425,000 for the years ended December 31, 2025 and 2024, respectively.

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(3) Loans

Major classifications of loans at December 31, 2025 and 2024 are summarized as follows:

(Dollars in thousands)
	December 31,<br><br>2025			December 31,<br><br>2024
Real estate loans:
Construction and land development	$	124,089			122,328
Single-family residential		403,992			384,509
Commercial		525,099			471,444
Multifamily and farmland		73,361			69,671
Total real estate loans		1,126,541			1,047,952
Loans not secured by real estate:
Commercial		63,035			63,837
Farm		318			401
Consumer		6,260			6,475
All other		8,234			19,739
Total loans		1,204,388			1,138,404
Less allowance for credit losses		(10,126	)		(9,995	)
Total net loans	$	1,194,262			1,128,409

The above table includes deferred costs, net of deferred fees, totaling $455,000 and $714,000 at December 31, 2025 and December 31, 2024, respectively.

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

·	Construction and land development loans – The risk of loss is largely dependent on the initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral.
·	Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.
·	Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property.
·	Commercial loans – Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business.
·	Multifamily and farmland loans – Decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.
A-39
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Loans are considered past due if the required principal and interest payments have not been received within 30 days of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Generally, a loan is placed on non-accrual status when it is over 90 days past due and there is reasonable doubt that all principal will be collected. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following tables present an age analysis of past due loans, by loan type, as of December 31, 2025 and 2024:

December 31, 2025
(Dollars in thousands)
	Loans 30-89 Days Past Due		Nonaccrual Loans		Total Past Due Loans		Total Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development	$	202		58		260		123,829		124,089		-
Single-family residential		4,635		3,642		8,277		395,715		403,992		-
Commercial		299		476		775		524,324		525,099		-
Multifamily and farmland		-		-		-		73,361		73,361		-
Total real estate loans		5,136		4,176		9,312		1,117,229		1,126,541		-
Loans not secured by real estate:
Commercial		-		-		-		63,035		63,035		-
Farm		-		-		-		318		318		-
Consumer		26		-		26		6,234		6,260		-
All other		-		-		-		8,234		8,234		-
Total loans	$	5,162		4,176		9,338		1,195,050		1,204,388		-
December 31, 2024
---	---	---	---	---	---	---	---	---	---	---	---	---
(Dollars in thousands)
	Loans 30-89 Days Past Due		Nonaccrual Loans		Total Past Due Loans		Total Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development	$	131		37		168		122,160		122,328		-
Single-family residential		5,434		3,720		9,154		375,355		384,509		-
Commercial		87		426		513		470,931		471,444		-
Multifamily and farmland		-		-		-		69,671		69,671		-
Total real estate loans		5,652		4,183		9,835		1,038,117		1,047,952		-
Loans not secured by real estate:
Commercial		360		248		608		63,229		63,837		-
Farm		-		-		-		401		401		-
Consumer		33		9		42		6,433		6,475		-
All other		-		-		-		19,739		19,739		-
Total loans	$	6,045		4,440		10,485		1,127,919		1,138,404		-
A-40
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The following table presents the Bank’s non-accrual loans as of December 31, 2025 and 2024:

	December 31, 2025
	Nonaccrual Loans		Nonaccrual Loans		Total
	With No		With		Nonaccrual
(Dollars in thousands)	Allowance		Allowance		Loans
Real estate loans:
Construction and land development	$	-		58		58
Single-family residential		-		3,642		3,642
Commercial		-		476		476
Multifamily and farmland		-		-		-
Total real estate loans		-		4,176		4,176
Loans not secured by real estate:
Commercial		-		-		-
Consumer		-		-		-
Total	$	-		4,176		4,176
	December 31, 2024
---	---	---	---	---	---	---
	Nonaccrual Loans		Nonaccrual Loans		Total
	With No		With		Nonaccrual
(Dollars in thousands)	Allowance		Allowance		Loans
Real estate loans:
Construction and land development	$	37		-		37
Single-family residential		3,720		-		3,720
Commercial		426		-		426
Multifamily and farmland		-		-		-
Total real estate loans		4,183		-		4,183
Loans not secured by real estate:
Commercial		248		-		248
Consumer		9		-		9
Total	$	4,440		-		4,440

No interest income was recognized on non-accrual loans for the years ended December 31, 2025 and 2024.

The following table represents the accrued interest receivables written off by reversing interest income during the years ended December 31, 2025 and 2024:

(Dollars in thousands)
	For the<br><br>Year Ended		For the<br><br>Year Ended
	December 31,<br><br>2025		December 31,<br><br>2024
Real estate loans:
Single-family residential	$	20		39
Commercial		1		9
Total real estate loans		21		48
Loans not secured by real estate:
Commercial		-		8
Consumer		-		2
Total	$	21		58

A loan may be individually evaluated for determining the allowance for credit losses when it is determined that it does not share similar risk characteristics with other assets. Non-accrual loans with an outstanding balance of $250,000 or greater are individually evaluated and totaled $430,000 and $1.6 million at December 31, 2025 and December 31, 2024, respectively. Non-accrual loans evaluated collectively as a pool totaled $3.7 million and $2.8 million at December 31, 2025 and December 31, 2024, respectively. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans require an analysis of the collateral. The fair value of the collateral is discounted by estimated liquidation costs. If the discounted fair value of the collateral is greater than the amortized loan balance, no allowance is required. Otherwise the difference between the balance and the collateral is charged off if deemed uncollectible.

A-41

The following table details the amortized cost of collateral dependent loans and any related allowance at December 31, 2025 and 2024.

	December 31, 2025				December 31, 2024
			Allowance for				Allowance for
(Dollars in thousands)	Amortized Cost		Credit Losses		Amortized Cost		Credit Losses
Real estate loans:
Construction and land development	$	58		1		37		-
Single-family residential		3,642		31		3,720		-
Commercial		476		55		426		-
Multifamily and farmland		-		-		-		-
Total real estate loans		4,176		87		4,183		-
Loans not secured by real estate:
Commercial		-		-		248		-
Consumer		-		-		-		-
Total	$	4,176		87		4,431		-

The following tables provide a breakdown of collateral dependent loans by collateral type and collateral coverage at December 31, 2025 and 2024. These tables also show non-accrual loans not considered to be collateral dependent at December 31, 2025 and 2024.

	December 31, 2025
									Financial Assets
(Dollars in thousands)									Not Considered
	Residential<br><br>Property		Developed<br><br>Land		Commercial<br><br>Property		Business<br><br>Assets		Collateral Dependent		Total
Real estate loans:
Construction and land development	$	58		-		-		-		-		58
Single-family residential		3,642		-		-		-		-		3,642
Commercial		-		-		476		-		-		476
Multifamily and farmland		-		-		-		-		-		-
Total real estate loans		3,700		-		476		-		-		4,176
Loans not secured by real estate:
Commercial		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	3,700		-		476		-		-		4,176
Collateral Value	$	13,276		-		487		-
	December 31, 2024
---	---	---	---	---	---	---	---	---	---	---	---	---
									Financial Assets
(Dollars in thousands)									Not Considered
	Residential<br><br>Property		Developed<br><br>Land		Commercial<br><br>Property		Business<br><br>Assets		Collateral Dependent		Total
Real estate loans:
Construction and land development	$	-		37		-		-		-		37
Single-family residential		3,720		-		-		-		-		3,720
Commercial		-		-		426		-		-		426
Multifamily and farmland		-		-		-		-		-		-
Total real estate loans		3,720		37		426		-		-		4,183
Loans not secured by real estate:
Commercial		-		-		-		248		-		248
Consumer		-		-		-		-		9		9
Total	$	3,720		37		426		248		9		4,440
Collateral Value	$	9,648		88		944		272

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

A-42

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

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

No loans to borrowers experiencing financial difficulty were modified during the year ended December 31, 2025. The following table shows the amortized cost basis at December 31, 2024 of the loans to borrowers experiencing financial difficulty that were modified during the year ended December 31, 2024, disaggregated by loan class and type of concession granted.

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

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

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

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

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

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

A-43

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

The following tables present changes in the allowance for credit losses for the years ended December 31, 2025 and 2024.

(Dollars in thousands)
	Real Estate Loans
	Construction and Land Development			Single-Family Residential			Commercial		Multifamily and Farmland			Commercial			Farm		Consumer and All Other			Total
Twelve months ended December 31, 2025
Allowance for credit losses:
Beginning balance	$	3,385			3,386			2,322		246			446			1		209			9,995
Charge-offs		(31	)		(5	)		-		-			(287	)		-		(529	)		(852	)
Recoveries		31			54			-		-			77			-		185			347
Provision (recovery) for
credit losses (1)		(83	)		62			153		(12	)		217			-		299			636
Ending balance	$	3,302			3,497			2,475		234			453			1		164			10,126
Allowance for credit loss-loans	$	3,302			3,497			2,475		234			453			1		164			10,126
Allowance for credit loss
unfunded loan commitments		1,370			8			6		-			15			-		4			1,403
Total allowance for credit losses	$	4,672			3,505			2,481		234			468			1		168			11,529
(1) Excludes provision for credit losses related to unfunded commitments. Note 11,"Commitments and Contingencies" in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments.
(Dollars in thousands)
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Real Estate Loans
	Construction and Land Development			Single-Family Residential			Commercial			Multifamily and Farmland			Commercial			Farm			Consumer and All Other			Total
Twelve months ended December 31, 2024
Allowance for credit losses:
Beginning balance	$	3,913			3,484			2,317			268			812			2			245			11,041
Charge-offs		-			(131	)		-			-			(1,134	)		-			(716	)		(1,981	)
Recoveries		-			129			202			-			55			-			165			551
Provision (recovery) for
credit losses (1)		(528	)		(96	)		(197	)		(22	)		713			(1	)		515			384
Ending balance	$	3,385			3,386			2,322			246			446			1			209			9,995
Allowance for credit loss-loans	$	3,385			3,386			2,322			246			446			1			209			9,995
Allowance for credit loss
unfunded loan commitments		1,096			3			-			-			-			-			2			1,101
Total allowance for credit losses	$	4,481			3,389			2,322			246			446			1			211			11,096
(1) Excludes provision for credit losses related to unfunded commitments. Note 11,"Commitments and Contingencies" in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments.

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

The Bank uses the following credit quality indicators:

·	Pass – Includes loans ranging from excellent quality with a minimal amount of credit risk to loans with higher risk and servicing needs but still are considered to be acceptable. The higher risk loans in this category are not problem credits presently, but may be in the future if the borrower is unable to change its present course.
·	Watch – These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date.
·	Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any). There is a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
·	Doubtful – Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.
·	Loss – Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future.
A-44
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The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of December 31, 2025.

	Term Loans by Origination Year														Revolving
															Loans
(Dollars in thousands)													Revolving		Converted to		Total
	2025		2024		2023		2022		2021		Prior		Loans		Term Loans		Loans
December 31, 2025
Real Estate Loans
Construction and land
development
Pass	$	41,682		23,371		22,111		19,201		4,426		7,331		-		5,421		123,543
Watch		-		-		-		-		436		-		-		-		436
Substandard		-		-		58		-		-		52		-		-		110
Total Construction and
land development	$	41,682		23,371		22,169		19,201		4,862		7,383		-		5,421		124,089
Single family
Pass	$	36,508		23,334		32,831		67,865		40,429		74,262		122,541		-		397,770
Watch		-		-		-		600		-		1,280		-		-		1,880
Substandard		97		108		195		-		91		3,096		755		-		4,342
Total single family	$	36,605		23,442		33,026		68,465		40,520		78,638		123,296		-		403,992
Commercial
Pass	$	85,400		60,520		43,489		135,504		64,216		130,607		3,818		-		523,554
Watch		-		-		-		-		-		1,070		-		-		1,070
Substandard		-		-		-		430		45		-		-		-		475
Total commercial	$	85,400		60,520		43,489		135,934		64,261		131,677		3,818		-		525,099
Multifamily and farmland
Pass	$	12,250		1,250		7,910		18,603		19,874		13,336		100		-		73,323
Watch		-		-		-		-		-		38		-		-		38
Substandard		-		-		-		-		-		-		-		-		-
Total multifamily and
farmland	$	12,250		1,250		7,910		18,603		19,874		13,374		100		-		73,361
Total real estate loans	$	175,937		108,583		106,594		242,203		129,517		231,072		127,214		5,421		1,126,541
Loans not secured by real estate
Commercial
Pass	$	13,435		7,125		10,925		3,391		1,675		9,477		16,799		-		62,827
Watch		-		-		-		125		14		69		-		-		208
Substandard		-		-		-		-		-		-		-		-		-
Total Commercial	$	13,435		7,125		10,925		3,516		1,689		9,546		16,799		-		63,035
Farm
Pass	$	91		39		154		4		-		-		30		-		318
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total farm	$	91		39		154		4		-		-		30		-		318
Consumer
Pass	$	2,085		866		612		333		77		73		2,197		-		6,243
Watch		-		-		-		17		-		-		-		-		17
Substandard		-		-		-		-		-		-		-		-		-
Total consumer	$	2,085		866		612		350		77		73		2,197		-		6,260
All other
Pass	$	550		-		45		5,315		-		2,248		76		-		8,234
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total all other	$	550		-		45		5,315		-		2,248		76		-		8,234
Total loans not secured
by real estate	$	16,161		8,030		11,736		9,185		1,766		11,867		19,102		-		77,847
Total loans	$	192,098		116,613		118,330		251,388		131,283		242,939		146,316		5,421		1,204,388
A-45
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The following table presents by credit quality indicator, loan class and year of origination, gross loan charge-offs as of December 31, 2025.

December 31, 2025	Gross Loan Charge-offs by Origination Year														Revolving
															Loans
(dollars in thousands)													Revolving		Converted to		Total
	2025		2024		2023		2022		2021		Prior		Loans		Term Loans		Loans
Real estate loans:
Construction and land development	$	-		-		31		-		-		-		-		-		31
Single-family residential		-		-		-		-		-		-		5		-		5
Commercial		-		-		-		-		-		-		-		-		-
Multifamily and farmland		-		-		-		-		-		-		-		-		-
Total real estate loans		-		-		31		-		-		-		5		-		36
Loans not secured by real estate:
Commercial		100		-		27		39		9		112		-		-		287
Consumer		16		6		2		4		-		501		-		-		529
All other		-		-		-		-		-		-		-		-		-
Total gross charge-offs	$	116		6		60		43		9		613		5		-		852
A-46
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The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of December 31, 2024.

	Term Loans by Origination Year														Revolving
															Loans
(Dollars in thousands)													Revolving		Converted to		Total
	2024		2023		2022		2021		2020		Prior		Loans		Term Loans		Loans
December 31, 2024
Real Estate Loans
Construction and land
development
Pass	$	41,171		29,503		34,495		6,836		5,792		4,020		-		-		121,817
Watch		-		-		-		443		-		-		-		-		443
Substandard		-		-		-		-		-		68		-		-		68
Total Construction and
land development	$	41,171		29,503		34,495		7,279		5,792		4,088		-		-		122,328
Single family
Pass	$	22,169		35,865		73,663		43,900		22,363		66,074		113,067		-		377,101
Watch		-		-		-		-		-		1,469		993		-		2,462
Substandard		-		31		1,000		-		124		3,467		324		-		4,946
Total single family	$	22,169		35,896		74,663		43,900		22,487		71,010		114,384		-		384,509
Commercial
Pass	$	56,411		46,589		135,881		71,066		58,223		97,122		2,296		-		467,588
Watch		-		-		-		-		87		2,943		-		-		3,030
Substandard		-		-		-		-		400		426		-		-		826
Total commercial	$	56,411		46,589		135,881		71,066		58,710		100,491		2,296		-		471,444
Multifamily and farmland
Pass	$	998		8,455		20,786		20,638		6,055		12,186		443		-		69,561
Watch		-		-		-		-		-		43		-		-		43
Substandard		-		-		-		-		-		67		-		-		67
Total multifamily and
farmland	$	998		8,455		20,786		20,638		6,055		12,296		443		-		69,671
Total real estate loans	$	120,749		120,443		265,825		142,883		93,044		187,885		117,123		-		1,047,952
Loans not secured by real estate
Commercial
Pass	$	9,153		11,335		6,045		3,107		1,707		11,864		20,032		-		63,243
Watch		-		-		136		19		23		167		1		-		346
Substandard		-		25		223		-		-		-		-		-		248
Total Commercial	$	9,153		11,360		6,404		3,126		1,730		12,031		20,033		-		63,837
Farm
Pass	$	53		195		17		50		-		-		86		-		401
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total farm	$	53		195		17		50		-		-		86		-		401
Consumer
Pass	$	1,777		1,232		666		176		99		64		2,397		-		6,411
Watch		-		-		53		-		-		-		-		-		53
Substandard		-		-		-		-		-		8		3		-		11
Total consumer	$	1,777		1,232		719		176		99		72		2,400		-		6,475
All other
Pass	$	972		-		10,002		376		217		2,878		5,164		-		19,609
Watch		-		-		-		-		-		130		-		-		130
Substandard		-		-		-		-		-		-		-		-		-
Total all other	$	972		-		10,002		376		217		3,008		5,164		-		19,739
Total loans not secured
by real estate	$	11,955		12,787		17,142		3,728		2,046		15,111		27,683		-		90,452
Total loans	$	132,704		133,230		282,967		146,611		95,090		202,996		144,806		-		1,138,404
A-47
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The following table presents by credit quality indicator, loan class and year of origination, gross loan charge-offs as of December 31, 2024.

December 31, 2024	Gross Loan Charge-offs by Origination Year														Revolving
															Loans
(dollars in thousands)													Revolving		Converted to		Total
	2024		2023		2022		2021		2020		Prior		Loans		Term Loans		Loans
Real estate loans:
Construction and land development	$	-		-		-		-		-		-		-		-		-
Single-family residential		-		-		126		-		-		5		-		-		131
Commercial		-		-		-		-		-		-		-		-		-
Multifamily and farmland		-		-		-		-		-		-		-		-		-
Total real estate loans		-		-		126		-		-		5		-		-		131
Loans not secured by real estate:
Commercial		-		447		397		74		179		37		-		-		1,134
Consumer		5		37		9		-		1		557		-		-		609
All other		-		-		-		-		-		107		-		-		107
Total gross charge-offs	$	5		484		532		74		180		706		-		-		1,981

(4) Premises and Equipment

Major classifications of premises and equipment at December 31, 2025 and 2024 are summarized as follows:

(Dollars in thousands)
	2025			2024
Land	$	4,438			4,365
Buildings and improvements		18,671			18,602
Furniture and equipment		22,710			21,600
Construction in process		-			103
Total premises and equipment		45,819			44,670
Less accumulated depreciation		(31,657	)		(29,823	)
Total net premises and equipment	$	14,162			14,847

The Bank recognized depreciation expense totaling $2.0 million and $2.1 million for the years ended December 31, 2025 and 2024, respectively.

The Bank had a $3.0 million gain on sale of premises and equipment for the year ended December 31, 2025 due to the North Carolina Department of Transportation eminent domain acquisition of the Bank’s former Mooresville branch office for the widening of NC Highway 150. The Bank had a $362,000 write-off of leasehold improvements for the year ended December 31, 2024 due to the closure of the Bank’s branch in Cary, North Carolina in 2024, which is included in other non-interest expense.

(5) Leases

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

Total rent expense was approximately $819,000 and $817,000 for the years ended December 31, 2025 and 2024, respectively.

As of December 31, 2025, the Bank had operating right of use assets of $3.5 million and operating lease liabilities of $3.6 million. As of December 31, 2024, the Bank had operating right of use assets of $4.0 million and operating lease liabilities of $4.1 million. The Bank maintains operating leases on land and buildings for some of the Bank’s branch facilities and loan production offices. Most leases include one option to renew, with renewal terms extending up to 15 years. The decision on whether to include lease extension/renewal periods in lease accounting calculations is based on the judgment of management as to whether or not a lease extension/renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rates compared to market rates, and the presence of factors that would cause a significant economic penalty to the Bank if the option is not exercised.

The following table presents lease cost and other lease information as of December 31, 2025 and 2024.

(Dollars in thousands)
	December 31,<br><br>2025			December 31,<br><br>2024
Operating lease cost	$	823		$	840
Other information:
Cash paid for amounts included in the measurement of lease liabilities		824			819
Operating cash flows from operating leases		-			-
Right-of-use assets obtained in exchange for new lease liabilities - operating leases		263			-
Weighted-average remaining lease term - operating leases		7.37			7.91
Weighted-average discount rate - operating leases		2.98	%		2.80	%
A-48
---

The following table presents lease maturities as of December 31, 2025 and 2024.

(Dollars in thousands)
Maturity Analysis of Operating Lease Liabilities:	December 31,<br><br>2025
2026	$	750
2027		657
2028		515
2029		422
2030		424
Thereafter		1,270
Total		4,038
Less: Imputed Interest		(423	)
Operating Lease Liability	$	3,615

(6) Deposits

The composition of deposits at December 31, 2025 and 2024 is as follows:

(Dollars in thousands)
					December 31, 2024
		Percentage					Percentage
		of Total			Amount		of Total
Noninterest-bearing demand	394,563		26	%	$	402,254		27	%
Interest-bearing demand, MMDA & savings	760,883		50	%		741,363		50	%
Time, 250,000 and over	160,389		11	%		147,439		10	%
Other time	193,390		13	%		193,675		13	%
Total	1,509,225		100	%	$	1,484,731		100	%

All values are in US Dollars.

At December 31, 2025, the scheduled maturities of time deposits are as follows:

	Time Deposits	Other
(Dollars in thousands)	250,000 and over	Time Deposits
2026			180,658
2027			9,152
2028			2,110
2029			797
2030			673
Thereafter			-
Total			193,390

All values are in US Dollars.

The Bank did not have any brokered deposits at December 31, 2025 and 2024.

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

The Bank had no borrowings from the FHLB at December 31, 2025 and 2024. FHLB borrowings are collateralized by a blanket assignment on all residential first mortgage loans, home equity lines of credit and loans secured by multi-family real estate that the Bank owns. At December 31, 2025, the carrying value of loans pledged as collateral totaled approximately $247.8 million. The availability under the line of credit with the FHLB was $148.5 million at December 31, 2025.

The Bank is required to purchase and hold certain amounts of FHLB stock in order to obtain FHLB borrowings. No ready market exists for the FHLB stock, and it has no quoted market value. The stock is redeemable at $100 per share subject to certain limitations set by the FHLB. The Bank owned $1.2 million and $1.1 million of FHLB stock, included in other investments, at December 31, 2025 and 2024, respectively.

As of December 31, 2025 and 2024, the Bank had no borrowings from the Federal Reserve Bank (“FRB”). FRB borrowings are collateralized by a blanket assignment on all qualifying loans that the Bank owns which are not pledged to the FHLB. At December 31, 2025, the carrying value of loans pledged as collateral totaled approximately $689.9 million. Availability under the line of credit with the FRB was $583.8 million at December 31, 2025.

A-49

(8) Junior Subordinated Debentures

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

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

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

(9) Income Taxes

The provision for income taxes is summarized as follows:

(Dollars in thousands)
	2025		2024
Current income tax expense
Federal	$	5,032		3,081
State		556		464
		5,588		3,545
Deferred income tax expense (benefit)
Federal		197		693
State		235		338
		432		1,031
Total income tax expense	$	6,020		4,576
A-50
---

The following is a reconciliation of the statutory federal income tax expense to the Company’s effective tax rate:

(Dollars in thousands)
	2025					2024
Tax-expense at the statutory rate	$	5,428		21.0	%		4,398		21.0	%
State income tax, net of federal income tax effect		685		2.6	%		635		3.0	%
Increases (decreases):
Tax credits		(10	)	0.0	%		(10	)	-0.1	%
Nontaxable and nondeductible items, net
Tax-exempt income		(98	)	-0.4	%		(114	)	-0.5	%
Increase in cash surrender value of life insurance		(126	)	-0.5	%		(165	)	-0.7	%
Nondeductible interest and other expense		20		0.1	%		24		0.1	%
Other		44		0.2	%		0		0.0	%
Other
Interest received related to tax position		-		0.0	%		(260	)	-1.2	%
Other		77		0.3	%		68		0.3	%
Total income tax expenses	$	6,020		23.3	%		4,576		21.9	%

State taxes in North Carolina made up the majority (greater than 50%) of the tax effect in the table above.

The following summarizes the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities. The net deferred tax asset is included as a component of other assets at December 31, 2025 and 2024.

(Dollars in thousands)
	2025		2024
Deferred tax assets:
Allowance for credit losses	$	2,603		2,485
Accrued retirement expense		1,251		1,215
Other real estate		7		-
Restricted stock		238		238
Interest income on nonaccrual loans		2		4
Lease liability		816		926
Unrealized loss on available for sale securities		7,649		11,412
Total gross deferred tax assets		12,566		16,280
Deferred tax liabilities:
Deferred loan fees		103		160
Accumulated depreciation		956		375
Prepaid expenses		379		296
ROU Asset		786		899
Other		99		259
Total gross deferred tax liabilities		2,323		1,989
Net deferred tax asset	$	10,243		14,291
A-51
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The following table presents cash paid for federal and state income taxes net of refunds:

(Dollars in thousands)
	2025		2024
Federal	$	4,350		3,788
State:
North Carolina		446		673
Other		67		77
Total State		513		750
Total income taxes paid, net of refunds received	$	4,863		4,538

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

As of December 31, 2025, the Company’s Federal income tax filings for years 2022 through 2024 are open to examination by the Internal Revenue Service. The Company’s North Carolina income tax returns for years 2022 through 2024 are open to examination by the North Carolina Department of Revenue.

(10) Related Party Transactions

The Company conducts transactions with its directors and executive officers, including companies in which they have beneficial interests, in the normal course of business. In accordance with Regulation O of the Federal Reserve, it is the policy of the Bank that loan transactions with directors and officers are made on substantially the same terms as those prevailing at the time made for comparable loans to other persons. The following is a summary of activity for related party loans for 2025 and 2024:

(Dollars in thousands)
	2025			2024
Beginning balance	$	4,871			3,569
Disbursements		2,501			6,095
Repayments		(4,137	)		(4,793	)
Ending balance	$	3,235			4,871

At December 31, 2025 and 2024, the Company had deposit relationships with related parties of approximately $44.9 million and $65.5 million, respectively.

(11) Commitments and Contingencies

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

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

A-52

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

(Dollars in thousands)
	Contractual Amount
	2025		2024
Financial instruments whose contract amount represent credit risk:
Commitments to extend credit	$	366,461		348,876
Standby letters of credit	$	1,576		1,675

Commitments to extend credit are conditional agreements to lend to a customer. Commitments generally have fixed expiration dates and because they may expire without being drawn upon, the total commitment amount of $368.0 million does not necessarily represent future cash requirements.

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

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, when this extension of credit is not unconditionally cancelable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding activity and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $1.4 million and $1.1 million at December 31, 2025 and 2024, respectively, is separately classified on the balance sheets within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the years ended December 31, 2025 and 2024.

(dollars in thousands)	For  twelve months ended
	December 31,<br><br>2025		December 31,<br><br>2024
Beginning balance	$	1,101		1,770
Provision for (recovery of) credit losses		302		(669	)
Ending balance	$	1,403		1,101

(12) Employee and Director Benefit Programs

The Bank has a 401(k) plan for the benefit of substantially all employees subject to certain minimum age and service requirements. Under the 401(k) plan, the Bank matched employee contributions to a maximum of 4.00% of annual compensation in 2024 and 2025. The Company’s contribution pursuant to this formula was approximately $834,000 and $783,000 for the years ended December 31, 2025 and 2024, respectively. Investments made available under the 401(k) plan are determined by a committee comprised of senior management. No investments in Company stock are available under the 401(k) plan. Contributions to the 401(k) plan are vested immediately.

In 2001, the Company initiated a retirement benefit plan to provide retirement benefits to key officers and its Board of Directors and to provide death benefits for their designated beneficiaries. Under the retirement benefit plan, the Company purchased life insurance policies on the lives of the key officers and each director. The increase in cash surrender value of the policies constitutes the Company’s contribution to the retirement benefit plan each year. retirement benefit plan participants are entitled to be paid annual benefits for a specified number of years commencing upon retirement. Expenses incurred for benefits relating to the retirement benefit plan were approximately $432,000 and $617,000 for the years ended December 31, 2025 and 2024, respectively.

A-53

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

(Dollars in thousands)
	2025			2024
Benefit obligation at beginning of period	$	5,426			5,268
Service cost		368			521
Interest cost		71			101
Benefits paid		(341	)		(464	)
Benefit obligation at end of period	$	5,524			5,426

The amounts recognized in the Company’s Consolidated Balance Sheets as of December 31, 2025 and 2024 are shown in the following two tables:

(Dollars in thousands)
	2025		2024
Benefit obligation	$	5,524		5,426
Fair value of plan assets		-		-
(Dollars in thousands)
---	---	---	---	---	---	---
	2025			2024
Funded status	$	(5,524	)		(5,426	)
Unrecognized prior service cost/benefit		-			-
Unrecognized net actuarial loss		-			-
Net amount recognized	$	(5,524	)		(5,426	)
Unfunded accrued liability	$	(5,524	)		(5,426	)
Intangible assets		-			-
Net amount recognized	$	(5,524	)		(5,426	)

Net periodic benefit cost of the Company’s retirement benefit plans for the years ended December 31, 2025 and 2024 consisted of the following:

(Dollars in thousands)
	2025			2024
Service cost	$	368			521
Interest cost		71			101
Net periodic cost	$	439			622
Weighted average discount rate assumption used to determine benefit obligation		5.50	%		5.50	%
A-54
---

The Company paid retirement plan benefits totaling $341,000 and $465,000 during the years ended December 31, 2025 and 2024, respectively. Information about the expected benefit payments for the Company’s retirement benefit plan is as follows:

(Dollars in thousands)
Year ending December 31,
2026	$	373
2027		483
2028		491
2029		530
2030		456
Thereafter		8,563

(13) Regulatory Matters

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

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum capital ratios in relation to both on- and off-balance sheet items at various risk weights. Total capital consists of two tiers of capital. Tier 1 capital includes common shareholders’ equity and trust preferred securities less adjustments for intangible assets. Tier 2 capital consists of the allowance for credit losses, up to 1.25% of risk-weighted assets and other adjustments. Management believes, as of December 31, 2025, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2025, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since that notification that management believes have changed the Bank’s category.

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

A-55

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

(Dollars in thousands)
	Actual					Minimum Regulatory Capital Ratio					Minimum Ratio plus Capital Conservation Buffer
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2025:
Total Capital (to Risk-Weighted Assets)
Consolidated	$	210,882		15.82	%		106,612		8.00	%		N/A		N/A
Bank		209,144		15.70	%		106,586		8.00	%		139,894		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated		199,353		14.96	%		79,959		6.00	%		N/A		N/A
Bank		197,615		14.83	%		79,940		6.00	%		113,248		8.50	%
Tier 1 Capital (to Average Assets)
Consolidated		199,353		11.33	%		70,381		4.00	%		N/A		N/A
Bank		197,615		11.13	%		71,008		4.00	%		71,008		4.00	%
Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated		184,353		13.83	%		59,969		4.50	%		N/A		N/A
Bank		197,615		14.83	%		59,955		4.50	%		93,263		7.00	%
(Dollars in thousands)
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Actual					Minimum Regulatory Capital Ratio					Minimum Ratio plus Capital Conservation Buffer
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2024:
Total Capital (to Risk-Weighted Assets)
Consolidated	$	195,816		15.34	%		102,127		8.00	%		N/A		N/A
Bank		194,314		15.22	%		102,116		8.00	%		134,027		10.50	%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated		184,720		14.47	%		76,595		6.00	%		N/A		N/A
Bank		183,218		14.35	%		76,587		6.00	%		108,498		8.50	%
Tier 1 Capital (to Average Assets)
Consolidated		184,720		10.88	%		67,896		4.00	%		N/A		N/A
Bank		183,218		10.71	%		68,441		4.00	%		68,441		4.00	%
Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated		169,720		13.29	%		57,446		4.50	%		N/A		N/A
Bank		183,218		14.35	%		57,440		4.50	%		89,351		7.00	%

(14) Other Operating Income and Expense

Miscellaneous non-interest income for the years ended December 31, 2025 and 2024 included the following items:

(Dollars in thousands)
	2025		2024
Visa debit card income	$	4,466		4,417
Bank owned life insurance income		602		783
Income on SBIC Investments		136		1,186
Income on mutual funds held in deferred compensation trust		129		555
Other		1,404		1,394
	$	6,737		8,335
A-56
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Other non-interest expense for the years ended December 31, 2025 and 2024 included the following items:

(Dollars in thousands)
	2025		2024
ATM expense	$	441		588
Data processing		838		708
Deposit program expense		176		306
Dues and subscriptions		731		740
Internet banking expense		1,193		1,067
Office supplies		529		534
Telephone		498		595
Deferred compensation expense		129		555
Other		4,419		4,637
	$	8,954		9,730

(15) Fair Value of Financial Instruments

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

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

·	Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
·	Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
·	Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Investment Securities Available for Sale

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

Mortgage Loans Held for Sale

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

Loans

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

Mutual Funds

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

A-57

FHLB Borrowings

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

Commitments to Extend Credit and Standby Letters of Credit

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

Limitations

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

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

The tables below present all financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy, as of December 31, 2025 and December 31, 2024.

(Dollars in thousands)
	December 31, 2025
	Fair Value Measurements		Level 1<br><br>Valuation		Level 2<br><br>Valuation		Level 3<br><br>Valuation
U.S. Treasuries	$	7,609		-		7,609		-
U.S. Government sponsored enterprises		5,202		-		5,202		-
GSE - Mortgage-backed securities		211,916		-		211,916		-
Private label mortgage-backed securities		42,062		-		42,062		-
State and political subdivisions		110,574		-		110,574		-
Mutual funds held in deferred compensation trust		2,855		2,855		-		-
(Dollars in thousands)
---	---	---	---	---	---	---	---	---
	December 31, 2024
	Fair Value Measurements		Level 1<br><br>Valuation		Level 2<br><br>Valuation		Level 3<br><br>Valuation
U.S. Treasuries	$	7,257		-		7,257		-
U.S. Government sponsored enterprises		8,732		-		8,732		-
GSE - Mortgage-backed securities		225,792		-		225,792		-
Private label mortgage-backed securities		41,767		-		41,767		-
State and political subdivisions		104,455		-		104,455		-
Mutual funds held in deferred compensation trust		2,726		2,726		-		-
A-58
---

The fair value measurements for individually evaluated loans on a non-recurring basis at December 31, 2025 and December 31, 2024 are presented below. The fair value measurement process uses certified appraisals and other market-based information; however, in many cases, it also requires significant input based on management’s knowledge of, and judgment about, current market conditions, specific issues relating to the collateral and other matters. As a result, all fair value measurements for individually evaluated loans and other real estate are considered Level 3.

(Dollars in thousands)
	Fair Value December 31, 2025		Fair Value December 31, 2024		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Individually evaluated loans	$	375	$	1,646	Appraised value	Discounts to reflect current market conditions and ultimate collectability	0 - 50%
Other real estate	$	-	$	369	Appraised value	Discounts to reflect current market conditions and estimated costs to sell	0 - 25%

The carrying amount and estimated fair value of financial instruments at December 31, 2025 and December 31, 2024 are as follows:

(Dollars in thousands)
			Fair Value Measurements at December 31, 2025
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	58,105		58,105		-		-		58,105
Investment securities available for sale		377,363		-		377,363		-		377,363
Other investments		2,595		-		-		2,595		2,595
Mortgage loans held for sale		1,136		-		1,136		-		1,136
Loans, net		1,194,262		-		-		1,197,371		1,197,371
Mutual funds held in deferred compensation trust		2,855		2,855		-		-		2,855
Liabilities:
Deposits	$	1,509,225		-		1,511,596		-		1,511,596
Junior subordinated debentures		15,464		-		15,464		-		15,464
(Dollars in thousands)
---	---	---	---	---	---	---	---	---	---	---
			Fair Value Measurements at December 31, 2024
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	59,266		59,266		-		-		59,266
Investment securities available for sale		388,003		-		388,003		-		388,003
Other investments		2,728		-		-		2,728		2,728
Mortgage loans held for sale		1,367		-		1,367		-		1,367
Loans, net		1,128,409		-		-		1,123,864		1,123,864
Mutual funds held in deferred compensation trust		2,726		2,726		-		-		2,726
Liabilities:
Deposits	$	1,484,731		-		1,487,475		-		1,487,475
Junior subordinated debentures		15,464		-		15,464		-		15,464
A-59
---

(16) Reportable Segments

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

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

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

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

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

(Dollars in thousands)
	Banking
	Operations			CBRES		Other			Consolidated
As of and for the year ended December 31, 2025
Interest income	$	83,589			-		29			83,618
Interest expense		23,642			-		959			24,601
Net interest income		59,947			-		(930	)		59,017
Provision for credit losses		938			-		-			938
Noninterest income		17,296			-		-			17,296
Appraisal management fee income		-			13,684		-			13,684
Salaries and employee benefits		27,056			816		373			28,245
Occupancy		8,931			17		-			8,948
Appraisal management fee expense		-			10,884		-			10,884
Noninterest expense		13,979			849		304			15,132
Income tax expense (benefit)		6,102			255		(337	)		6,020
Net income (loss)	$	20,237			863		(1,270	)		19,830
Total assets	$	1,696,130			5,228		790			1,702,148
As of and for the year ended December 31, 2024
Interest income	$	80,699			-		34			80,733
Interest expense		25,538			-		1,116			26,654
Net interest income		55,161			-		(1,082	)		54,079
Provision for credit losses		(285	)		-		-			(285	)
Noninterest income		16,024			-		-			16,024
Appraisal management fee income		-			11,691		-			11,691
Salaries and employee benefits		27,037			766		406			28,209
Occupancy		8,683			3		-			8,686
Appraisal management fee expense		-			9,263		-			9,263
Noninterest expense		13,908			798		286			14,992
Income tax expense (benefit)		4,749			199		(372	)		4,576
Net income (loss)	$	17,093			662		(1,402	)		16,353
Total assets	$	1,647,020			4,340		602			1,651,962
A-60
---

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

Balance Sheets
December 31, 2025 and 2024
(Dollars in thousands)
Assets	2025		2024
Cash	$	452		425
Interest-bearing time deposit		1,000		1,000
Investment in subsidiaries		170,381		144,061
Investment in PEBK Capital Trust II		464		464
Other assets		325		138
Total assets	$	172,622		146,088
Liabilities and Shareholders' Equity
Junior subordinated debentures	$	15,464		15,464
Other liabilities		40		61
Shareholders' equity		157,118		130,563
Total liabilities and shareholders' equity	$	172,622		146,088
Statements of Earnings
---	---	---	---	---
For the Years Ended December 31, 2025 and 2024
(Dollars in thousands)
Revenues:	2025		2024
Interest and dividend from subsidiary	$	6,731		8,534
Total revenues		6,731		8,534
Expenses:
Interest		959		1,116
Other operating expenses		677		692
Total expenses		1,636		1,808
Income before income tax benefit and equity in undistributed earnings of subsidiaries		5,095		6,726
Income tax benefit		337		372
Income before equity in undistributed earnings of subsidiaries		5,432		7,098
Equity in undistributed earnings of subsidiaries		14,398		9,255
Net earnings	$	19,830		16,353
A-61
---
Statements of Cash Flows
---	---	---	---	---	---	---
For the Years Ended December 31, 2025 and 2024
(Dollars in thousands)
	2025			2024
Cash flows from operating activities:
Net earnings	$	19,830			16,353
Adjustments to reconcile net earnings to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(14,398	)		(9,255	)
Change in:
Other assets		(187	)		(138	)
Other liabilities		(21	)		(111	)
Net cash provided by operating activities		5,224			6,849
Cash flows from investing activities:
Net cash provided by investing activities		-			-
Cash flows from financing activities:
Cash dividends paid on common stock		(5,247	)		(5,047	)
Stock repurchase		-			(1,998	)
Excise tax on stock repurchase		-			(20	)
Proceeds from exercise of restricted stock units		50			51
Net cash used by financing activities		(5,197	)		(7,014	)
Net change in cash		27			(165	)
Cash at beginning of year		425			590
Cash at end of year	$	452			425
A-62
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DIRECTORS AND OFFICERS OF THE COMPANY

DIRECTORS

Robert C. Abernethy, Sr. – Chairman

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

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

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

James S. Abernethy – Vice Chairman

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

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

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

Ashton V. Abernethy

Vice President of Sales, Medusind Behavioral Health

Robert C. Abernethy, Jr.

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

Douglas S. Howard

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

John W. Lineberger, Jr.

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

Gary E. Matthews

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

Director, Conover Metal Products

Billy L. Price, Jr. MD

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

William Gregory (Greg) Terry

President, Clemson Legacy Designs

President, Collegiate Legacy Designs

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

Dan Ray Timmerman, Jr.

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

Benjamin I. Zachary

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

EXECUTIVE OFFICERS

William D. Cable, Sr.

President and Chief Executive Officer

Jeffrey N. Hooper

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

James O. Perry

Executive Vice President, Chief Banking Officer

Carol S. Shinn

Executive Vice President, Chief Operations Officer

Jody G. Street

Executive Vice President, Chief Commercial Banking Officer

Timothy P. Turner

Executive Vice President, Chief Credit Officer

A-63

pebk_ex21.htm

EXHIBIT (21)

SUBSIDIARIES OF THE REGISTRANT

A list of subsidiaries is contained in Part I, Item 1 Business under the section titled “Subsidiaries” and is incorporated herein by reference.

pebk_ex23.htm

EXHIBIT (23)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-43426 on Form S-3D, effective August 10, 2000 and Registration Statement No. 333-254489 on Form S-8, effective March 19, 2021 of Peoples Bancorp of North Carolina, Inc. of our reports dated March 11, 2026, with respect to the consolidated financial statements of Peoples Bancorp of North Carolina, Inc. and the effectiveness of internal control over financial reporting, included in this Annual Report on Form 10-K for the year ended December 31, 2025.

/s/ Forvis Mazars, LLP

Charlotte, North Carolina

March 11, 2026

pebk_ex311.htm

EXHIBIT (31)(i)

CERTIFICATIONS

I, William D. Cable, Sr., certify that:

1.	I have reviewed this annual report on Form 10-K of Peoples Bancorp of North Carolina, 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 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.

March 11, 2026	/s/ William D. Cable, Sr.

| Date | William D. Cable, Sr. |

| | President and Chief Executive Officer |

| | (Principal Executive Officer) |

pebk_ex312.htm

EXHIBIT (31)(ii)

CERTIFICATIONS

I, Jeffrey N. Hooper, certify that:

1.	I have reviewed this annual report on Form 10-K of Peoples Bancorp of North Carolina, 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 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.

March 11, 2026	/s/ Jeffrey N. Hooper

| Date | Jeffrey N. Hooper |

| | Executive Vice President and Chief Financial Officer<br> <br>(Principal Financial and Principal Accounting Officer) |

pebk_ex32.htm

EXHIBIT (32)

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Peoples Bancorp of North Carolina, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best knowledge of the undersigned:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 11, 2026	/s/ William D. Cable, Sr.

| Date | William D. Cable, Sr.<br> <br>Chief Executive Officer | | March 11, 2026 | /s/ Jeffrey N. Hooper |

| Date | Jeffrey N. Hooper<br> <br>Chief Financial Officer |