2 -

Old Point Financial Corporation ~~and Subsidiaries~~

Consolidated Statements of Comprehensive Income

	Three Months Ended September 30,						Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016			2017		2016
(unaudited, dollars in thousands)											2021		2020			2021			2020
	(unaudited, dollars in thousands)
Net income		$	757	$	1,329		$	2,860	$	2,902	$	1,842	$	2,494		$	4,854		$	3,744
Other comprehensive income (loss), net of tax
Net unrealized gain (loss) on available-for-sale securities			57		(299	)		1,521		1,877		696		4,021			(998	)		3,576
Reclassification for gain included in net income												0		(145	)		0			(145	)
Other comprehensive income (loss), net of tax												696		3,876			(998	)		3,431
Comprehensive income		$	814	$	1,030		$	4,381	$	4,779	$	2,538	$	6,370		$	3,856		$	7,175

See Notes to Consolidated Financial Statements.

3 -

Index

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Changes in ~~Stockholders'~~Stockholders’ Equity

Shares of
Common
Stock

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss
Total
(unaudited, dollars in thousands except per share data)
NINE MONTHS ENDED SEPTEMBER 30, 2017

Balance at beginning of period 4,961,258 $ 24,806 $ 16,427 $ 56,965 $ (4,208 ) $ 93,990
Net income - - - 2,860 - 2,860
Other comprehensive income, net of tax - - - - 1,521 1,521
Exercise of stock options 48,287 241 727 - - 968
Employee Stock Purchase Plan share issuance 2,523 13 58 - - 71
Repurchase of common stock related to stock option exercises (4,683 ) (23 ) (109 ) - - (132 )
Stock-based compensation expense - - 9 - - 9
Cash dividends ($0.33 per share) - - - (1,646 ) - (1,646 )

Balance at end of period 5,007,385 $ 25,037 $ 17,112 $ 58,179 $ (2,687 ) $ 97,641

NINE MONTHS ENDED SEPTEMBER 30, 2016

Balance at beginning of period 4,959,009 $ 24,795 $ 16,392 $ 55,151 $ (3,162 ) $ 93,176
Net income - - - 2,902 - 2,902
Other comprehensive income, net of tax - - - - 1,877 1,877
Cash dividends ($0.30 per share) - - - (1,488 ) - (1,488 )

Balance at end of period 4,959,009 $ 24,795 $ 16,392 $ 56,565 $ (1,285 ) $ 96,467

~~See Notes to Consolidated Financial Statements.~~

(unaudited, dollars in thousands, except share and per share data)	Shares of Common Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
THREE MONTHS ENDED JUNE 30, 2021

Balance at March 31, 2020		5,195,719	$	25,979	$	21,324		$	68,245		$	2,375		$	117,923
Net income		-		0		0			1,842			0			1,842
Other comprehensive income, net of tax		-		0		0			0			696			696
Employee Stock Purchase Plan share issuance		1,292		6		22			0			0			28
Restricted stock vested		8,521		43		(43	)		0			0			0
Stock-based compensation expense		-		0		69			0			0			69
Cash dividends ($0.12 per share)		-		0		0			(630	)		0			(630	)

Balance at end of period		5,205,532	$	26,028	$	21,372		$	69,457		$	3,071		$	119,928

THREE MONTHS ENDED JUNE 30, 2020

Balance at March 31, 2019		5,188,221	$	25,941	$	21,026		$	63,601		$	(524	)	$	110,044
Net income		-		0		0			2,494			0			2,494
Other comprehensive loss, net of tax		-		0		0			0			3,876			3,876
Employee Stock Purchase Plan share issuance		1,735		9		16			0			0			25
Restricted stock vested		1,261		6		(6	)		0			0			0
Stock-based compensation expense		-		0		57			0			0			57
Cash dividends ($0.12 per share)		-		0		0			(627	)		0			(627	)

Balance at end of period		5,191,217	$	25,956	$	21,093		$	65,468		$	3,352		$	115,869

4 -

Index

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited, dollars in thousands, except share and per share data)	Shares of Common Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
SIX MONTHS ENDED JUNE 30, 2021

Balance at December 31, 2020		5,194,443	$	25,972	$	21,245		$	65,859		$	4,069		$	117,145
Net income		-		0		0			4,854			0			4,854
Other comprehensive loss, net of tax		-		0		0			0			(998	)		(998	)
Employee Stock Purchase Plan share issuance		2,568		13		40			0			0			53
Restricted stock vested		8,521		43		(43	)		0			0			0
Stock-based compensation expense		-		0		130			0			0			130
Cash dividends ($0.24 per share)		-		0		0			(1,256	)		0			(1,256	)

Balance at end of period		5,205,532	$	26,028	$	21,372		$	69,457		$	3,071		$	119,928

SIX MONTHS ENDED JUNE 30, 2020

Balance at December 31, 2019		5,180,105	$	25,901	$	20,959		$	62,975		$	(79	)	$	109,756
Net income		-		0		0			3,744			0			3,744
Other comprehensive income, net of tax		-		0		0			0			3,431			3,431
Employee Stock Purchase Plan share issuance		2,593		13		33			0			0			46
Restricted stock vested		8,519		42		(42	)		0			0			0
Stock-based compensation expense		-		0		143			0			0			143
Cash dividends ($0.24 per share)		-		0		0			(1,251	)		0			(1,251	)

Balance at end of period		5,191,217	$	25,956	$	21,093		$	65,468		$	3,352		$	115,869

See Notes to Consolidated Financial Statements.

Index

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

	Nine Months Ended September 30,							Six Months Ended June 30,
	2017			2016
	(unaudited, dollars in thousands)
(unaudited, dollars in thousands)								2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,860		$	2,902			$	4,854		$	3,744
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:							Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		2,081			2,034				1,052			1,070
Amortization of right of use lease asset									185			179
Accretion related to acquisition, net									(7	)		(40	)
Provision for loan losses		2,925			1,300				150			600
Net gain on sale of available-for-sale securities		(89	)		(522	)
Net amortization of securities		1,727			1,595				438			300
(Increase) in loans held for sale		(981	)		-
Net (gain) loss on disposal of premises and equipment		4			(3	)
Net (gain) loss on write-down/sale of other real estate owned		(18	)		153
Decrease (increase) in loans held for sale, net									12,129			(2,904	)
Income from bank owned life insurance		(595	)		(647	)			(430	)		(423	)
Stock compensation expense		9			-				130			143
Deferred tax benefit		(171	)		(256	)			(12	)		(1,030	)
Increase in other assets		(552	)		(942	)
Increase (decrease) in other liabilities		(244	)		363
Net cash provided by operating activities		6,956			5,977
(Decrease) in other assets									(2,602	)		(201	)
Increase (decrease) in accrued expenses and other liabilities									23			(1,012	)
Net cash provided by (used in) operating activities									15,910			(576	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities		(25,220	)		(104,082	)			(49,310	)		(30,891	)
Proceeds from redemption (cash used in purchases) of restricted securities, net		(1,920	)		196
Proceeds from redemption (purchase) of restricted securities, net									334			(226	)
Proceeds from maturities and calls of available-for-sale securities		46,625			42,330				8,280			5,316
Proceeds from sales of available-for-sale securities		7,030			106,761				3,130			9,385
Paydowns on available-for-sale securities		7,484			8,734				9,397			5,831
(Purchases) paydowns of consumer installment loans, net		(7,275	)		-
Net increase in all other loans (including repayments on student loans)		(92,058	)		(26,703	)
Proceeds from sales of other real estate owned		1,084			1,625
Payments for improvements to other real estate owned		-			(52	)
Net decrease (increase) in loans held for investment									3,438			(109,499	)
Purchases of premises and equipment		(510	)		(710	)			(760	)		(662	)
Net cash provided by (used in) investing activities		(64,760	)		28,099
Proceeds from sale of premises and equipment									31			1,297
Net cash used in investing activities									(25,460	)		(119,449	)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in noninterest-bearing deposits		(5,199	)		10,930
Increase in noninterest-bearing deposits									38,306			81,165
Increase in savings deposits		202			3,818				42,808			60,359
Increase in time deposits		2,940			3,278
Increase (decrease) in federal funds purchased and repurchase agreements, net		5,181			(7,711	)
Decrease in time deposits									(14,333	)		(19,100	)
Increase (decrease) in federal funds purchased, repurchase agreements and other borrowings, net									4,270			(3,780	)
Increase in Federal Home Loan Bank advances		120,000			55,000				0			25,000
Repayment of Federal Home Loan Bank advances		(75,000	)		(60,000	)			0			(20,000	)
Proceeds from exercise of stock options and ESPP issuance		1,039			-
Repurchase and retirement of common stock		(132	)		-
Increase in Federal Reserve Bank borrowings									0			37,515
Repayment of Federal Reserve Bank borrowings									(25,237	)		(175	)
Proceeds from ESPP issuance									53			46
Cash dividends paid on common stock		(1,646	)		(1,488	)			(1,256	)		(1,251	)
Net cash provided by financing activities		47,385			3,827				44,611			159,779

Net increase (decrease) in cash and cash equivalents		(10,419	)		37,903
Net increase in cash and cash equivalents									35,061			39,754
Cash and cash equivalents at beginning of period		25,854			36,990				120,437			89,865
Cash and cash equivalents at end of period	$	15,435		$	74,893			$	155,498		$	129,619

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest	$	2,029		$	1,948			$	1,693		$	3,059
Income tax	$	750		$	-

SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Unrealized gain on securities available-for-sale	$	2,305		$	2,844
Former bank property transferred from fixed assets to foreclosed properties	$	-		$	127
Unrealized (loss) gain on securities available-for-sale								$	3,887		$	4,343
Loans transferred to other real estate owned								$	0		$	254
Former bank property transferred from fixed assets to held for sale assets								$	902		$	0
Right of use lease asset and liability								$	1,277		$	789

See Notes to Consolidated Financial Statements.

~~- 5 -~~6

Index

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. ~~General~~Accounting Policies

The accompanying unaudited consolidated financial statements of Old Point Financial Corporation (NASDAQ: OPOF) (the Company) and its subsidiaries have been prepared in accordance with U.S. GAAP for interim financial information. All significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications of a normal and recurring nature considered necessary to present fairly the financial position at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the statements of income, ~~and~~ comprehensive income, and changes in stockholders’ equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, and the statements of ~~changes in stockholders' equity and~~ cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the ~~Company's 2016 annual report~~Company’s 2020 Annual Report on Form 10-K. Certain previously reported amounts have been reclassified to conform to current period presentation, none of which were material in nature.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, The Old Point National Bank of Phoebus (the Bank) and Old Point Trust & Financial Services N.A. (Trust). ~~Also included are the accounts of Old Point Mortgage, LLC (OPM) which became a wholly-owned subsidiary of the Bank in the second quarter of 2017.~~ All significant intercompany balances and transactions have been eliminated in consolidation.

NATURE OF OPERATIONS

Old Point Financial Corporation is a holding company that conducts substantially all of its operations through ~~two~~2 subsidiaries, the Bank and Trust. The Bank serves individual and commercial customers, the majority of which are in Hampton Roads, Virginia. As of ~~September~~June 30, ~~2017,~~2021, the Bank had 1816 branch offices. The Bank offers a full range of deposit and loan products to its retail and commercial customers, including mortgage loan products offered through ~~its subsidiary, OPM.~~ Old Point Mortgage. A full array of insurance products is also offered through Old Point Insurance, LLC in partnership with Morgan Marrow Company. Trust offers a full range of services for individuals and businesses. Products and services include retirement planning, estate planning, financial planning, estate and trust administration, retirement plan administration, tax services and investment management services.

~~SUBSEQUENT EVENTS~~

~~In accordance~~COVID-19

The COVID-19 pandemic has caused a significant disruption in economic activity worldwide, including in market areas served by the Company. Estimates for the allowance for loan losses at June 30, 2021 include probable and estimable losses related to the pandemic. While there have been signals of economic recovery and a resumption of many types of business activity, there remains significant uncertainty in the measurement of these losses. If economic conditions deteriorate further, then additional provision for loan losses may be required in future periods. It is unknown how long these conditions will last and what the ultimate financial impact will be to the Company. Depending on the severity and duration of the economic consequences of the pandemic, the Company’s goodwill may become impaired.

On March 27, 2020, the CARES Act was enacted, which included provisions that, among other things, (i) established the PPP to provide loans guaranteed by the SBA to businesses affected by the pandemic, (ii) provided certain forms of economic stimulus, including direct payments to certain U.S. households, enhanced unemployment benefits, certain income tax benefits intended to assist businesses in surviving the economic crisis, and delayed the required implementation of certain new accounting standards for some entities, and (iii) provided limited regulatory relief to banking institutions. The federal banking agencies have eased certain bank capital requirements and reporting requirements in response to the pandemic, and have encouraged banking institutions to work prudently with ~~ASC 855-10, "Subsequent Events,"~~borrowers affected by the pandemic by offering loan modifications that can improve borrowers’ capacity to service debt, increase the potential for financially stressed residential borrowers to keep their homes, and facilitate financial institutions’ ability to collect on their loans. The Federal Reserve also established the PPPLF to provide funding to eligible financial institutions to facilitate lending under the PPP. The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, expanded on some of the benefits made available under the CARES Act, including the PPP program, and provided further economic stimulus. On March 11, 2021, President Biden signed into law the American Rescue Plan which provided a further $1.9 trillion of pandemic relief.

The Company’s business, financial condition and results of operations generally rely upon the ability of its borrowers to repay their loans, the value of collateral underlying secured loans, and the demand for loans and other products and services offered, which are highly dependent on the business environment in the Company’s primary markets. As of June 30,2021, the Company ~~evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types~~had loan modifications of ~~subsequent events: (1) recognized, or those that provide additional evidence about conditions that existed at the date~~$54 thousand down from approximately $7.4 million as of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) nonrecognized, or those that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.December 31,2020.

On October 27, 2017, the Company and the Bank entered into a definitive Agreement and Plan of Reorganization with Citizens National Bank (OTC Pink: CNBV) (Citizens National) pursuant to which the Company will acquire Citizens National in a stock and cash transaction for total consideration valued at approximately $7.9 million (the Pending Acquisition), based on a volume-weighted average price of $31.48 for Old Point common stock for the three trading days ended October 27, 2017. Upon the closing of the Pending Acquisition, Citizens National will merge into the Bank with the Bank as the surviving entity. The Pending Acquisition has been unanimously approved by the boards of directors of the Company, the Bank and Citizens National. The Pending Acquisition is expected to be completed in first quarter of 2018, subject to the approval of Citizens National shareholders as well as customary regulatory approvals and other closing conditions.

~~- 6 -~~

Index

RECENT ACCOUNTING PRONOUNCEMENTS

During February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements. As the Company owns the majority of its buildings, management does not anticipate that the ASU will have a material impact.

~~During~~In June 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU~~Accounting Standards Update (ASU) No. 2016-13, ~~"Financial Instruments—~~“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments."” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ~~amendments~~FASB has issued multiple updates to ASU No. 2016-13 as codified in ~~this~~Topic 326, including ASU ~~are effective~~No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, ASU No. 2019-11, ASU No. 2020-02, and ASU No. 2020-03. These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (SEC) ~~filers~~and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those ~~fiscal~~ years, beginning after December 15, ~~2019.~~2022. The Company ~~is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements and~~ has formed a committee to oversee the adoption of the new standard. The ALLL model currently in use by the Company already provides it with the ability to archive prior period information and contains loan balance and charge-off information beginning with September 30, 2011. The committeestandard, has ~~reviewed the data included in each monthly archive file and has added fields to enhance its data analysis capabilities under the new standard.~~

~~During August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows~~ (Topic 230): Classification of Certain Cash Receipts and Cash Payments," to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied usingengaged a retrospective transition method to each period presented. If retrospective application is impractical for some of the issues addressed by the update, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.

During January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this ASU clarify the definition of a business with the objective of adding guidancethird party to assist ~~entities~~ with ~~evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current~~ implementation, ~~guidance~~has performed data fit gap and loss driver analyses, intends to run parallel models beginning in ~~Topic 805, there are three elements of a business—inputs, processes,~~2022, and ~~outputs. While an integrated set of assets and activities (collectively referred~~is continuing to as a "set") that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements. The Company's pending merger with Citizens National Bank will be accounted for under the acquisition accounting guidance.

~~- 7 -~~

During January 2017, the FASB issued ASU No. 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ~~The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.~~

During March 2017, the FASB issued ASU No. 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendments in this ASU require an employer that offers defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715 to report the service cost component of net periodic benefit cost in the same line item(s) as other compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. If the other components of net periodic benefit cost are not presented on a separate line or lines, the line item(s) used in the income statement must be disclosed. In addition, only the service cost component will be eligible for capitalization as part of an asset, when applicable. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. ~~The Company does not expect the adoption of ASU 2017-07 to have a material~~ ~~impact on its consolidated financial statements.~~

~~During March 2017, the FASB issued ASU No. 2017~~‐~~08, "Receivables—Nonrefundable Fees and Other Costs (Subtopic 310~~‐20), Premium Amortization on Purchased Callable Debt Securities." The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessingevaluate the impact that ASU ~~2017~~‐08No. 2016-13 will have on its consolidated financial statements.

~~During May 2017,~~

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

Other accounting standards that have been adopted by the Company or issued by the FASB ~~issued ASU 2017~~‐09, "Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting." The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments are effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statementsor other standards-setting bodies have not ~~yet been issued.~~ ~~The Company is~~or are not currently ~~assessing the impact that ASU 2017‐08 will have on its consolidated financial statements.~~

During August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. The Company does not expect the adoption of ASU 2017-12expected to have a material ~~impact~~effect on ~~its consolidated~~the Company’s financial ~~statements.~~position, results of operations or cash flows.

~~- 8 -~~

Note 2. Securities

Amortized costs and fair values, with gross unrealized gains and losses, of securities available-for-sale as of the dates indicated are as follows:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

(in thousands)
September 30, 2017
Obligations of U.S. Government agencies $ 9,574 $ 11 $ (92 ) $ 9,493
Obligations of state and political subdivisions 67,815 771 (152 ) 68,434
Mortgage-backed securities 78,436 - (1,120 ) 77,316
Money market investments 1,169 - - 1,169
Corporate bonds and other securities 7,349 166 (5 ) 7,510
Other marketable equity securities 100 90 - 190
Total $ 164,443 $ 1,038 $ (1,369 ) $ 164,112

December 31, 2016
U.S. Treasury securities $ 20,000 $ - $ - $ 20,000
Obligations of U.S. Government agencies 9,361 - (166 ) 9,195
Obligations of state and political subdivisions 78,645 358 (1,016 ) 77,987
Mortgage-backed securities 85,649 18 (1,973 ) 83,694
Money market investments 647 - - 647
Corporate bonds and other securities 7,598 92 (12 ) 7,678
Other marketable equity securities 100 64 - 164
Total $ 202,000 $ 532 $ (3,167 ) $ 199,365

	June 30, 2021
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Treasury securities	$	9,052	$	0	$	(62	)	$	8,990
Obligations of U.S. Government agencies		38,636		226		(45	)		38,817
Obligations of state and political subdivisions		51,224		2,224		(176	)		53,272
Mortgage-backed securities		83,475		1,943		(393	)		85,025
Money market investments		3,893		0		0			3,893
Corporate bonds and other securities		23,043		219		(48	)		23,214
	$	209,323	$	4,612	$	(724	)	$	213,211

	December 31, 2020
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Treasury securities	$	6,980	$	63	$	0		$	7,043
Obligations of U.S. Government agencies		36,858		35		(197	)		36,696
Obligations of state and political subdivisions		43,517		2,478		0			45,995
Mortgage-backed securities		70,866		2,759		(124	)		73,501
Money market investments		4,743		0		0			4,743
Corporate bonds and other securities		18,295		158		(22	)		18,431
	$	181,259	$	5,493	$	(343	)	$	186,409

The Company has a process in place to identify debt securities that could potentially have a credit or interest-rate related impairment that is other-than-temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts, and cash flow projections as indicators of credit issues. On a quarterly basis, management reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. Management considers relevant facts and circumstances in evaluating whether a credit or interest-rate related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (a) the extent and length of time the fair value has been below cost; (b) the reasons for the decline in value; (c) the financial position and access to capital of the issuer, including the current and future impact of any specific events; and (d) for fixed maturity securities, the ~~Company's~~Company’s intent to sell a security or whether it is more-likely-than-not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to ~~maturity, and for equity securities, the Company's ability and intent to hold the security for a period of time that allows for the recovery in value.~~maturity.

Index

The Company has not recorded impairment charges through income on securities for the ~~three or nine~~six months ended ~~September~~June 30, ~~2017~~2021 or ~~the year ended December 31, 2016.~~2020.

The amortized cost and fair value of securities by contractual maturity are shown below:

	June 30, 2021
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	300	$	302
Due after one year through five years		9,929		10,073
Due after five through ten years		56,897		58,317
Due after ten years		138,304		140,626
Other securities, restricted		3,893		3,893
	$	209,323	$	213,211

The following table summarizes the net realized gains and losses on the sale of investment securities ~~during~~duing the periods indicated:

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Securities Available-for-sale
Realized gains on sales of securities $ 2 $ 24 $ 89 $ 578
Realized losses on sales of securities - (17 ) - (56 )
Net realized gain $ 2 $ 7 $ 89 $ 522

~~- 9 -~~

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2021		2020			2021		2020
Securities Available-for-sale
Realized gains on sales of securities	$	0	$	185		$	0	$	185
Realized losses on sales of securities		0		(1	)		0		(1	)
Net realized gain	$	0	$	184		$	0	$	184

The following ~~table shows the number of securities with unrealized losses, and~~tables show the gross unrealized losses and fair value of the ~~Company's~~Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates indicated:

September 30, 2017
Less Than Twelve Months More Than Twelve Months Total
September 30, 2017
Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Number
of
Securities

(dollars in thousands)
Securities Available-for-Sale
Obligations of U.S. Government agencies $ 10 $ 4,393 $ 82 $ 3,120 $ 92 $ 7,513 11
Obligations of state and political subdivisions 80 5,006 72 6,898 152 11,904 15
Mortgage-backed securities 257 32,054 863 45,262 1,120 77,316 24
Corporate bonds 1 1,299 4 295 5 1,594 10
Total securities available-for-sale $ 348 $ 42,752 $ 1,021 $ 55,575 $ 1,369 $ 98,327 60

December 31, 2016
Less Than Twelve Months More Than Twelve Months Total
December 31, 2016
Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Number
of
Securities

(dollars in thousands)
Securities Available-for-Sale
Obligations of U.S. Government agencies $ 166 $ 9,195 $ - $ - $ 166 $ 9,195 6
Obligations of state and political subdivisions 1,016 38,020 - - 1,016 38,020 56
Mortgage-backed securities 1,973 80,680 - - 1,973 80,680 23
Corporate bonds 11 1,787 1 100 12 1,887 13
Total securities available-for-sale $ 3,166 $ 129,682 $ 1 $ 100 $ 3,167 $ 129,782 98

	June 30, 2021
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
U.S. Treasury securities	$	62	$	8,990	$	0	$	0	$	62	$	8,990
Obligations of U.S. Government agencies		10		3,908		35		5,674		45		9,582
Obligations of state and political subdivisions		176		10,181		0		0		176		10,181
Mortgage-backed securities		334		17,669		59		4,481		393		22,150
Corporate bonds and other securities		48		7,202		0		0		48		7,202
Total securities available-for-sale	$	630	$	47,950	$	94	$	10,155	$	724	$	58,105

	December 31, 2020
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Obligations of U.S. Government agencies	$	8	$	2,810	$	189	$	17,191	$	197	$	20,001
Mortgage-backed securities		118		14,291		6		1,285		124		15,576
Corporate bonds and other securities		22		5,977		0		0		22		5,977
Total securities available-for-sale	$	148	$	23,078	$	195	$	18,476	$	343	$	41,554

The number of investments in an unrealized loss position as of June 30, 2021 and December 31, 2020 were 37 and 29, respectively. Certain investments within the ~~Company's~~Company’s portfolio had unrealized losses for more than twelve months at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, as shown in the tables above. The unrealized losses were caused by ~~increases~~changes in market interest ~~rates.~~rates and not a result of credit deterioration. Because the Company does not intend to sell the investments and management believes it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider the investments to be other-than-temporarily impaired at ~~September~~June 30, ~~2017~~2021 or December 31, ~~2016.~~2020.

Restricted Securities

The restricted security category is comprised of stock in the Federal Home Loan Bank of Atlanta (FHLB) ~~and~~, the Federal Reserve Bank (FRB), and Community Bankers’ Bank (CBB). These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and the securities lack a market. Therefore, FHLB, FRB, and ~~FRB~~CBB stock isare carried at cost and evaluated for impairment. When evaluating these stocks for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Restricted stock is viewed as a long-term investment and management believes that the Company has the ability and the intent to hold this stock until its value is recovered.

10 -

Index

Note 3. Loans and the Allowance for Loan Losses

The following is a summary of the balances in each class of the ~~Company's loan~~Company’s portfolio of loans held for investment as of the dates indicated:

September 30, 2017 December 31, 2016
(in thousands)
Mortgage loans on real estate:
Residential 1-4 family $ 100,746 $ 94,827
Commercial 281,628 285,429
Construction 23,715 23,116
Second mortgages 17,557 17,128
Equity lines of credit 54,029 51,024
Total mortgage loans on real estate 477,675 471,524
Commercial and industrial loans 60,003 54,434
Consumer automobile loans 94,041 10,407
Other consumer loans 56,386 48,500
Other 12,891 19,017
Total loans, net of deferred fees (1) 700,996 603,882
Less: Allowance for loan losses (8,951 ) (8,245 )
Loans, net of allowance and deferred fees and costs (1) $ 692,045 $ 595,637

(dollars in thousands)	June 30, 2021		December 31, 2020
Mortgage loans on real estate:
Residential 1-4 family	$	117,887	$	122,800
Commercial - owner occupied		171,881		153,955
Commercial - non-owner occupied		165,460		162,896
Multifamily		20,880		22,812
Construction		50,814		43,732
Second mortgages		9,707		11,178
Equity lines of credit		51,238		50,746
Total mortgage loans on real estate		587,867		568,119
Commercial and industrial loans		119,911		141,746
Consumer automobile loans		79,544		80,390
Other consumer loans		36,990		37,978
Other ⁽¹⁾		8,361		8,067
Total loans, net of deferred fees		832,673		836,300
Less: Allowance for loan losses		9,473		9,541
Loans, net of allowance and deferred fees ⁽²⁾	$	823,200	$	826,759

~~(1) Net deferred loan fees totaled $874~~

(1)	Overdrawn accounts are reclassified as loans and included in the Other category in the table above. Overdrawn deposit accounts, excluding internal use accounts, totaled $254 thousand and $271 thousand at June 30, 2021 and December 31, 2020, respectively.

(2)	Net deferred loan fees totaled $2.4 million and $2.1 million at June 30, 2021 and December 31, 2020, respectively.

Acquired Loans

The outstanding principal balance and ~~$522 thousand at September~~the carrying amount of total acquired loans included in the consolidated balance sheets as of June 30, ~~2017~~2021 and December 31, ~~2016, respectively.~~2020 are as follows:

~~Overdrawn deposit accounts are reclassified~~

(dollars in thousands)	June 30, 2021		December 31, 2020
Outstanding principal balance	$	6,500	$	8,671
Carrying amount		6,460		8,602

The Company did 0t have any outstanding principal balance or related carrying amount of purchased credit-impaired loans as ~~loans and included in the Other category in the table above. Overdrawn deposit accounts totaled $728 thousand and $536 thousand at September~~of June 30, ~~2017~~2021 and December 31, ~~2016, respectively.~~2020. The following table presents changes in the accretable yield on purchased credit-impaired loans, for which the Company applies FASB ASC 310-30, at June 30, 2021 and 2020:

(dollars in thousands)	June 30, 2021		June 30, 2020
Balance at January 1	$	0	$	72
Accretion		0		(19	)
Balance at end of period	$	0	$	53

CREDIT QUALITY INFORMATION

The Company uses internally-assigned risk grades to estimate the capability of borrowers to repay the contractual obligations of their loan agreements as scheduled or at all. The ~~Company's~~Company’s internal risk grade system is based on experiences with similarly graded loans. Credit risk grades are updated at least quarterly as additional information becomes available, at which time management analyzes the resulting scores to track loan performance.

The ~~Company's~~Company’s internally assigned risk grades are as follows:

~~Pass:~~ ~~Loans are of acceptable risk.~~
~~Other Assets Especially Mentioned (OAEM):~~ ~~Loans have potential weaknesses that deserve management's close attention.~~

~~Substandard:~~ ~~Loans reflect significant deficiencies due to several adverse trends of a financial, economic or managerial nature.~~

•

Pass: Loans are of acceptable risk.

~~Doubtful:~~ Loans have all the weaknesses inherent in a substandard loan with added characteristics that make collection or liquidation in full based on currently existing facts, conditions and values highly questionable or improbable.

~~Loss:~~ ~~Loans have been identified for charge-off because they are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.~~

~~- 11 -~~

•

Other Assets Especially Mentioned (OAEM): Loans have potential weaknesses that deserve management’s close attention.

•

Substandard: Loans reflect significant deficiencies due to several adverse trends of a financial, economic or managerial nature.

•

Doubtful: Loans have all the weaknesses inherent in a substandard loan with added characteristics that make collection or liquidation in full based on currently existing facts, conditions and values highly questionable or improbable.

•

Loss: Loans have been identified for charge-off because they are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

Index

The following ~~table presents~~tables present credit quality exposures by internally assigned risk ratings as of the dates indicated:

Credit Quality Information
As of September 30, 2017
(in thousands)
Pass OAEM Substandard Doubtful Total
Mortgage loans on real estate:
Residential 1-4 family $ 98,829 $ - $ 1,917 $ - $ 100,746
Commercial 256,898 11,696 13,034 - 281,628
Construction 22,920 74 721 - 23,715
Second mortgages 16,952 446 159 - 17,557
Equity lines of credit 53,686 - 343 - 54,029
Total mortgage loans on real estate 449,285 12,216 16,174 - 477,675
Commercial and industrial loans 58,192 1,037 774 - 60,003
Consumer automobile loans 93,984 - 57 - 94,041
Other consumer loans 56,336 - 50 - 56,386
Other 12,891 - - - 12,891
Total $ 670,688 $ 13,253 $ 17,055 $ - $ 700,996

Credit Quality Information
As of December 31, 2016
(in thousands)
Pass OAEM Substandard Doubtful Total
Mortgage loans on real estate:
Residential 1-4 family $ 92,458 $ 1,138 $ 1,231 $ - $ 94,827
Commercial 260,948 10,014 14,467 - 285,429
Construction 22,219 162 735 - 23,116
Second mortgages 16,445 475 208 - 17,128
Equity lines of credit 50,387 500 137 - 51,024
Total mortgage loans on real estate 442,457 12,289 16,778 - 471,524
Commercial and industrial loans 49,979 2,278 2,177 - 54,434
Consumer automobile loans 10,407 - - - 10,407
Other consumer loans 48,334 - 166 - 48,500
Other 19,017 - - - 19,017
Total $ 570,194 $ 14,567 $ 19,121 $ - $ 603,882

~~- 12 -~~

Credit Quality Information
As of June 30, 2021
(dollars in thousands)	Pass		OAEM		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	117,714	$	0	$	173	$	0	$	117,887
Commercial - owner occupied		168,615		2,422		844		0		171,881
Commercial - non-owner occupied		164,549		726		185		0		165,460
Multifamily		20,880		0		0		0		20,880
Construction		49,574		1,110		130		0		50,814
Second mortgages		9,707		0		0		0		9,707
Equity lines of credit		51,238		0		0		0		51,238
Total mortgage loans on real estate	$	582,277	$	4,258	$	1,332	$	0	$	587,867
Commercial and industrial loans		119,607		304		0		0		119,911
Consumer automobile loans		79,263		0		281		0		79,544
Other consumer loans		36,990		0		0		0		36,990
Other		8,361		0		0		0		8,361
Total	$	826,498	$	4,562	$	1,613	$	0	$	832,673

Credit Quality Information
As of December 31, 2020
(dollars in thousands)	Pass		OAEM		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	122,621	$	0	$	179	$	0	$	122,800
Commercial - owner occupied		148,738		2,462		2,755		0		153,955
Commercial - non-owner occupied		162,148		748		0		0		162,896
Multifamily		22,812		0		0		0		22,812
Construction		42,734		998		0		0		43,732
Second mortgages		11,178		0		0		0		11,178
Equity lines of credit		50,746		0		0		0		50,746
Total mortgage loans on real estate	$	560,977	$	4,208	$	2,934	$	0	$	568,119
Commercial and industrial loans		141,391		355		0		0		141,746
Consumer automobile loans		79,997		0		393		0		80,390
Other consumer loans		37,978		0		0		0		37,978
Other		8,067		0		0		0		8,067
Total	$	828,410	$	4,563	$	3,327	$	0	$	836,300

AGE ANALYSIS OF PAST DUE LOANS BY CLASS

All classes of loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Interest and fees continue to accrue on past due loans until the date the loan is placed in nonaccrual status, if applicable. The following table includes an aging analysis of the recorded investment in past due loans as of the dates indicated. Also included in the table below are loans that are 90 days or more past due as to interest and principal and still accruing interest, because they are well-secured and in the process of collection. ~~Loans in nonaccrual status that are also past due are included in the aging categories in the table below.~~

Age Analysis of Past Due Loans as of September 30, 2017

30 - 59
Days Past
Due

60 - 89
Days Past
Due

90 or More
Days Past
Due

Total Past
Due

Total
Current
Loans ⁽¹⁾

Total
Loans

Recorded
Investment
> 90 Days
Past Due
and
Accruing

(in thousands)
Mortgage loans on real estate:
Residential 1-4 family $ 869 $ - $ 621 $ 1,490 $ 99,256 $ 100,746 $ 52
Commercial 169 984 3,530 4,683 276,945 281,628 974
Construction 204 - - 204 23,511 23,715 -
Second mortgages 79 - - 79 17,478 17,557 -
Equity lines of credit 49 - 53 102 53,927 54,029 -
Total mortgage loans on real estate 1,370 984 4,204 6,558 471,117 477,675 1,026
Commercial loans 853 154 1,226 2,233 57,770 60,003 473
Consumer automobile loans 266 44 16 326 93,715 94,041 16
Other consumer loans 1,541 585 2,466 4,592 51,794 56,386 2,466
Other 91 8 2 101 12,790 12,891 2
Total $ 4,121 $ 1,775 $ 7,914 $ 13,810 $ 687,186 $ 700,996 $ 3,983

⁽¹⁾ ~~For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.~~

Index

Age Analysis of Past Due Loans as of June 30, 2021
(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due and still Accruing		PCI		Nonaccrual ⁽²⁾		Total Current Loans ⁽¹⁾		Total Loans
Mortgage loans on real estate:
Residential 1-4 family	$	0	$	14	$	0	$	0	$	245	$	117,628	$	117,887
Commercial - owner occupied		0		0		58		0		843		170,980		171,881
Commercial - non-owner occupied		0		0		0		0		185		165,275		165,460
Multifamily		0		0		0		0		0		20,880		20,880
Construction		65		0		0		0		130		50,619		50,814
Second mortgages		0		0		0		0		0		9,707		9,707
Equity lines of credit		0		0		0		0		0		51,238		51,238
Total mortgage loans on real estate	$	65	$	14	$	58	$	0	$	1,403	$	586,327	$	587,867
Commercial and industrial loans		0		0		0		0		0		119,911		119,911
Consumer automobile loans		591		132		306		0		0		78,515		79,544
Other consumer loans		539		201		626		0		0		35,624		36,990
Other		16		2		3		0		0		8,340		8,361
Total	$	1,211	$	349	$	993	$	0	$	1,403	$	828,717	$	832,673

(1)	For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

(2)	For purposes of this table, if a loan is past due and on nonaccrual, it is included in the nonaccural column and not also in its respective past due column.

In the table above, the ~~other consumer loans category includes~~past due totals include student loans with principal and interest amounts that are 97 - 98% guaranteed by the federal government. The past due principal portion of these guaranteed loans totaled ~~$4.1~~$1.0 million at ~~September~~June 30, ~~2017.~~2021.

Age Analysis of Past Due Loans as of December 31, 2016

30 - 59
Days Past
Due

60 - 89
Days Past
Due

90 or More
Days Past
Due

Total Past
Due

Total
Current
Loans ⁽¹⁾

Total
Loans

Recorded
Investment
> 90 Days
Past Due
and
Accruing

(in thousands)
Mortgage loans on real estate:
Residential 1-4 family $ 564 $ - $ 496 $ 1,060 $ 93,767 $ 94,827 $ 218
Commercial 2,280 1,625 227 4,132 281,297 285,429 -
Construction 162 - - 162 22,954 23,116 -
Second mortgages - 200 188 388 16,740 17,128 58
Equity lines of credit 394 9 86 489 50,535 51,024 -
Total mortgage loans on real estate 3,400 1,834 997 6,231 465,293 471,524 276
Commercial loans 5 - 86 91 54,343 54,434 -
Consumer automobile loans - 11 - 11 10,396 10,407 -
Other consumer loans 1,876 702 2,684 5,262 43,238 48,500 2,603
Other 41 12 5 58 18,959 19,017 5
Total $ 5,322 $ 2,559 $ 3,772 $ 11,653 $ 592,229 $ 603,882 $ 2,884

⁽¹⁾ ~~For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.~~

Age Analysis of Past Due Loans as of December 31, 2020
(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due and still Accruing		PCI		Nonaccrual ⁽²⁾		Total Current Loans ⁽¹⁾		Total Loans
Mortgage loans on real estate:
Residential 1-4 family	$	478	$	164	$	0	$	0	$	311	$	121,847	$	122,800
Commercial - owner occupied		0		0		0		0		903		153,052		153,955
Commercial - non-owner occupied		0		0		0		0		0		162,896		162,896
Multifamily		0		0		0		0		0		22,812		22,812
Construction		0		88		0		0		0		43,644		43,732
Second mortgages		41		0		0		0		0		11,137		11,178
Equity lines of credit		0		0		0		0		0		50,746		50,746
Total mortgage loans on real estate	$	519	$	252	$	0	$	0	$	1,214	$	566,134	$	568,119
Commercial and industrial loans		753		0		0		0		0		140,993		141,746
Consumer automobile loans		1,159		190		196		0		0		78,845		80,390
Other consumer loans		1,120		555		548		0		0		35,755		37,978
Other		24		3		0		0		0		8,040		8,067
Total	$	3,575	$	1,000	$	744	$	0	$	1,214	$	829,767	$	836,300

(1)	For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

(2)	For purposes of this table, if a loan is past due and on nonaccrual, it is included in the nonaccural column and not also in its respective past due column.

~~- 13 -~~12

Index

Although the ~~portion~~portions of the student loan ~~portfolio~~portfolios that isare 90 days or more past due would normally be considered impaired, the Company does not include these loans in its impairment analysis. Because the federal government has provided guarantees of repayment of these student loans in an amount ranging from 97% to 98% of the total principal and interest of the loans as of June 30, 2021, management does not expect significant increases in ~~past due student~~delinquencies of these loans to have a material effect on the Company.

Under the CARES Act, borrowers who were making payments as required and were not considered past due prior to becoming affected by COVID-19 and then received payment accommodations as a result of the effects of COVID-19 generally would not be reported as past due. If the Company agreed to a payment deferral for a borrower under the CARES Act, this may result in no contractual payments being past due, and the loans are not considered past due during the period of the deferral.

NONACCRUAL LOANS

The Company generally places commercial and industrial loans (including construction loans and commercial loans secured and not secured by real estate) in nonaccrual status when the full and timely collection of interest or principal becomes uncertain, part of the principal balance has been charged off and no restructuring has occurred or the loan reaches 90 days past due, unless the credit is well-secured and in the process of collection.

Under regulatory rules, consumer loans, which are loans to individuals for household, family and other personal expenditures, and consumer loans secured by real estate (including residential 1 - 4 family mortgages, second mortgages, and equity lines of credit) are not required to be placed in nonaccrual status. Although consumer loans and consumer loans secured by real estate are not required to be placed in nonaccrual status, the Company may elect to place these loans in nonaccrual status, if necessary to avoid a material overstatement of interest income. Generally, consumer loans secured by real estate are placed in nonaccrual status only when payments are 120 days past due.

Generally, consumer loans not secured by real estate are placed in nonaccrual status only when part of the principal has been charged off. If a charge-off has not occurred sooner for other reasons, a consumer loan not secured by real estate will generally be placed in nonaccrual status when payments are 120 days past due. These loans are charged off or written down to the net realizable value of the collateral when deemed uncollectible, when classified as a ~~"loss,"~~“loss,” when repayment is unreasonably protracted, when bankruptcy has been initiated, or when the loan is 120 days or more past due unless the credit is well-secured and in the process of collection.

When management places a loan in nonaccrual status, the accrued unpaid interest receivable is reversed against interest income and the loan is accounted for by the ~~cash basis or~~ cost recovery method, until it qualifies for return to accrual status or is charged off. Generally, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, or when the borrower has resumed paying the full amount of the scheduled contractual interest and principal payments for at least six months.

The following table presents loans in nonaccrual status by class of loan as of the dates indicated:

Nonaccrual Loans by Class
September 30, 2017 December 31, 2016
(in thousands)
Mortgage loans on real estate
Residential 1-4 family $ 568 $ 598
Commercial 8,012 6,033
Construction 518 -
Second mortgages - 129
Equity lines of credit 343 87
Total mortgage loans on real estate 9,441 6,847
Commercial loans 771 231
Other consumer loans - 81
Total $ 10,212 $ 7,159

Nonaccrual Loans by Class

(dollars in thousands)	June 30, 2021		December 31, 2020
Mortgage loans on real estate:
Residential 1-4 family	$	245	$	311
Commercial - owner occupied		843		903
Commercial - non-owner occupied		185		0
Construction		130		0
Total mortgage loans on real estate	$	1,403	$	1,214
Total	$	1,403	$	1,214

The following table presents the interest income that the Company would have earned under the original terms of its nonaccrual loans and the actual interest recorded by the Company on nonaccrual loans for the periods presented:

	Nine Months Ended September 30,					Six Months Ended June 30,
	2017			2016
	(in thousands)
(dollars in thousand)						2021			2020
Interest income that would have been recorded under original loan terms		$	311	$	232		$	61		$	118
Actual interest income recorded for the period			179		182			0			8
Reduction in interest income on nonaccrual loans		$	132	$	50		$	61		$	110

~~- 14 -~~13

Index

TROUBLED DEBT RESTRUCTURINGS

The ~~Company's~~Company’s loan portfolio includes certain loans that have been modified in a ~~troubled debt restructuring (TDR),~~TDR, where economic concessions have been granted to borrowers who are experiencing financial difficulties. These concessions typically result from the ~~Company's~~Company’s loss mitigation activities and could include reduction in the interest rate below current market rates for borrowers with similar risk profiles, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The Company defines a TDR as nonperforming if the TDR is in nonaccrual status or is 90 days or more past due and still accruing interest at the report date.

When the Company modifies a loan, management evaluates any possible impairment as stated in the impaired loan section below.

~~The following tables present TDRs during the periods indicated, by class of loan.~~ There were ~~no troubled debt restructurings~~0 new TDRs in the ~~three~~six months ended ~~September~~June 30, ~~2017.~~2021 and 2020.

Troubled Debt Restructurings by Class
For the Three Months Ended September 30, 2016
Number of Modifications Recorded Investment Prior to Modification Recorded Investment After Modification
Current Investment on
September 30, 2016

(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family 4 $ 1,002 $ 1,002 $ 1,002
Commercial 1 150 150 150
Second mortgages 1 53 53 53
Equity lines of credit 1 93 93 93
Total mortgage loans on real estate 7 1,298 1,298 1,298
Other consumer loans 2 8 8 8
Total 9 $ 1,306 $ 1,306 $ 1,306

Troubled Debt Restructurings by Class
For the Nine Months Ended September 30, 2017
Number of Modifications Recorded Investment Prior to Modification Recorded Investment After Modification
Current Investment on
September 30, 2017

(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family 1 $ 142 $ 142 $ 141
Commercial 2 3,663 3,663 3,653
Total 3 $ 3,805 $ 3,805 $ 3,794

Troubled Debt Restructurings by Class
For the Nine Months Ended September 30, 2016
Number of Modifications Recorded Investment Prior to Modification Recorded Investment After Modification Current Investment on September 30, 2016
(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family 4 $ 1,002 $ 1,002 $ 1
Commercial 1 150 150 0
Second mortgages 1 53 53 0
Equity lines of credit 1 93 93 0
Total mortgage loans on real estate 7 1,298 1,298 1
Commercial loans 1 152 152 0
Other consumer loans 2 8 8 0
Commercial loans 10 $ 1,458 $ 1,458 $ 1

~~- 15 -~~

~~Of the loans restructured in the first nine months of 2017 one was given a below-market rate for debt with similar risk characteristics~~At June 30, 2021 and ~~two~~ ~~were granted terms that the Company would not otherwise extend to borrowers with similar risk characteristics. Two of the loans restructured in the first nine months ended September 30, 2016 were given below-market rates for debt with similar risk characteristics, and eight~~ ~~of the loans, which were part of a single borrowing relationship, were given terms not otherwise offered to borrowers with similar risk characteristics.~~ ~~At September 30, 2017 and December 31, 2016,~~2020, the Company had no0 outstanding commitments to disburse additional funds on any TDR. ~~At December 31, 2016, the~~The Company had ~~$10 thousand in~~0 loans ~~secured by residential 1 - 4 family real estate that were in the process of foreclosure. There were loans totaling $142 thousand~~ secured by residential 1 - 4 family real estate in the process of foreclosure at ~~September~~June 30, ~~2017.~~2021 and 2020.

In the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, there were no0 defaulting TDRs where the default occurred within twelve months of restructuring. The Company considers a TDR in default when any of the following occurs: the loan, as restructured, becomes 90 days or more past due; the loan is moved to nonaccrual status following the restructure; the loan is restructured again under terms that would qualify it as a TDR if it were not already so classified; or any portion of the loan is charged off.

All TDRs are factored into the determination of the allowance for loan losses and included in the impaired loan analysis, as discussed below.

IMPAIRED LOANS

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts when due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans and loans modified in a TDR. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the ~~loan's~~loan’s effective interest rate, except when the sole or remaining source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, when foreclosure is probable, instead of the discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through a specific allocation in the allowance or a charge-off to the allowance.

When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is in nonaccrual status, all payments are applied to principal under the cost-recovery method. For financial statement purposes, the recorded investment in the loan is the actual principal balance reduced by partial charge-offs and payments that would otherwise have been applied to interest. When reporting information on these loans to the applicable customers, the unpaid principal balance is reported as if these partial charge-offs did not occur and as if payments were applied to principal and interest under the original terms of the loan agreements. Therefore, the unpaid principal balance reported to the customer would be higher than the recorded investment in the loan for financial statement purposes. When the ultimate collectability of the total principal of the impaired loan is not in doubt and the loan is in nonaccrual status, contractual interest is credited to interest income when received under the cash-basis method.

~~- 16 -~~

The following table includes the recorded investment and unpaid principal balances (a portion of which may have been charged off) for impaired loans, exclusive of purchased credit-impaired loans, with the associated allowance amount, if applicable, as of the dates presented. Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized for the periods presented. The average balances are calculated based on daily average balances.

Impaired Loans by Class
As of September 30, 2017
For the nine months ended
September 30, 2017

Recorded Investment

Unpaid
Principal
Balance

Without
Valuation
Allowance

With
Valuation
Allowance

Associated
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

(in thousands)
Mortgage loans on real estate:
Residential 1-4 family $ 2,449 $ 1,980 $ 390 $ 75 $ 2,429 $ 74
Commercial 12,430 10,758 436 87 13,447 435
Construction 93 - 93 18 269 4
Second mortgages 359 201 137 15 461 12
Equity lines of credit 344 53 290 61 250 -
Total mortgage loans on real estate $ 15,675 $ 12,992 $ 1,346 $ 256 $ 16,856 $ 525
Commercial loans 1,017 163 608 183 1,513 21
Other consumer loans - - - - 54 -
Total $ 16,692 $ 13,155 $ 1,954 $ 439 $ 18,423 $ 546

Impaired Loans by Class
As of December 31, 2016
For the Year Ended
December 31, 2016

Recorded Investment

Unpaid
Principal
Balance

Without
Valuation
Allowance

With
Valuation
Allowance

Associated
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

(in thousands)
Mortgage loans on real estate:
Residential 1-4 family $ 2,496 $ 1,835 $ 622 $ 75 $ 2,741 $ 119
Commercial 16,193 11,095 4,274 415 11,885 727
Construction 619 528 96 22 496 43
Second mortgages 526 309 141 17 511 25
Equity lines of credit 87 86 - - 46 3
Total mortgage loans on real estate $ 19,921 $ 13,853 $ 5,133 $ 529 $ 15,679 $ 917
Commercial loans 1,077 - 989 271 827 74
Other consumer loans 81 81 - - 68 1
Total $ 21,079 $ 13,934 $ 6,122 $ 800 $ 16,574 $ 992

~~MONITORING OF LOANS AND EFFECT OF MONITORING FOR THE ALLOWANCE FOR LOAN LOSSES~~Impaired Loans by Class

	As of June 30, 2021								For the Six Months Ended June 30, 2021
(Dollars in thousands)	Unpaid Principal Balance		Without Valuation Allowance		With Valuation Allowance		Associated Allowance		Average Recorded Investment		Interest Income Recognized
Mortgage loans on real estate:
Residential 1-4 family	$	412	$	72	$	311	$	36	$	387	$	0
Commercial		2,931		1,098		432		12		1,500		1
Construction		212		130		81		0		212		2
Second mortgages		131		0		129		3		130		3
Total mortgage loans on real estate		3,686		1,300		953		51		2,229		6
Commercial and industrial loans		4		3		0		0		4		0
Other consumer loans		12		11		0		0		11		0
Total	$	3,702	$	1,314	$	953	$	51	$	2,244	$	6

Loan officers are responsible for continual portfolio analysis and prompt identification and reporting of problem loans, which includes assigning a risk grade to each applicable loan at its origination and revising such grade as the situation dictates. Loan officers maintain frequent contact with borrowers, which should enable the loan officer to identify potential problems before other personnel. In addition, meetings with loan officers and upper management are held to discuss problem loans and review risk grades. Nonetheless, in order to avoid over-reliance upon loan officers for problem loan identification, the Company's loan review system provides for review of loans and risk grades by individuals who are independent of the loan approval process. Risk grades and historical loss rates (determined by migration analysis) by risk grades are used as a component of the calculation of the allowance for loan losses.

~~- 17 -~~

Index

Impaired Loans by Class


	As of December 31, 2020								For the Year Ended December 31, 2020
(Dollars in thousands)	Unpaid Principal Balance		Without Valuation Allowance		With Valuation Allowance		Associated Allowance		Average Recorded Investment		Interest Income Recognized
Mortgage loans on real estate:
Residential 1-4 family	$	474	$	366	$	87	$	1	$	458	$	10
Commercial		3,490		1,306		121		1		2,559		46
Construction		83		0		83		0		84		5
Second mortgages		133		0		133		9		134		5
Total mortgage loans on real estate		4,180		1,672		424		11		3,235		66
Commercial and industrial loans		6		6		0		0		7		0
Other consumer loans		14		14		0		0		15		1
Total	$	4,200	$	1,692	$	424	$	11	$	3,257	$	67

ALLOWANCE FOR LOAN LOSSES

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and probable losses inherent in the loan portfolio. The Company segments the loan portfolio into categories as defined by Schedule RC-C of the Federal Financial Institutions Examination Council Consolidated Reports of Condition and Income Form 041 (Call Report). Loans are segmented into the following pools: commercial, real estate-construction, real estate-mortgage, consumer and other loans. The Company also sub-segments the real estate-mortgage segment into ~~four~~six classes: residential 1-4 family, commercial real estate - owner occupied, commercial real estate - non-owner occupied, multifamily, second mortgages and equity lines of credit.

The Company uses an internally developed risk evaluation model in the estimation of the credit risk process. The model and assumptions used to determine the allowance are independently validated and reviewed to ensure that the theoretical foundation, assumptions, data integrity, computational processes and reporting practices are appropriate and properly documented.

Each portfolio segment has risk characteristics as follows:

~~Commercial:~~ Commercial loans carry risks associated with the successful operation of a business or project, in addition to other risks associated with the ownership of a business. The repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.
~~Real estate-construction:~~ Construction loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may at any point in time be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be the loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.

~~Real estate-mortgage:~~ Residential mortgage loans and equity lines of credit carry risks associated with the continued credit-worthiness of the borrower and changes in the value of the collateral. Commercial real estate loans carry risks associated with the successful operation of a business if owner occupied. If non-owner occupied, the repayment of these loans may be dependent upon the profitability and cash flow from rent receipts.

•

Commercial and industrial: Commercial and industrial loans carry risks associated with the successful operation of a business or project, in addition to other risks associated with the ownership of a business. The repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.

~~Consumer loans:~~ Consumer loans carry risks associated with the continued credit-worthiness of the borrowers and the value of the collateral. Consumer loans are more likely than real estate loans to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy.

Note 9. Stockholders’ Equity and Earnings per Share

~~STOCKHOLDERS'~~

STOCKHOLDERS’ EQUITY – Accumulated Other Comprehensive ~~Loss~~Income (Loss)

The following table presents information on amounts reclassified out of accumulated other comprehensive ~~loss,~~income (loss), by category, during the periods indicated:

Three Months Ended
September 30,

Nine Months Ended
September 30,

Affected Line Item on
Consolidated Statements of Income
2017 2016 2017 2016
(in thousands)
Available-for-sale securities
Realized gains on sales of securities $ 2 $ 7 $ 89 $ 522 Gain on sale of available-for-sale securities, net
Tax effect 1 2 30 177 Income tax expense
$ 1 $ 5 $ 59 $ 345

	Three Months Ended June 30,				Six Months Ended June 30,				Affected Line Item on Consolidated Statement of Income
(dollars in thousands)	2021		2020		2021		2020		Affected Line Item on Consolidated Statement of Income
Available-for-sale securities
Realized gains on sales of securities	$	0	$	184	$	0	$	184	Gain on sale of available-for-sale securities, net
Tax effect		0		39		0		39	Income tax expense
	$	0	$	145	$	0	$	145

The following ~~table presents~~tables present the changes in accumulated other comprehensive ~~loss,~~income (loss), by category, net of tax, for the periods indicated:

(dollars in thousands)										Unrealized Gains (Losses) on Available-for-Sale Securities			Accumulated Other Comprehensive Income
	Unrealized Gains (Losses) on Available-for-Sale Securities			Defined Benefit Pension Plans			Accumulated Other Comprehensive Loss
	(in thousands)

Nine Months Ended September 30, 2017
Six Months Ended June 30, 2021
Balance at beginning of period	$	(1,739	)	$	(2,469	)	$	(4,208	)	$	4,069		$	4,069
Net change for the period		1,521			-			1,521
Net other comprehensive loss											(998	)		(998	)
Balance at end of period	$	(218	)	$	(2,469	)	$	(2,687	)	$	3,071		$	3,071


Nine Months Ended September 30, 2016
Six Months Ended June 30, 2020
Balance at beginning of period	$	(576	)	$	(2,586	)	$	(3,162	)	$	(79	)	$	(79	)
Net change for the period		1,877			-			1,877
Net other comprehensive income											3,431			3,431
Balance at end of period	$	1,301		$	(2,586	)	$	(1,285	)	$	3,352		$	3,352

(dollars in thousands)	Unrealized Gains (Losses) on Available-for-Sale Securities			Accumulated Other Comprehensive Income

Three Months Ended June 30, 2021
Balance at beginning of period	$	2,375		$	2,375
Net other comprehensive income		696			696
Balance at end of period	$	3,071		$	3,071

Three Months Ended June 30, 2020
Balance at beginning of period	$	(524	)	$	(524	)
Net other comprehensive income		3,876			3,876
Balance at end of period	$	3,352		$	3,352

~~- 23 -~~21

Index

The following ~~table presents~~tables present the change in each component of accumulated other comprehensive ~~loss~~income (loss) on a pre-tax and after-tax basis for the periods indicated.

													Three Months Ended June 30, 2021
(dollars in thousands)													Pretax			Tax			Net-of-Tax
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period													$	881		$	185		$	696

Total change in accumulated other comprehensive income, net													$	881		$	185		$	696
	Nine Months Ended September 30, 2017
	Pretax				Tax				Net-of-Tax				Three Months Ended June 30, 2020
	(in thousands)

(dollars in thousands)													Pretax			Tax			Net-of-Tax
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period		$	2,394			$	814			$	1,580		$	5,090		$	1,069		$	4,021
Reclassification adjustment for gains recognized in income			(89	)			(30	)			(59	)		(184	)		(39	)		(145	)

Total change in accumulated other comprehensive loss, net		$	2,305			$	784			$	1,521
Total change in accumulated other comprehensive income, net													$	4,906		$	1,030		$	3,876

													Six Months Ended June 30, 2021
(dollars in thousands)													Pretax			Tax			Net-of-Tax
Unrealized losses on available-for-sale securities:
Unrealized holding losses arising during the period													$	(1,263	)	$	(265	)	$	(998	)

Total change in accumulated other comprehensive income, net													$	(1,263	)	$	(265	)	$	(998	)
	Nine Months Ended September 30, 2016
	Pretax				Tax				Net-of-Tax				Six Months Ended June 30, 2020
	(in thousands)

(dollars in thousands)													Pretax			Tax			Net-of-Tax
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period		$	3,366			$	1,144			$	2,222		$	4,527		$	951		$	3,576
Reclassification adjustment for gains recognized in income			(522	)			(177	)			(345	)		(184	)		(39	)		(145	)

Total change in accumulated other comprehensive loss, net		$	2,844			$	967			$	1,877
Total change in accumulated other comprehensive income, net													$	4,343		$	912		$	3,431

EARNINGS PER COMMON SHARE

Basic ~~earnings per share~~EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted ~~earnings per share~~EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of dilutive potential common shares attributable to ~~outstanding~~the employee stock ~~options.~~purchase plan.

~~- 24 -~~

The following is a reconciliation of the denominators of the basic and diluted EPS computations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016:~~2020:

(dollars in thousands except per share data)							Net Income Available to Common Shareholders (Numerator)		Weighted Average Common Shares (Denominator)		Per Share Amount
Three Months Ended June 30, 2021
Net income, basic							$	1,842		5,237	$	0.35
Diluted							$	1,842		5,237	$	0.35
	Net Income Available to Common Shareholders (Numerator)		Weighted Average Common Shares (Denominator)		Per Share Amount
Three Months Ended June 30, 2020
Net income, basic							$	2,494		5,220	$	0.48
Diluted							$	2,494		5,220	$	0.48
	(in thousands except per share data)
Three Months Ended September 30, 2017
Six Months Ended June 30, 2021
Net income, basic	$	757		4,994	$	0.15	$	4,854		5,231	$	0.93
Potentially dilutive common shares - stock options		-		10		-
Diluted							$	4,854		5,231	$	0.93

Six Months Ended June 30, 2020
Net income, basic							$	3,744		5,210	$	0.72
Potentially dilutive common shares - employee stock purchase program		-		-		-		-		1		-
Diluted	$	757		5,004	$	0.15	$	3,744		5,211	$	0.72

Three Months Ended September 30, 2016
Net income, basic	$	1,329		4,959	$	0.27
Potentially dilutive common shares - stock options		-		-		-
Potentially dilutive common shares - employee stock purchase program		-		-		-
Diluted	$	1,329		4,959	$	0.27

Nine Months Ended September 30, 2017
Net income, basic	$	2,860		4,985	$	0.57
Potentially dilutive common shares - stock options		-		12		-
Potentially dilutive common shares - employee stock purchase program		-		-		-
Diluted	$	2,860		4,997	$	0.57

Nine Months Ended September 30, 2016
Net income, basic	$	2,902		4,959	$	0.59
Potentially dilutive common shares - stock options		-		-		-
Potentially dilutive common shares - employee stock purchase program		-		-		-
Diluted	$	2,902		4,959	$	0.59

Index

The Company had no0 antidilutive shares outstanding in the third quarter or first nine months of 2017. The Company did not include an average of 69 thousand potential common shares attributable to outstanding stock options in the diluted earnings per share calculation for both the three and ninesix months ended ~~September~~June 30, ~~2016. Non-vested~~2021 and 2020, respectively. Nonvested restricted common shares, which carry all rights and privileges of a common share with respect to the stock, including the right to vote, were included in the basic and diluted per common share calculations.

~~Note 9. Fair Value Measurements~~

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the "Fair Value Measurements and Disclosures" topics of FASB ASU 2010-06 and FASB ASU 2011-04, the fair value of a financial instrument is the price that would be received in the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

~~- 25 -~~

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value can be a reasonable point within a range that is most representative of fair value under current market conditions.

In estimating the fair value of assets and liabilities, the Company relies mainly on two models. The first model, used by the Company's bond accounting service provider, determines the fair value of securities. Securities are priced based on an evaluation of observable market data, including benchmark yield curves, reported trades, broker/dealer quotes, and issuer spreads. Pricing is also impacted by credit information about the issuer, perceived market movements, and current news events impacting the individual sectors. For assets other than securities and for all liabilities, fair value is determined using the Company's asset/liability modeling software. The software uses current yields, anticipated yield changes, and estimated duration of assets and liabilities to calculate fair value.

In accordance with ASC 820, "Fair Value Measurements and Disclosures," the Company groups its financial assets and financial liabilities generally measured at fair value into 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.

~~Level 1:~~ Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
~~Level 2:~~ Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
~~Level 3:~~ Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

~~An instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.~~

~~ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS~~

Debt and equity securities with readily determinable fair values that are classified as "available-for-sale" are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the Company's available-for-sale securities are considered to be Level 2 securities.

~~- 26 -~~

~~The following table presents the balances of certain assets measured at fair value on a recurring basis as of the dates indicated:~~

Fair Value Measurements at September 30, 2017 Using
Balance
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

(in thousands)
Available-for-sale securities
Obligations of U.S. Government agencies $ 9,493 $ - $ 9,493 $ -
Obligations of state and political subdivisions 68,434 - 68,434 -
Mortgage-backed securities 77,316 - 77,316 -
Money market investments 1,169 - 1,169 -
Corporate bonds 7,510 - 7,510 -
Other marketable equity securities 190 - 190 -
Total available-for-sale securities $ 164,112 $ - $ 164,112 $ -

Fair Value Measurements at December 31, 2016 Using
Balance
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

(in thousands)
Available-for-sale securities
U.S. Treasury securities $ 20,000 $ - $ 20,000 $ -
Obligations of U.S. Government agencies 9,195 - 9,195 -
Obligations of state and political subdivisions 77,987 - 77,987 -
Mortgage-backed securities 83,694 - 83,694 -
Money market investments 647 - 647 -
Corporate bonds 7,678 - 7,678 -
Other marketable equity securities 164 - 164 -
Total available-for-sale securities $ 199,365 $ - $ 199,365 $ -

~~ASSETS MEASURED AT FAIR VALUE ON A NONRECURRING BASIS~~

~~Under certain circumstances, adjustments are made to the fair value for assets and liabilities although they are not measured at fair value on an ongoing basis.~~

~~Impaired loans~~

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts when due from the borrower in accordance with the contractual terms of the loan. The measurement of fair value and loss associated with impaired loans can be based on the observable market price of the loan, the fair value of the collateral securing the loan, or the present value of the loan's expected future cash flows. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable, with the vast majority of the collateral in real estate.

The value of real estate collateral is determined utilizing an income, market, or cost valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company. In the case of loans with lower balances, the Company may obtain a real estate evaluation instead of an appraisal. Evaluations utilize many of the same techniques as appraisals, and are typically performed by independent appraisers. Once received, appraisals and evaluations are reviewed by trained staff independent of the lending function to verify consistency and reasonability. Appraisals and evaluations are based on significant unobservable inputs, including but not limited to: adjustments made to comparable properties, judgments about the condition of the subject property, the availability and suitability of comparable properties, capitalization rates, projected income of the subject or comparable properties, vacancy rates, projected depreciation rates, and the state of the local and regional economy. The Company may also elect to make additional reductions in the collateral value based on management's best judgment, which represents another source of unobservable inputs. Because of the subjective nature of collateral valuation, impaired loans are considered Level 3.

~~- 27 -~~

Impaired loans may be secured by collateral other than real estate. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business' financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). If a loan is not collateral-dependent, its impairment may be measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate. Because the loan is discounted at its effective rate of interest, rather than at a market rate, the loan is not considered to be held at fair value and is not included in the tables below. Collateral-dependent impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as part of the provision for loan losses on the Consolidated Statements of Income.

~~Other Real Estate Owned (OREO)~~

Loans are transferred to OREO when the collateral securing them is foreclosed on. The measurement of gain or loss associated with OREOs is based on the fair value of the collateral compared to the unpaid loan balance and anticipated costs to sell the property. If there is a contract for the sale of a property, and management reasonably believes the transaction will be consummated in accordance with the terms of the contract, fair value is based on the sale price in that contract (Level 1). If management has recent information about the sale of identical properties, such as when selling multiple condominium units on the same property, the remaining units would be valued based on the observed market data (Level 2). Lacking either a contract or such recent data, management would obtain an appraisal or evaluation of the value of the collateral as discussed above under Impaired Loans (Level 3). After the asset has been booked, a new appraisal or evaluation is obtained when management has reason to believe the fair value of the property may have changed and no later than two years after the last appraisal or evaluation was received. Any fair value adjustments to OREOs below the original book value are recorded in the period incurred and expensed against current earnings.

~~Loans Held For Sale~~

Loans held for sale are carried at fair value. These loans currently consist of residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded within the mortgage segment and are reported on a separate line item on the Company's Consolidated Statements of Income.

~~- 28 -~~

The following table presents the assets carried on the consolidated balance sheets for which a nonrecurring change in fair value has been recorded. Assets are shown by class of loan and by level in the fair value hierarchy, as of the dates indicated. Certain impaired loans are valued by the present value of the loan's expected future cash flows, discounted at the loan's effective interest rate rather than at a market rate. These loans are not carried on the consolidated balance sheets at fair value and, as such, are not included in the table below.

Carrying Value at September 30, 2017 Using
Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

(in thousands)
Impaired loans
Mortgage loans on real estate:
Residential 1-4 family $ 316 $ - $ - $ 316
Commercial 349 - - 349
Construction 74 - - 74
Equity lines of credit 229 - - 229
Total mortgage loans on real estate $ 968 $ - $ - $ 968

Loans
Loans held for sale $ 981 $ - $ 981 $ 0

Carrying Value at December 31, 2016 Using
Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

(in thousands)
Impaired loans
Mortgage loans on real estate:
Residential 1-4 family $ 400 $ - $ - $ 400
Commercial 1,483 - - 1,483
Construction 74 - - 74
Total mortgage loans on real estate $ 1,957 $ - $ - $ 1,957
Commercial loans 718 - - 718
Total $ 2,675 $ - $ - $ 2,675

Other real estate owned
Construction $ 940 $ - $ - $ 940

~~- 29 -~~

~~The following table displays quantitative information about Level 3 Fair Value Measurements as of the dates indicated:~~

Quantitative Information About Level 3 Fair Value Measurements

Fair Value at
September 30, 2017
(dollars in thousands)
Valuation Techniques Unobservable Input Range (Weighted Average)
Impaired loans
Residential 1-4 family real estate $ 316 Market comparables Selling costs 0.00% - 7.25% (3.36 %)
    Liquidation discount 0.00% - 4.00% (3.12 %)
Commercial real estate $ 349 Market comparables Selling costs 7.25 %
    Liquidation discount 4.00 %
Construction $ 74 Market comparables Selling costs 7.25 %
    Liquidation discount 4.00 %
Equity lines of credit $ 229 Market comparables Selling costs 6.07 %
    Liquidation discount 4.00 %

Quantitative Information About Level 3 Fair Value Measurements

Fair Value at
December 31, 2016
(dollars in thousands)
Valuation Techniques Unobservable Input Range (Weighted Average)
Impaired loans
Residential 1-4 family real estate $ 400 Market comparables Selling costs 7.25 %
    Liquidation discount 4.00 %
Commercial real estate $ 1,483 Market comparables Selling costs 7.25 %
    Liquidation discount 4.00 %
Construction $ 74 Market comparables Selling costs 7.25 %
    Liquidation discount 4.00 %
Commercial loans $ 718 Market comparables Selling costs 0.00 %
    Liquidation discount 0.00% - 38.58% (32.40 %)

Other real estate owned
Construction $ 940 Market comparables Selling costs 7.25 %
    Liquidation discount 0.00 %

ASC 825, "Financial Instruments," requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company's assets.

~~The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:~~

~~CASH AND CASH EQUIVALENTS~~

~~The carrying amounts of cash and short-term instruments, including interest-bearing due from banks, approximate fair values.~~

~~RESTRICTED SECURITIES~~

The restricted security category is comprised of FHLB and FRB stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and they lack a market. When the FHLB or FRB repurchases stock, they repurchase at the stock's book value. Therefore, the carrying amounts of restricted securities approximate fair value.

~~LOANS RECEIVABLE~~

The fair value of a loan is based on its interest rate in relation to its risk profile, in comparison to what an investor could earn on a different investment with a similar risk profile. Variations in risk tolerance between lenders, and thus in risk pricing, can result in the same loan being priced differently at different institutions. A bank's experience with the type of lending (such as commercial real estate) can also impact its assessment of the riskiness of a loan. A comprehensive picture of competitors' rates in relation to borrower risk profiles is not available. Instead, the Company uses a model which estimates market value based on the loan's interest rate (regardless of its risk level) and rates for debt of similar maturities where market data is available. Since the rate and risk profile are the primary factors in determining the fair value of a loan, both of which are unobservable in the market, the Company classifies loans as Level 3 in the fair value hierarchy. Fair values for non-performing loans are estimated as described above.

~~- 30 -~~

~~BANK-OWNED LIFE INSURANCE~~

Bank-owned life insurance represents insurance policies on certain current and former officers of the Company. The cash value of the policies is estimated using information provided by the insurance carrier. The insurance carrier uses actuarial data to estimate the value of each policy, based on the age and health of the insured relative to other individuals about whom the carrier has information. Health information can be broken down into quantitative, observable inputs, such as smoking habits, blood pressure, and weight, which, along with the insured's age, can be compared to observable data the insurance carrier has available. The carrier can then estimate the cash value of each policy. Since the cash value represents the amount of cash the Company would receive when the policies are paid, the cash value closely approximates the fair value of the policies. Accordingly, bank-owned life insurance is classified as Level 2.

~~DEPOSITS~~

The fair value of demand deposits, savings and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Information about the rates paid by other institutions for deposits of similar terms is readily available, and rates are mainly influenced by the term of the deposit itself. As a result, fair value calculations are based on observable inputs, and are classified as Level 2.

~~OVERNIGHT REPURCHASE AGREEMENTS~~

The carrying amounts of federal funds purchased, overnight repurchase agreements, and other short-term borrowings maturing within 90 days approximate their fair values. Since the contractual terms of these borrowings provide all information necessary to calculate the amounts that will be due at maturity, these liabilities are classified as Level 2.

~~FEDERAL HOME LOAN BANK ADVANCES~~

The fair values of the Company's long-term borrowings are estimated based on the current cost to repay the debt in full, discounted to current values and including any prepayment penalties that may apply. As the contractual terms of the borrowing provide all the necessary inputs for this calculation, long-term borrowings are classified as Level 2.

~~ACCRUED INTEREST~~

The calculation of accrued interest is based on readily observable information, such as the rate and term of the underlying asset or liability. Since these amounts are expected to be realized quickly (generally within 30 to 90 days), the carrying value approximates fair value and is classified as Level 2.

~~COMMITMENTS TO EXTEND CREDIT AND IRREVOCABLE LETTERS OF CREDIT~~

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit-worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At September 30, 2017 and December 31, 2016, the fair value of fees charged for loan commitments and irrevocable letters of credit was immaterial.

~~- 31 -~~

~~The estimated fair values, and related carrying or notional amounts, of the Company's financial instruments as of the dates indicated are as follows:~~

Fair Value Measurements at September 30, 2017 Using
Carrying Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

(in thousands)
Assets
Cash and cash equivalents $ 15,435 $ 15,435 $ - $ -
Securities available-for-sale 164,112 - 164,112 -
Restricted securities 2,890 - 2,890 -
Loans held for sale 981 - 981 -
Loans, net of allowances for loan losses 692,045 - - 691,615
Bank-owned life insurance 25,802 - 25,802 -
Accrued interest receivable 2,987 - 2,987 -

Liabilities
Deposits $ 782,445 $ - $ 782,315 $ -
Federal funds purchased 2,000 - 2,000 -
Overnight repurchase agreements 21,885 - 21,885 -
Federal Home Loan Bank advances 45,000 - 44,959 -
Accrued interest payable 297 - 297 -

Fair Value Measurements at December 31, 2016 Using
Carrying Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

(in thousands)
Assets
Cash and cash equivalents $ 25,854 $ 25,854 $ - $ -
Securities available-for-sale 199,365 - 199,365 -
Restricted securities 970 - 970 -
Loans, net of allowances for loan losses 595,637 - - 594,190
Bank-owned life insurance 25,206 - 25,206 -
Accrued interest receivable 3,189 - 3,189 -

Liabilities
Deposits $ 784,502 $ - $ 783,450 $ -
Overnight repurchase agreements 18,704 - 18,704 -
Accrued interest payable 228 - 228 -

Note 10. Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurements and Disclosures” topics of FASB ASU No. 2010-06, FASB ASU No. 2011-04, and FASB ASU No. 2016-01, the fair value of a financial instrument is the price that would be received in the sale of an asset or transfer of a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value can be a reasonable point within a range that is most representative of fair value under current market conditions.

In estimating the fair value of assets and liabilities, the Company relies mainly on two sources. The first source is the Company’s bond accounting service provider, which uses a model to determine the fair value of securities. Securities are priced based on an evaluation of observable market data, including benchmark yield curves, reported trades, broker/dealer quotes, and issuer spreads. Pricing is also impacted by credit information about the issuer, perceived market movements, and current news events impacting the individual sectors. The second source is a third party vendor the Company utilizes to provide fair value exit pricing for loans and interest bearing deposits in accordance with guidance.

In accordance with ASC 820, “Fair Value Measurements and Disclosures,” the Company groups its financial assets and financial liabilities generally measured at fair value into 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.

•

Level 1: Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

•

Level 2: Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

•

Level 3: Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

An instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS

Debt securities with readily determinable fair values that are classified as “available-for-sale” are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the Company’s available-for-sale securities are considered to be Level 2 securities.

Index

The following tables present the balances of certain assets measured at fair value on a recurring basis as of the dates indicated:

			Fair Value Measurements at June 30, 2021 Using
(dollars in thousands)	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities
U.S. Treasury securities	$	8,990	$	0	$	8,990	$	0
Obligations of U.S. Government agencies		38,817		0		38,817		0
Obligations of state and political subdivisions		53,272		0		53,272		0
Mortgage-backed securities		85,025		0		85,025		0
Money market investments		3,893		0		3,893		0
Corporate bonds and other securities		23,214		0		23,214		0
Total available-for-sale securities	$	213,211	$	0	$	213,211	$	0

			Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities
U.S. Treasury securities	$	7,043	$	0	$	7,043	$	0
Obligations of U.S. Government agencies		36,696		0		36,696		0
Obligations of state and political subdivisions		45,995		0		45,995		0
Mortgage-backed securities		73,501		0		73,501		0
Money market investments		4,743		0		4,743		0
Corporate bonds and other securities		18,431		0		18,431		0
Total available-for-sale securities	$	186,409	$	0	$	186,409	$	0

ASSETS MEASURED AT FAIR VALUE ON A NONRECURRING BASIS

Under certain circumstances, adjustments are made to the fair value for assets and liabilities although they are not measured at fair value on an ongoing basis.

Impaired loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts when due from the borrower in accordance with the contractual terms of the loan agreement. The measurement of fair value and loss associated with impaired loans can be based on the observable market price of the loan, the fair value of the collateral securing the loan, or the present value of the loan’s expected future cash flows, discounted at the loan’s effective interest rate. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable, with the vast majority of the collateral in real estate.

The value of real estate collateral is determined utilizing an income, market, or cost valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company. In the case of loans with lower balances, the Company may obtain a real estate evaluation instead of an appraisal. Evaluations utilize many of the same techniques as appraisals, and are typically performed by independent appraisers. Once received, appraisals and evaluations are reviewed by trained staff independent of the lending function to verify consistency and reasonability. Appraisals and evaluations are based on significant unobservable inputs, including but not limited to: adjustments made to comparable properties, judgments about the condition of the subject property, the availability and suitability of comparable properties, capitalization rates, projected income of the subject or comparable properties, vacancy rates, projected depreciation rates, and the state of the local and regional economy. The Company may also elect to make additional reductions in the collateral value based on management’s best judgment, which represents another source of unobservable inputs. Because of the subjective nature of collateral valuation, impaired loans are considered Level 3.

Index

Impaired loans may be secured by collateral other than real estate. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). If a loan is not collateral-dependent, its impairment may be measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate. Because the loan is discounted at its effective rate of interest, rather than at a market rate, the loan is not considered to be held at fair value and is not included in the tables below. Collateral-dependent impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as part of the provision for loan losses on the Consolidated Statements of Income.

Other Real Estate Owned (OREO)

Loans are transferred to OREO when the collateral securing them is foreclosed on. The measurement of gain or loss associated with OREO is based on the fair value of the collateral compared to the unpaid loan balance and anticipated costs to sell the property. If there is a contract for the sale of a property, and management reasonably believes the transaction will be consummated in accordance with the terms of the contract, fair value is based on the sale price in that contract (Level 1). If management has recent information about the sale of identical properties, such as when selling multiple condominium units on the same property, the remaining units would be valued based on the observed market data (Level 2). Lacking either a contract or such recent data, management would obtain an appraisal or evaluation of the value of the collateral as discussed above under Impaired Loans (Level 3). After the asset has been booked, a new appraisal or evaluation is obtained when management has reason to believe the fair value of the property may have changed and no later than two years after the last appraisal or evaluation was received. Any fair value adjustments to OREO below the original book value are recorded in the period incurred and expensed against current earnings.

Loans Held For Sale

Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are reported on a separate line item on the Company’s Consolidated Statements of Income.

The following table presents the assets carried in the consolidated balance sheets for which a nonrecurring change in fair value has been recorded. Assets are shown by class of loan and by level in the fair value hierarchy, as of the dates indicated. Certain impaired loans are valued by the present value of the loan’s expected future cash flows, discounted at the loan’s effective interest rate rather than at a market rate. These loans are not carried in the consolidated balance sheets at fair value and, as such, are not included in the tables below.

			Carrying Value at June 30, 2021
(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Loans
Loans held for sale	$	2,284	$	0	$	2,284	$	0

			Carrying Value at December 31, 2020
(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Loans
Loans held for sale	$	14,413	$	0	$	14,413	$	0

The Company did not have any Level 3 Fair Value Measurements at June 30, 2021 or December 31, 2020.

Index

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments as of the dates indicated are as follows:

			Fair Value Measurements at June 30, 2021 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents	$	155,498	$	155,498	$	0	$	0
Securities available-for-sale		213,211		0		213,211		0
Restricted securities		1,033		0		1,033		0
Loans held for sale		2,284		0		2,284		0
Loans, net of allowances for loan losses		823,200		0		0		825,967
Bank owned life insurance		28,817		0		28,817		0
Accrued interest receivable		2,404		0		2,404		0

Liabilities
Deposits	$	1,134,017	$	0	$	1,136,627	$	0
Overnight repurchase agreements		12,239		0		12,239		0
Federal Reserve Bank borrowings		3,313		0		3,313		0
Accrued interest payable		266		0		266		0

			Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents	$	120,437	$	120,437	$	0	$	0
Securities available-for-sale		186,409		0		186,409		0
Restricted securities		1,367		0		1,367		0
Loans held for sale		14,413		0		14,413		0
Loans, net of allowances for loan losses		826,759		0		0		826,083
Bank owned life insurance		28,386		0		28,386		0
Accrued interest receivable		3,613		0		3,613		0

Liabilities
Deposits	$	1,067,236	$	0	$	1,070,236	$	0
Overnight repurchase agreements		6,619		0		6,619		0
Federal Reserve Bank borrowings		28,550		0		28,550		0
Other borrowings		1,350		0		1,350		0
Accrued interest payable		384		0		384		0

Note 11. Segment Reporting

The Company operates in a decentralized fashion in ~~three~~3 principal business segments: The Old Point National Bank of Phoebus (the Bank), Old Point Trust & Financial Services, ~~N. A.~~N.A. (Trust), and the Company as a separate segment (for purposes of this Note, the Parent). Revenues from the ~~Bank's~~Bank’s operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. ~~Trust's~~Trust’s operating revenues consist principally of income from fiduciary ~~activities.~~and asset management fees. The ~~Parent's~~Parent’s revenues are mainly fees and dividends received from the Bank and Trust companies. The Company has no other segments.

The ~~Company's~~Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each segment appeals to different markets and, accordingly, requires different technologies and marketing strategies.

~~- 32 -~~

Index

Information about reportable segments, and reconciliation of such information to the consolidated financial statements as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 follows:

	Three Months Ended September 30, 2017														Three Months Ended June 30, 2021
	Bank			Trust		Parent			Eliminations			Consolidated
	(in thousands)
(dollars in thousands)															Bank		Trust		Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	8,550		$	18	$	898		$	(898	)	$	8,568		$	9,853	$	6	$	2,029		$	(2,029	)	$	9,859
Income from fiduciary activities		-			903		-			-			903			0		1,051		0			0			1,051
Other income		2,275			198		50			(65	)		2,458			2,219		283		50			(65	)		2,487
Total operating income		10,825			1,119		948			(963	)		11,929			12,072		1,340		2,079			(2,094	)		13,397

Expenses
Interest expense		837			-		-			-			837			752		0		1			0			753
Provision for loan losses		1,275			-		-			-			1,275			0		0		0			0			0
Salaries and employee benefits		4,343			657		104			-			5,104			5,299		764		164			0			6,227
Other expenses		3,664			253		160			(65	)		4,012			3,999		252		122			(65	)		4,308	��
Total operating expenses		10,119			910		264			(65	)		11,228			10,050		1,016		287			(65	)		11,288

Income before taxes		706			209		684			(898	)		701			2,022		324		1,792			(2,029	)		2,109

Income tax expense (benefit)		(55	)		72		(73	)		-			(56	)		248		69		(50	)		-			267

Net income	$	761		$	137	$	757		$	(898	)	$	757		$	1,774	$	255	$	1,842		$	(2,029	)	$	1,842

Capital expenditures	$	60		$	6	$	-		$	-		$	66		$	598	$	36	$	0		$	0		$	634

Total assets	$	948,377		$	6,141	$	97,645		$	(97,666	)	$	954,497		$	1,267,532	$	7,213	$	120,000		$	(119,934	)	$	1,274,811

	Three Months Ended September 30, 2016														Three Months Ended June 30, 2020
	Bank			Trust		Parent			Eliminations			Consolidated
	(in thousands)
(dollars in thousands)															Bank		Trust		Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	7,420		$	16	$	1,572		$	(1,572	)	$	7,436		$	9,837	$	11	$	2,679		$	(2,679	)	$	9,848
Income from fiduciary activities		-			858		-			-			858			0		909		0			0			909
Other income		2,277			207		50			(65	)		2,469			2,816		249		50			(66	)		3,049
Total operating income		9,697			1,081		1,622			(1,637	)		10,763			12,653		1,169		2,729			(2,745	)		13,806

Expenses
Interest expense		633			-		-			-			633			1,361		0		14			0			1,375
Recovery of loan losses		(100	)		-		-			-			(100	)
Provision for loan losses																300		0		0			0			300
Salaries and employee benefits		4,296			665		102			-			5,063			4,571		741		152			0			5,464
Other expenses		3,114			262		315			(65	)		3,626			3,452		236		118			(66	)		3,740
Total operating expenses		7,943			927		417			(65	)		9,222			9,684		977		284			(66	)		10,879

Income before taxes		1,754			154		1,205			(1,572	)		1,541			2,969		192		2,445			(2,679	)		2,927

Income tax expense (benefit)		284			53		(125	)		-			212			441		41		(49	)		0			433

Net income	$	1,470		$	101	$	1,330		$	(1,572	)	$	1,329		$	2,528	$	151	$	2,494		$	(2,679	)	$	2,494

Capital expenditures	$	234		$	-	$	-		$	-		$	234		$	288	$	6	$	0		$	0		$	294

Total assets	$	900,160		$	5,814	$	96,467		$	(96,685	)	$	905,756		$	1,214,546	$	7,008	$	117,558		$	(117,867	)	$	1,221,245

~~- 33 -~~27

Index

	Six Months Ended June 30, 2021
(dollars in thousands)	Bank		Trust		Unconsolidated Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	20,826	$	11	$	5,177		$	(5,177	)	$	20,837
Income from fiduciary activities		0		2,078		0			0			2,078
Other income		5,085		539		100			(130	)		5,594
Total operating income		25,911		2,628		5,277			(5,307	)		28,509

Expenses
Interest expense		1,570		0		5			0			1,575
Provision for loan losses		150		0		0			0			150
Salaries and employee benefits		10,619		1,507		328			0			12,454
Other expenses		8,062		531		176			(130	)		8,639
Total operating expenses		20,401		2,038		509			(130	)		22,818

Income before taxes		5,510		590		4,768			(5,177	)		5,691

Income tax expense (benefit)		798		125		(86	)		0			837

Net income	$	4,712	$	465	$	4,854		$	(5,177	)	$	4,854

Capital expenditures	$	719	$	41	$	0		$	0		$	760

Total assets	$	1,267,532	$	7,213	$	120,000		$	(119,934	)	$	1,274,811

	Six Months Ended June 30, 2020
(dollars in thousands)	Bank		Trust		Unconsolidated Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	19,800	$	34	$	4,118		$	(4,118	)	$	19,834
Income from fiduciary activities		0		1,926		0			0			1,926
Other income		4,806		535		100			(131	)		5,310
Total operating income		24,606		2,495		4,218			(4,249	)		27,070

Expenses
Interest expense		2,909		0		34			0			2,943
Provision for loan losses		600		0		0			0			600
Salaries and employee benefits		9,559		1,555		344			0			11,458
Other expenses		7,134		578		195			(131	)		7,776
Total operating expenses		20,202		2,133		573			(131	)		22,777

Income before taxes		4,404		362		3,645			(4,118	)		4,293

Income tax expense (benefit)		570		78		(99	)		0			549

Net income	$	3,834	$	284	$	3,744		$	(4,118	)	$	3,744

Capital expenditures	$	656	$	6	$	0		$	0		$	662

Total assets	$	1,214,546	$	7,008	$	117,558		$	(117,867	)	$	1,221,245

Nine Months Ended September 30, 2017
Bank Trust Parent Eliminations Consolidated
(in thousands)
Revenues
Interest and dividend income $ 24,300 $ 52 $ 3,251 $ (3,249 ) $ 24,354
Income from fiduciary activities - 2,820 - - 2,820
Other income 7,133 708 150 (196 ) 7,795
Total operating income 31,433 3,580 3,401 (3,445 ) 34,969

Expenses
Interest expense 2,097 - - 1 2,098
Provision for loan losses 2,925 - - - 2,925
Salaries and employee benefits 13,252 2,068 330 - 15,650
Other expenses 10,460 766 412 (196 ) 11,442
Total operating expenses 28,734 2,834 742 (195 ) 32,115

Income before taxes 2,699 746 2,659 (3,250 ) 2,854

Income tax expense (benefit) (60 ) 255 (201 ) - (6 )

Net income $ 2,759 $ 491 $ 2,860 $ (3,250 ) $ 2,860

Capital expenditures $ 504 $ 6 $ - $ - $ 510

Total assets $ 948,377 $ 6,141 $ 97,645 $ (97,666 ) $ 954,497

Nine Months Ended September 30, 2016
Bank Trust Parent Eliminations Consolidated
(in thousands)
Revenues
Interest and dividend income $ 22,191 $ 45 $ 3,443 $ (3,443 ) $ 22,236
Income from fiduciary activities - 2,636 - - 2,636
Other income 6,954 734 150 (196 ) 7,642
Total operating income 29,145 3,415 3,593 (3,639 ) 32,514

Expenses
Interest expense 1,934 - - - 1,934
Provision for loan losses 1,300 - - - 1,300
Salaries and employee benefits 12,782 2,022 303 - 15,107
Other expenses 9,913 774 667 (196 ) 11,158
Total operating expenses 25,929 2,796 970 (196 ) 29,499

Income before taxes 3,216 619 2,623 (3,443 ) 3,015

Income tax expense (benefit) 181 211 (279 ) - 113

Net income $ 3,035 $ 408 $ 2,902 $ (3,443 ) $ 2,902

Capital expenditures $ 706 $ 4 $ - $ - $ 710

Total assets $ 900,160 $ 5,814 $ 96,467 $ (96,685 ) $ 905,756

The accounting policies of the segments are the same as those described in the summary of significant accounting policies reported in the ~~Company's 2016 annual report~~Company’s 2020 Annual Report on Form 10-K. The Company evaluates performance based on profit or loss from operations before income taxes, not including nonrecurring gains or losses.

~~Both~~

Note 12. Subsequent Events

On July 14, 2021, the ~~Parent~~Company completed the issuance of $30.0 million in aggregate principal amount of subordinated notes (the Notes) due in 2031 in a private placement transaction. The subordinated notes will initially bear interest at a fixed rate of 3.5% for five years and at the three month SOFR plus 286 basis points, resetting quarterly, thereafter. The notes were structured to qualify as Tier 2 capital for regulatory purposes, and the ~~Trust companies maintain deposit accounts with the Bank, on terms substantially similar to those available to other customers. These transactions are eliminated to reach consolidated totals.~~proceeds will be used for general corporate purposes.

~~Note 11. Commitments and Contingencies~~

~~There have been no material changes in the Company's commitments and contingencies from those disclosed in the Company's 2016 annual report on Form 10-K.~~

~~- 34 -~~

Index

~~Item 2. Management's~~

Item 2.

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

~~Management's~~Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Old Point Financial Corporation and its subsidiaries (collectively, the Company). This discussion and analysis should be read with the consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the ~~Company's~~Company’s 2020 Annual Report on Form 10-K and ~~management's~~management’s discussion and analysis for the year ended December 31, ~~2016.~~2020. Highlighted in the discussion are material changes from prior reporting periods and ~~any~~certain identifiable trends affecting the Company. Results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 are not necessarily indicative of results that may be attained for any other period. Amounts are rounded for presentation purposes while some of the percentages presented are computed based on unrounded amounts.

~~Caution About~~Cautionary Statement Regarding Forward-Looking Statements

~~In addition to historical information, certain~~This report contains statements in this report which use language such as "believes," "expects," "plans," "may," "will," "should," "projects," "contemplates," "anticipates," "forecasts," "intends" and similar expressions, may identify forward-looking statements. For this purpose, any statement that is not a statement of historical fact may be deemed to be a forward-looking statement. These forward-looking statements are based onconcerning the Company’s expectations, plans, objectives or beliefs of the Company's management, as well as estimates and assumptions made by, and information currently available to, management. These statements are inherently uncertain, and there can be no assurance that the underlying estimates or assumptions will prove to be accurate. Actual results could differ materially from historical results or those anticipated by such statements. Forward-looking statements in this report include, without limitation: statements regarding ~~the Pending Acquisition of Citizens National;~~ future financial performance and ~~profitability; performance of the investment~~other statements that are not historical facts. These statements may constitute “forward-looking statements” as defined by federal securities laws and loan portfolios, including performance of the consumer auto loan portfolio and the purchased student loan portfolio and expected trends in the quality of the loan portfolio; the effects of diversifying the loan portfolio; strategic business and growth initiatives; management's efforts to reposition the balance sheet; deposit growth; levels and sources of liquidity; the securities portfolio; use of proceeds from the sale of securities; future levels of charge-offs or net recoveries; the impact of increases in NPAs on future earnings; write-downs and expected sales of other real estate owned; income taxes; expected timing of and expense in connection with the anticipated termination of the pension plan; monetary policy actions of the Federal Open Market Committee; and changes in interest rates.

~~Factors that could have a material adverse effect on the operations and future prospects of the Company~~may include, but are not limited to: statements regarding expected future operations and financial performance; the ~~possibility that any~~Company’s technology and efficiency initiatives and anticipated completion timelines; potential effects of the COVID-19 pandemic, including on asset quality, the allowance for loan losses, provision for loan losses, interest rates, and results of operations, certain items that management does not expect to have an ongoing impact on consolidated net income, future dividend payments, net interest margin compression and items affecting net interest margin, strategic business initiatives and the anticipated ~~benefits~~effects thereof, lending under the Paycheck Protection Program (PPP) of the ~~Pending Acquisition~~Small Business Administration (SBA), asset quality, adequacy of Citizens National will not be realized or will not be realized within the expected time period; Citizens National may not be integrated into the Company successfully or such integration may be more difficult, time-consuming, or costly than expected; expected revenue synergies and cost savings from the Pending Acquisition may not be fully realized or realized within the expected timeframe; revenues following the Pending Acquisition may be lower than expected; customer and employee relationships and business operations may be disrupted by the Pending Acquisition; or obtaining required regulatory approvalsallowances for loan losses and the ~~approval~~level of ~~Citizens National shareholders or completing~~future chargeoffs, liquidity and capital levels, the ~~Pending Acquisition may be more difficult, time-consuming, or costly than expected. Other~~Company’s assessment of and ability to manage and remediate the impact of cyber incidents, including those involving theft and fraudulent activity directed at the Bank and its customers and employees, perpetrated by third-party cybercriminals, the effect of future market and industry trends and the effects of future interest rate levels and fluctuations. These forward-looking statements are subject to significant risks and uncertainties due to factors that could have a material adverse effect on the operations and future prospects of the Company ~~include,~~including, but ~~are~~ not limited to, changes in:

interest rates, such as volatility in short-term interest rates or yields on U.S. Treasury bonds and ~~yields;~~ increases or volatility in mortgage interest rates

general business conditions, as well as conditions within the financial markets

general economic ~~and business~~ conditions, including unemployment ~~levels; demand for loan products; the performance~~levels and slowdowns in economic growth, and particularly related to further and sustained economic impacts of the ~~Company's dealer lending program;~~ COVID-19 pandemic

the effectiveness of the Company’s efforts to respond to COVID-19, the severity and duration of the pandemic, the impact of loosening of governmental restrictions, the uncertainty regarding new variants, the pace and efficacy of vaccinations and treatment developments, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein

potential claims, damages and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to COVID-19, including, among other things, the PPP under the CARES Act, as subsequently amended

the Company’s branch realignment initiatives

the Company’s technology, efficiency, and other strategic initiatives

the legislative/regulatory ~~climate;~~ climate, regulatory initiatives with respect to financial institutions, products and services, the Consumer Financial Protection Bureau (the CFPB) and the regulatory and enforcement activities of the CFPB

monetary and fiscal policies of the U.S. ~~government,~~Government, including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve ~~Board~~System (the Federal Reserve), and ~~any~~the effect of these policies on interest rates and business in our markets

future levels of government defense spending particularly in the Company’s service area

the impact of potential changes ~~associated with~~in the ~~new administration;~~ political landscape and related policy changes, including monetary, regulatory and trade policies

the US. Government’s guarantee of repayment of student or small business loans purchased by the Company

the value of securities held in the Company’s investment portfolios

demand for loan products and the impact of changes in demand on loan growth

the quality or composition of the loan ~~or securities portfolios;~~ portfolios and the value of the collateral securing those loans

changes in the volume and mix of interest-earning assets and interest-bearing ~~liabilities;~~ liabilities

the effects of ~~management's~~management’s investment strategy and strategy to manage the net interest ~~margin; the U.S. government's guarantee of repayment of student loans purchased by the Company;~~ margin

Index

the level of net charge-offs on ~~loans;~~ loans and the adequacy of our allowance for loan and lease losses

performance of the Company’s dealer lending program

deposit ~~flows; competition;~~ flows

the strength of the Company’s counterparties

competition from both banks and non-banks

demand for financial services in the ~~Company's~~Company’s market ~~area;~~ area

implementation of new ~~technologies;~~ technologies

the ~~Company's~~Company’s ability to develop and maintain secure and reliable electronic ~~systems;~~ systems

any interruption or breach of security in the ~~Company's~~Company’s information systems or those of the ~~Company's third party~~Company’s third-party vendors or ~~other~~their service ~~providers;~~ providers

reliance on third parties for key ~~services;~~ services

cyber threats, attacks or events

the use of inaccurate assumptions in ~~management's~~management’s modeling ~~systems;~~ systems

technological risks and developments

the commercial and residential real estate ~~market;~~ markets

the demand in the secondary residential mortgage loan markets

expansion of the Company’s product offerings

accounting principles, policies and ~~guidelines;~~guidelines and ~~other factors detailed in~~elections made by the Company's publicly filed documents, including its Annual Report on Form 10-K for the year ended December 31, 2016. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements, which speak only as of date of the report.Company thereunder

These risks and uncertainties, in addition to the risks and uncertainties identified in the ~~Company's 2016 annual report~~Company’s 2020 Annual Report on Form 10-K, the Company’s Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K should be considered in evaluating the forward-looking statements contained ~~herein,~~herein. Forward-looking statements generally can be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “may,” “will,” “intend,” “should,” “could,” or similar expressions, are not statements of historical fact, and ~~readers~~are based on management’s beliefs, assumptions and expectations regarding future events or performance as of the date of this report, taking into account all information currently available. Readers are cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which it is ~~made.~~made, except as otherwise required by law. In addition, past results of operations are not necessarily indicative of future results.

~~- 35 -~~

Available Information

The Company maintains a website on the Internet at www.oldpoint.com. The Company makes available free of charge, on or through its website, its proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (SEC). This reference to the Company’s Internet address shall not, under any circumstances, be deemed to incorporate the information available at such Internet address into this Form 10-Q or other SEC filings. The information available on the ~~Company's~~Company’s Internet website is not part of this Form 10-Q or any other report filed by the Company with the SEC. The public may read and copy any documents the Company files with or furnishes to the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company'sCompany’s SEC filings can also be obtained on the ~~SEC's~~SEC’s website on the Internet at ~~www.sec.gov.~~www.sec.gov.

About Old Point Financial Corporation

The Company is the parent company of The Old Point National Bank of Phoebus (the Bank) and Old Point Trust & Financial Services, N. A. (Trust). The Bank is a locally managed community bank serving the Hampton Roads ~~localities of Chesapeake, Hampton, Isle of Wight County, Newport News, Norfolk, Virginia Beach, Williamsburg/James City County~~ and ~~York County.~~Richmond regions. The Bank currently has 1816 branch ~~offices~~offices. The Bank also has a loan production office in Richmond and ~~is the parent company of Old Point Mortgage, LLC (OPM), which provides~~a mortgage loan origination ~~services.~~office in Charlotte, NC. Trust is a wealth management services provider.

On April 1, 2018, the Company acquired Citizens National Bank (Citizens). Under the terms of the merger agreement, Citizens stockholders received 0.1041 shares of Company stock and $2.19 in cash for each share of Citizens stock. Systems integration was completed in May 2018.

On ~~October 30, 2017,~~March 11, 2020, the ~~Company announced that it~~World Health Organization declared COVID-19 a pandemic. The outbreak of COVID-19 has caused a significant disruption in economic activity worldwide, and has had ~~entered into~~ a ~~definitive merger agreement with Citizens National (OTC Pink: CNBV) pursuant to~~significant impact on business and customers in our market areas and on our results of operations, which the Company ~~will acquire Citizens National~~expects may continue. Substantial uncertainty remains about critical factors that may affect the economy and employment, including a rising trend in new cases of COVID-19 in the U.S.; and the emergence of new COVID-19 variants; the efficacy of a ~~stock~~vaccine against COVID-19; vaccination rates; potential re-tightening of policies that had previously allowed businesses to open; and ~~cash transaction for total consideration valued at approximately $7.9 million, based on a volume-weighted average price~~any further government stimulus efforts, including the nature, timing and extent of ~~$31.48 for Old Point common stock for the three trading days ended October 27, 2017. Upon the closing~~such stimulus. The ultimate extent of the ~~Pending Acquisition, Citizens National~~impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations is currently not yet estimable and the Company believes that it will ~~merge into~~depend on various developments and other factors, including, among others, the ~~Bank. The Pending Acquisition has been unanimously approved by~~duration and scope of the ~~Boards of Directors of both institutions. The Pending Acquisition is expected to be completed in first quarter 2018, subject to the approval of Citizens National shareholders~~pandemic, as well as ~~customary~~governmental, regulatory ~~approvals~~ and ~~other closing conditions.~~private sector responses to the pandemic, and the associated impacts on the economy, financial markets and our customers, employees and vendors. The Company’s results of operations may be impacted by elevated loans losses, net interest margin compression, falling demand for loans, and potential impairments of securities available for sale and goodwill. The Company currently expects to manage through the negative impacts of the COVID-19 pandemic by maintaining sufficient liquidity and capital levels.

Index

The Company actively assisted both customers and non-customers in obtaining loans through the PPP administered by the SBA. Additionally, the Company has worked with customers affected by COVID-19 through payment deferrals and tracked all payment accommodations to customers to identify and quantify any impact they might have on the Company. As of June 30, 2021, the Company had loan modifications on $54 thousand down from approximately $7.4 million as of December 31, 2020. Continued uncertainty regarding the duration and scope of the pandemic and related effects of COVID-19 may negatively impact management assumptions and estimates, such as the allowance for loan losses and resulting provision for loan losses.

Critical Accounting Policies and Estimates

AsThe accounting and reporting policies of ~~September 30, 2017, there have been no significant~~the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes ~~with regard to~~in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company’s critical accounting policies and estimates ~~disclosed in~~with the ~~Company's 2016 annual report on Form 10-K.~~ Audit Committee of the Board of Directors.

The critical accounting ~~policy that required management's most difficult, subjective or complex judgments continues to be~~and reporting policies include the ~~Company's~~Company’s accounting for the allowance for loan losses. ~~The Company's~~Accordingly, the Company’s significant accounting policies ~~for calculating the allowance for loan losses~~ are discussed in ~~this Item 2 and in~~ Note 31 of the Notes to the Consolidated Financial Statements included in this quarterly report on Form 10-Q, and are discussed in further detail in the ~~Company's 2016 annual report~~Company’s 2020 Annual Report on Form 10-K.

Executive Overview

InFor the ~~third quarter of 2017, net income~~ ~~was $757 thousand and decreased $572 thousand when compared to the third quarter of 2016. This decrease in quarterly~~three months ended June 30, 2021 net income was $1.8 million, or $0.35 earnings per diluted common share. This compares to net income of $2.5 million, or $0.48 earnings per diluted common share, for the ~~net effect~~second quarter of ~~higher~~2020. The decrease was principally attributable to decreased noninterest income and increased noninterest expense partially offset by increased net interest income ~~particularly on~~and decreased provision for loan losses.

For the ~~loan portfolio; higher~~six months ended June 30, 2021 and 2020, net income was $4.9 million, or $0.93 earnings per diluted common share, and $3.7 million, or $0.72 earnings per diluted common share, respectively. The increase was primarily attributable to increased net interest ~~expense due to an increase in borrowings; an increased~~income, decreased provision for loan losses, ~~as a result of increases in loans~~ and ~~nonperforming assets; higher~~increased noninterest ~~income; and higher~~income partially offset by increased noninterest ~~expense, driven primarily by increases in loan expenses.~~expense.

Net income for the first nine months of 2017 was $2.9 million, or $0.57 per diluted share, compared to net income of $2.9 million, or $0.59 per diluted share, for the first nine months of 2016. The decrease in year-to-date net income was driven primarily by the same factors that impacted quarterly net income. Noninterest income was also positively impacted by the Old Point Mortgage acquisition in the second quarter of 2017, while noninterest expense was affected by increases in salaries and employee benefits, in addition to higher loan expenses as in the quarterly period.

Highlights of the quarter are as follows:

The Company entered into a definitive merger agreement to acquire Citizens National in the Pending Acquisition, which is expected to close in the first quarter of 2018, subject to customary closing conditions, including regulatory and Citizens National shareholder approval.
Total ~~loans held for investment grew $97.1~~assets were $1.3 billion at June 30, 2021, growing $48.6 million or ~~16.08%~~4.0% from December 31, ~~2016. Average loans held for investment increased $102.7~~2020.

Deposits grew $66.8 million ~~or 17.38% from the same quarter in the prior year.~~
~~Deposits decreased $2.1 million or 0.26%~~to $1.1 billion at June 30, 2021 from December 31, ~~2016. Average deposits increased $24.6 million, or 3.28%, from the same quarter in the prior year.~~2020.
~~The net interest margin improved to 3.68%, from 3.66% for the third quarter of 2016.~~
~~Return on average assets was 0.32% in the third quarter of 2017, compared to 0.59% in the third quarter of 2016.~~
Non-performing assets (NPAs) ~~were $14.2~~increased slightly to $2.4 million at ~~September~~June 30, ~~2017, up from $11.1~~2021 compared to $2.0 million at December 31, ~~2016. Non-accrual loans were $10.2~~2020, but decreased significantly from $7.0 million as of June 30, 2020. NPAs as a percentage of total assets was 0.19% at ~~September~~June 30, ~~2017, up from $7.2 million~~2021, which compared to 0.16% at December 31, ~~2016.~~

2020 and 0.57% at June 30, 2020.

Quarterly average earning assets grew $111.6 million, or 10.5%, to $1.2 billion as of June 30, 2021 compared to $1.1 billion as of June 30, 2020.

~~- 36 -~~

Book value per share at June 30, 2021 increased 1.3% over March 31, 2021 and 3.0% from June 30, 2020.

Net interest income was $9.1 million for the second quarter of 2021, compared to $10.2 million for the prior quarter, and increasing from $8.5 million for the second quarter of 2020.

Net Interest Income

The principal source of earnings for the Company is net interest income. Net interest income is the difference between interest and fees generated by earning assets and interest expense paid to fund them. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income. The net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets.

Index

For the ~~nine months ended September 30, 2017,~~second quarter of 2021, net interest income was ~~$22.3~~$9.1 million,, an increase of ~~$2.0~~$633 thousand or 7.5% from the second quarter of 2020. The increase was primarily due to the impact of significant growth in average earning asset balances at lower average earning yields partially offset by higher average interest bearing liabilities balances at lower average interest bearing costs. The compression on yield and cost was primarily due to the reduction of the federal funds target rate in the first quarter of 2020 by the Federal Reserve to a range of 0.00% to 0.25% in response to the COVID-19 pandemic, but is also impacted by PPP loan originations (which bear interest at a rate of 1%) and higher levels of liquidity. Average earning assets increased year-over-year by $111.6 million, or ~~9.62%~~10.5%. The average tax-equivalent yield on earning assets for the second quarter of 2021 decreased by 36 basis points compared to the ~~prior year~~same period ~~primarily due~~of 2020. Average interest bearing liabilities increased $17.6 million, or 2.4%, and the average rate on interest-bearing liabilities for the quarter ended June 30, 2021 was 0.40%, down from 0.75% for the same period of 2020, benefiting from the lower rate environment and reduced interest expense related to ~~increased interest and fees on loans associated with loan growth.~~ repayment of higher-cost long-term borrowings during 2020.

For the ~~third quarter of 2017,~~six months ended June 30, 2021 and 2020, net interest income was ~~$7.7~~$19.3 million ~~an increase of $928 thousand or 13.64% from the third quarter of 2016. The increases in net interest income were driven by higher earning asset balances.~~

and $16.9 million, respectively. Net interest income, on a fully tax-equivalent basis, was ~~$23.0~~$19.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$21.0~~$17.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, an increase of ~~9.55%~~$2.4 million, or 14.2%. ~~For the third quarter of 2017, tax-equivalent net interest income~~The increase was ~~$8.0 million, an increase of 13.29% from the third quarter of 2016.~~

~~Year-to-Date Review~~

~~Unless otherwise noted, all comparisons in this section are between the nine months ended September 30, 2017 and the nine months ended September 30, 2016.~~

~~Average loans held for investment increased $76.0 million, with this increase in average balances offsetting a 14-basis-point decline in loan yields to increase interest income on loans~~driven by $1.9 million. Average investment securities increased $3.1 million while the tax-equivalent yield on the portfolio increased 15 basis points; on a combined basis, the higher balances and higher yields on securities added $252 thousand to tax-equivalent interest income. During the second half of 2016 and the first half of 2017, management closely monitored the investment portfolio and was able to strategically buy and sell securities to improve the yield on the portfolio.

~~Average earning assets increased $73.3 million, offsetting a marginal decline in the average yield of 1 basis point. In addition to~~ the growth in average earning assets and the lower cost of funds from the first half of 2020, tempered by the impacts of lower yields on earning assets and increases in average interest bearing liabilities. Accelerated recognition of deferred fees and costs related to PPP forgiveness also positively impacted net interest income ~~also~~for the 2021 period. Average earning assets for the six months ended June 30, 2021 increased $149.5 million, or 14.7%, compared to the first six months of 2020, primarily due to growth in loans (including PPP loans) and investment securities, funded by deposit growth. Average interest bearing liabilities increased $35.9 million, or 5.0%, for the six months ended June 30, 2021 compared to the comparative 2020 period. The average tax-equivalent yield and average interest bearing cost decreased by 31 basis points and 41 basis points, respectively, for the first six months of 2021 compared to the first six months of 2020.

The NIM for the second quarter of 2021 was 3.10%, a ~~change in~~decrease from 3.19% for the ~~mix~~second quarter of ~~earning assets as average loans grew faster than average investment securities.~~2020. On a fully tax-equivalent basis, (FTE), NIM decreased to 3.12% for the second quarter of 2021, down from 3.21% for the prior year quarter. For the first six months of 2021 and 2020, NIM was 3.33% and 3.35%, respectively, and NIM (FTE) was 3.36% and 3.36%, respectively. Average ~~total nonearning assets decreased $18.6 million~~loan yields were lower for the second quarter of 2021 compared to the same period of 2020 by 8 basis points, but higher by 4 basis points for the six month ended June 20, 2021 over the same period of 2020. The lower interest rate environment resulted in lower average yields on new loan originations, including PPP loans which earn at a fixed 1%, and repricing within the existing loan portfolio. Loan fees and costs related to PPP loans are deferred at time ~~period, with~~of loan origination, are amortized into interest income over the ~~Company utilizing its excess liquidity to fund a portion~~remaining term of the loans and accelerated upon forgiveness or repayment of the PPP loans. Net PPP fees of $2.0 million were recognized in the first six months of 2021. As of June 30, 2021, unamortized net deferred PPP fees were $1.8 million. For more information about these FTE financial measures, please see “Non-GAAP- Financial Measures” below. High levels of liquidity invested at lower yielding short-term levels in the low interest rate environment also continue to impact the NIM.

Average money market, savings and interest-bearing demand deposits increased $107.4 million and $107.2 million for the second quarter and first six months of 2021, respectively, and average time deposits decreased $28.5 million and $30.2 million for the second quarter and first six months of 2021, respectively, compared to the same periods in 2020, due to growth in consumer and business deposits primarily as a result of new accounts and liquidity from government stimulus programs as well as a shift from time deposits as a result of lower interest rates. Average noninterest-bearing demand deposits increased $74.8 million for the second quarter of 2021 and increased $94.8 million for the first six months of 2021, compared to the same periods in 2020. The average ~~total assets. With~~cost of interest-bearing deposits decreased 32 basis points for the second quarter of 2021 and decreased 34 basis points for the first six months of 2021, compared to the same periods in 2020, due primarily to lower rates on deposits and a ~~higher percent of the Company's average assets~~shift in ~~loans--the highest yielding category on the Company's balance sheet--tax-equivalent~~composition from time deposits. While changes in rates take effect immediately for interest ~~income increased $2.2 million.~~

~~The growth~~checking, money market and savings accounts, changes in the average balance sheet was funded primarily through increases in deposits, with average deposits growing $42.7 million. Low-cost deposits in particular grew $46.2 million, with higher-cost time deposits decreasing $3.5 million. While the cost of time deposits ~~increased 3 basis points, the shift~~lag changes in ~~the deposit mix toward less costly sources of funding limited the impact~~pricing based on the ~~cost~~repricing of ~~total~~ time deposits at maturity.

Average borrowings decreased $61.4 million for the second quarter of 2021 and ~~savings deposits to an overall increase~~decreased $41.1 million for the first six months of ~~only 1 basis point. This change in the deposit mix also helped reduce the effect of deposit growth on interest expense, with interest expense on deposits increasing $102 thousand, or 5.87% as~~2021, compared to the ~~9.46% increase~~same periods in ~~tax-equivalent interest income. Management expects that the Company's solid base of low-cost deposits will continue to beneficially impact the net interest margin in 2017.~~

Growth in the average balance sheet was also supported by additional FHLB advances, with average FHLB advances increasing $13.5 million. The growth in balances was mitigated by a decline in the average rate on these advances,2020 due primarily ~~due~~ to the ~~payoff~~repayment of ~~an FHLB advance~~long-term borrowings in ~~February 2016. As can be seen in the following table, this paid off advance bore a rate significantly higher than other available funding sources in the current rate environment.~~2020. The ~~total~~average cost of ~~interest-bearing liabilities increased 1~~borrowings decreased 82 basis ~~point~~points during the second quarter of 2021 and 118 basis points during the first six months of 2021, compared to ~~0.47%.~~

~~The decline~~the same periods in 2020 due primarily to the ~~yield on average earning assets combined with the increase in the cost~~repayment of ~~total interest-bearing liabilities would typically result in a decrease in the net interest margin.~~higher-cost long-term borrowings during 2020. However, the ~~Company's earning assets grew 9.61% while interest-bearing liabilities grew 6.70%. As discussed above, the Company used excess liquidity previously held in cash~~Company’s borrowings and ~~due from banks to fund a portion of its balance sheet growth, which offset both the decline in the yield on earning assets and the increase in the cost of interest-bearing liabilities, leaving the net~~related interest ~~margin unchanged at 3.67%.~~

~~Management expects that the Company's loan yields~~expense will continue to decline, due to intense competition for quality loans and rate reductions on loans currently held in the portfolio. Management also expects that the reduction in loan yields will likely continue throughout 2017, depending on monetary policy actions taken by the Federal Open Market Committee (FOMC). The FOMC raised the target range for the federal funds rate in March 2017 and June 2017, and management currently expects one additional increase in the remainder of the year. If the FOMC does continue to raise its target range, then management expects that the decline in loan yields will eventually slow as new loans are booked at current market rates. To partially offset the anticipated decline, management has placed an increased focus on managing the Company's mix of liabilities in order to increase low cost funds and reduce high cost funds where possible.

~~- 37 -~~

~~Third Quarter Review~~

~~Unless otherwise noted, all comparisons in this section are between~~be impacted beginning during the third quarter of ~~2017~~2021 due to the issuance of subordinated notes by the Company during July 2021. For more information, see “Capital Resources.”

The Company believes NIM may be affected in future periods by several factors that are difficult to predict, including (1) changes in interest rates, which may depend on the severity of adverse economic conditions, the timing and extent of any economic recovery, and the ~~third quarter~~extent of ~~2016.~~

~~Comparisons between the third quarters of 2017 and 2016~~government stimulus measures, which are ~~substantially the same as those for the nine months ended September 30, 2017 and 2016, although the effects of the Company's initiatives surrounding loan growth tended to be more pronounced~~inherently uncertain, (2) possible changes in the ~~quarterly comparison. Average loans held for investment grew $102.7 million or 17.38%, offsetting a 10-basis-point decline in~~composition of earning assets which may result from decreased loan yields for a net increase in tax-equivalent interest income of $983 thousand. The effects of the strategic investment purchases and sales in the second half of 2016 and the first half of 2017 are also evident in the quarterly comparison, with average total investment securities increasing $13.4 million while the yield increased 17 basis points. Average nonearning assets declined $44.3 million or 31.28%demand as ~~loan growth absorbed excess liquidity previously held in noninterest-bearing accounts. As~~ a result of the ~~increase in securities yields~~current economic environment; and (3) the ~~shift in~~recognition of net deferred fees on PPP loans, which is subject to the ~~Company's balance sheet to higher-yielding loans, the tax-equivalent yield on earning assets increased 7 basis points to 4.06% and tax-equivalent interest income increased $1.1 million~~timing of repayment or ~~14.86%.~~forgiveness.

In addition to available liquidity, the increase in loans was funded by growth in low-cost deposits ($29.1 million) and by FHLB advances ($28.0 million). As market rates have increased, the rate on FHLB advances has also increased, with the cost increasing from 0.58% in the third quarter of 2016 to 1.27% in the third quarter of 2017. Although the Company's overall cost on time deposits is lower than the cost of FHLB advances, much of the balance in time deposits is from accounts opened in lower rate environments. The current market rates on time deposits in the Company's market area remain generally higher than the rates on short-term FHLB advances.

Index

The following ~~table shows an analysis~~tables show analyses of average earning assets, interest-bearing liabilities and rates and yields for the periods indicated. Nonaccrual loans are included in loans outstanding.

AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND RATES*
For the quarter ended September 30,
2017 2016
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate** Balance Expense Rate**
(dollars in thousands)
ASSETS
Loans held for investment* $ 693,693 $ 7,661 4.42 % $ 590,964 $ 6,678 4.52 %
Loans held for sale 1,090 12 4.40 % 0 0 0.00 %
Investment securities:
Taxable 101,612 487 1.92 % 88,462 357 1.61 %
Tax-exempt* 64,662 584 3.61 % 64,389 563 3.50 %
Total investment securities 166,274 1,071 2.58 % 152,851 920 2.41 %
Interest-bearing due from banks 1,093 4 1.46 % 19,671 25 0.51 %
Federal funds sold 457 1 0.88 % 1,596 2 0.50 %
Other investments 3,132 49 6.26 % 1,935 35 7.24 %
Total earning assets 865,739 $ 8,798 4.06 % 767,017 $ 7,660 3.99 %
Allowance for loan losses (9,128 ) (8,048 )
Other non-earning assets 97,420 141,759
Total assets $ 954,031 $ 900,728

LIABILITIES AND STOCKHOLDERS' EQUITY
Time and savings deposits:
Interest-bearing transaction accounts $ 27,705 $ 2 0.03 % $ 27,404 $ 2 0.03 %
Money market deposit accounts 231,785 90 0.16 % 213,597 44 0.08 %
Savings accounts 84,220 11 0.05 % 78,997 10 0.05 %
Time deposits 207,491 560 1.08 % 212,057 538 1.01 %
Total time and savings deposits 551,201 663 0.48 % 532,055 594 0.45 %
Federal funds purchased, repurchase agreements and other borrowings 27,046 13 0.19 % 26,506 6 0.09 %
Federal Home Loan Bank advances 50,707 161 1.27 % 22,717 33 0.58 %
Total interest-bearing liabilities 628,954 837 0.53 % 581,278 633 0.44 %
Demand deposits 222,429 217,020
Other liabilities 5,006 6,294
Stockholders' equity 97,642 96,136
Total liabilities and stockholders' equity $ 954,031 $ 900,728
Net interest margin $ 7,961 3.68 % $ 7,027 3.66 %

*Computed on a fully tax-equivalent basis using a 34% rate; the tax-equivalent adjustment to interest income was $230 thousand and $224 thousand for the three months ended September 30, 2017 and 2016, respectively.
**Annualized

~~- 38 -~~AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND RATES

	For the quarter ended June 30,
	2021								2020
(dollars in thousands)	Average Balance			Interest Income/ Expense		Yield/ Rate**			Average Balance			Interest Income/ Expense		Yield/ Rate**
ASSETS
Loans*	$	831,563		$	8,826		4.26	%	$	828,896		$	8,937		4.34	%
Investment securities:
Taxable		162,859			791		1.95	%		134,372			712		2.13	%
Tax-exempt*		32,822			242		2.96	%		18,853			173		3.69	%
Total investment securities		195,681			1,033		2.12	%		153,225			885		2.32	%
Interest-bearing due from banks		150,995			52		0.14	%		82,399			32		0.15	%
Federal funds sold		4			-		0.02	%		6			0		0.02	%
Other investments		1,033			11		4.19	%		3,153			43		5.56	%
Total earning assets		1,179,276		$	9,922		3.37	%		1,067,679		$	9,897		3.73	%
Allowance for loan losses		(9,619	)							(9,626	)
Other non-earning assets		106,058								116,890
Total assets	$	1,275,715							$	1,174,943

LIABILITIES AND STOCKHOLDERS’ EQUITY
Time and savings deposits:
Interest-bearing transaction accounts	$	70,532		$	3		0.02	%	$	56,465		$	3		0.02	%
Money market deposit accounts		372,691			220		0.24	%		300,028			283		0.38	%
Savings accounts		113,963			12		0.04	%		93,307			12		0.05	%
Time deposits		183,936			511		1.11	%		212,386			883		1.67	%
Total time and savings deposits		741,122			746		0.40	%		662,186			1,181		0.72	%
Federal funds purchased, repurchase agreements and other borrowings		14,505			7		0.21	%		33,859			15		0.18	%
Federal Home Loan Bank advances		-			-		0.00	%		42,000			179		1.71	%
Total interest-bearing liabilities		755,627			753		0.40	%		738,045			1,375		0.75	%
Demand deposits		394,337								319,574
Other liabilities		6,131								3,982
Stockholders’ equity		119,620								113,342
Total liabilities and stockholders’ equity	$	1,275,715							$	1,174,943
Net interest margin				$	9,169		3.12	%				$	8,522		3.21	%

*Computed on a fully tax-equivalent basis (non-GAAP) using a 21% rate, adjusting interest income by $63 thousand and $49 thousand for June 30, 2021 and 2020, respectively.

**Annualized

Index

AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND RATES

	For the six months ended June 30,
	2021								2020
(dollars in thousands)	Average Balance			Interest Income/ Expense		Yield/ Rate			Average Balance			Interest Income/ Expense		Yield/ Rate
ASSETS
Loans*	$	833,446		$	18,791		4.55	%	$	791,803		$	17,776		4.51	%
Investment securities:
Taxable		161,196			1,561		1.95	%		138,613			1,576		2.29	%
Tax-exempt*		31,268			471		3.04	%		15,038			283		3.78	%
Total investment securities		192,464			2,032		2.13	%		153,651			1,859		2.43	%
Interest-bearing due from banks		137,744			95		0.14	%		65,165			183		0.56	%
Federal funds sold		4			0		0.03	%		1,687			12		1.45	%
Other investments		1,176			41		6.96	%		3,072			89		5.85	%
Total earning assets		1,164,834		$	20,959		3.63	%		1,015,378		$	19,919		3.94	%
Allowance for loan losses		(9,633	)							(9,631	)
Other nonearning assets		101,615								109,995
Total assets	$	1,256,816							$	1,115,742

LIABILITIES AND STOCKHOLDERS’ EQUITY
Time and savings deposits:
Interest-bearing transaction accounts	$	69,153		$	6		0.02	%	$	52,844		$	6		0.02	%
Money market deposit accounts		360,180			422		0.24	%		290,492			600		0.42	%
Savings accounts		111,128			22		0.04	%		89,956			32		0.07	%
Time deposits		187,597			1,095		1.18	%		217,756			1,855		1.71	%
Total time and savings deposits		728,058			1,545		0.43	%		651,048			2,493		0.77	%
Federal funds purchased, repurchase agreements and other borrowings		20,347			30		0.30	%		21,227			37		0.35	%
Federal Home Loan Bank advances		-			-		0.00	%		40,242			413		2.06	%
Total interest-bearing liabilities		748,405			1,575		0.42	%		712,517			2,943		0.83	%
Demand deposits		381,278								286,502
Other liabilities		8,008								4,037
Stockholders’ equity		119,125								112,686
Total liabilities and stockholders’ equity	$	1,256,816							$	1,115,742
Net interest margin				$	19,384		3.36	%				$	16,976		3.36	%

AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND RATES*
For the nine months ended September 30,
2017 2016
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate** Balance Expense Rate**
(dollars in thousands)
ASSETS
Loans held for investment* $ 656,937 $ 21,607 4.39 % $ 580,900 $ 19,717 4.53 %
Loans held for sale 373 20 7.15 % 0 0 0.00 %
Investment securities:
Taxable 104,059 1,474 1.89 % 104,631 1,376 1.75 %
Tax-exempt* 69,274 1,867 3.59 % 65,610 1,713 3.48 %
Total investment securities 173,333 3,341 2.57 % 170,241 3,089 2.42 %
Interest-bearing due from banks 1,502 12 1.07 % 7,867 30 0.51 %
Federal funds sold 1,096 6 0.73 % 1,549 4 0.34 %
Other investments 2,075 98 6.30 % 1,491 76 6.80 %
Total earning assets 835,316 $ 25,084 4.00 % 762,048 $ 22,916 4.01 %
Allowance for loan losses (8,851 ) (7,893 )
Other non-earning assets 102,726 120,346
Total assets $ 929,191 $ 874,501

LIABILITIES AND STOCKHOLDERS' EQUITY
Time and savings deposits:
Interest-bearing transaction accounts $ 28,121 $ 7 0.03 % $ 17,559 $ 7 0.05 %
Money market deposit accounts 234,446 202 0.11 % 219,907 129 0.08 %
Savings accounts 82,160 31 0.05 % 78,033 29 0.05 %
Time deposits 206,150 1,599 1.03 % 209,654 1,572 1.00 %
Total time and savings deposits 550,877 1,839 0.45 % 525,153 1,737 0.44 %
Federal funds purchased, repurchase agreements and other borrowings 24,684 26 0.14 % 26,151 20 0.10 %
Federal Home Loan Bank advances 25,879 233 1.20 % 12,372 177 1.91 %
Total interest-bearing liabilities 601,440 2,098 0.47 % 563,676 1,934 0.46 %
Demand deposits 226,103 209,147
Other liabilities 5,477 6,507
Stockholders' equity 96,171 95,171
Total liabilities and stockholders' equity $ 929,191 $ 874,501
Net interest margin $ 22,986 3.67 % $ 20,982 3.67 %

*Computed on a fully tax-equivalent basis using a 34% rate; the tax-equivalent adjustment to interest income was $730 thousand and $680 thousand for the nine months ended September 30, 2017 and 2016, respectively.
**Annualized

*Computed on a fully tax-equivalent basis (non-GAAP) using a 21% rate, adjusting interest income by $122 thousand and $85 thousand for June 30, 2021 and 2020, respectively.

**Annualized

Provision for Loan Losses and Credity Quality

The provision for loan losses is a charge against earnings necessary to maintain the allowance for loan losses at a level consistent with ~~management's~~management’s evaluation of the portfolio. This expense is based on ~~management's~~management’s estimate of probable credit losses inherent to the loan portfolio. ~~Management's~~Management’s evaluation included credit quality trends, collateral values, discounted cash flow analysis, loan volumes, geographic, borrower and industry concentrations, the findings of internal credit quality assessments and results from external regulatory examinations. These factors, as well as identified impaired loans, historical losses and current economic and business conditions including uncertainties associated with the COVID-19 pandemic, were used in developing estimated loss factors for determining the loan loss provision. Based on its analysis of the adequacy of the allowance for loan losses, management concluded that the provision was appropriate.

For the three months ended June 30, 2021, the Company did not recognize a provision for loan losses compared to a provision of $300 thousand for the second quarter of 2020. The provision for loan losses was ~~$2.9 million~~$150 thousand in the first ~~nine~~six months of ~~2017,~~2021, compared to ~~$1.3 million~~$600 thousand in the first ~~nine~~six months of ~~2016.~~2020.

Index

The allowance for loan and lease losses (ALLL) was $9.5 million at June 30, 2021 and December 31, 2020, respectively. The ALLL as a percentage of loans held for investment was 1.14% at June 30, 2021 and December 31, 2020, respectively. Excluding PPP loans, which are 100% guaranteed by the SBA, the ALLL as a percentage of loans held for investment was 1.23% at June 30, 2021 and 1.27% at December 31, 2020. The decrease in ALLL as a percentage of loans held for investment, excluding PPP loans, was primarily attributable to an increase in loans held for investment combined with improving historical loss rates, partially offset by increased qualitative reserves. Quarterly annualized net charge offs as a percentage of average loans outstanding was 0.09% for the second quarter of 2021 compared to 0.13% in the second quarter of 2020. For more information about financial measures that are not calculated in accordance with GAAP, please see “Non-GAAP Financial Measures” below.

As of June 30, 2021, compared to December 31, 2020, there have not been significant changes in the ~~three months ended September~~overall credit quality of the loan portfolio, however the effects of government stimulus, including PPP loans, may be delaying signs of credit deterioration. Low levels of NPAs and year-over-year quantitative historical loss rates continue to demonstrate improvement, resulting in a 9 basis point reduction in the historical loss rate as a percentage of loans evaluated collectively for impairment overall, but are being partially offset by a 6 basis point increase in qualitative factor components primarily related to economic uncertainty stemming from the COVID-19 pandemic. As the economic impact of the COVID-19 pandemic continues to evolve, elevated levels of risk within the loan portfolio may require additional increases in the allowance for loan losses.

The Company has made loan modifications under the CARES Act, enacted on March 27, 2020, and subsequently amended by the Consolidated Appropriations Act 2021, which provided that certain loan modifications that were (1) related to COVID-19 and (2) for loans that were not more than 30 days past due as of December 31, 2019 are not required to be designated as TDRs. At June 30, 2021, the Company ~~added $1.3~~had loan modifications of $54 thousand down from $7.4 million as of December 31, 2020. The Company recognizes interest income as earned and management expects that the deferred interest owed on each such loan modification will be repaid by the borrower in ~~2017 and reversed $100 thousand from its provision for loan losses in 2016.~~a future period.

~~- 39 -~~

Approximately $1.1 million of the provision for loan losses in the nine months ended September 30, 2017 was due to growth in loans, which required the Company to set aside additional funds. The remainder of the increase was primarily due to the deteriorating condition of a long-standing borrowing relationship, which the Company charged down to the value of its collateral, less costs to sell, during the nine months ended September 30, 2017.

Net loans charged off as a percent of total loans on an annualized basis were 0.42% for the first nine months of 2017, or $3.0 million, compared to 0.28%, or $1.3 million, in the first nine months of 2016. In the three months ended September 30, 2017 and 2016, Net loans charged off as a percent of total loans on an annualized basis were 0.59% and 0.04%, respectively.

Noninterest Income

Noninterest income was ~~$3.4~~$3.5 million and ~~$10.6~~$7.7 million , respectively, in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, an increase~~2021, a decrease of ~~$34~~$420 thousand or ~~1.02%~~10.6% from the ~~third~~second quarter of ~~2016~~2020 and an increase of ~~$337~~$436 thousand ~~or 3.28%~~ from the ~~nine~~six months ended ~~September~~June 30, ~~2016. The changes between 2016~~2020. Increases in fiduciary and 2017 resulted primarily from (1) nonrecurring gains associated with the initial implementation in the first quarter of 2016 of a new strategy for the investment portfolio, resulting in increased activity within the investment portfolio that was not repeated in 2017, and (2) a nonrecurring gain associated with the acquisition in the second quarter of 2017 of the outstanding interest in Old Point Mortgage, LLC, which is now included in the Company's consolidated financial statements.

~~Year-to-Date Review~~

~~Unless otherwise noted, all comparisons in this section are between the nine months ended September 30, 2017 and 2016.~~

~~Gains on sales of available-for-sale securities decreased $433 thousand. While~~asset management continued to monitor the investment portfolio and make changes congruent with its strategy for the investment portfolio, purchases and sales in the first nine months of 2017 were fewer than in the first nine months of 2016, with correspondingly smaller gains.

As a result of the purchase of the outstanding ownership interest in OPM in the second quarter of 2017, the Bank became the sole member of OPM. In accordance with GAAP, the Company recorded income of $550 thousand related to the fair value of its previously-held equity interest in OPM, reflected as a gain on acquisition of Old Point Mortgage in the Consolidated Statements of Income.

Income from mortgage banking activities increased $186 thousand. The Company's consolidated financial statements now include OPM, with its income reported in noninterest income as income from mortgage banking activities. In 2016, the Bank owned only 49% of OPM and accounted for its investment under the equity method. Under this method, the Bank recorded its proportionate share of OPM's net income (all income net of all expenses, including income tax). With the completion of the full acquisition of OPM, the Bank now receives 100% of OPM's operating results. The Bank's investment in OPM is also now accounted for on a consolidated basis, and as a result, OPM's gross revenues are reported in noninterest income and its expenses are reported in individual categories of noninterest expense, rather than as a net figure in noninterest income. The increase from a 49% to 100% ownership interest and the conversion from equity to consolidation accounting led to the significant increase in this category.

~~Other significant changes in noninterest income were as follows:~~

~~Income from fiduciary activities (increased $184 thousand or 6.98%):~~ This account is heavily impacted by the market value of assets under management, and improvements in the stock market during the fourth quarter of 2016 and first nine months of 2017 increased income in this category.
~~Service charges on deposit accounts (decreased $191 thousand or 6.29%):~~ Lower overdraft fee income and lower service charges on both personal and business accounts were the primary reasons for the decline in this account. Increased regulation of overdraft fee income has reduced the Company's income in this category in prior years, a decline that continued in 2017.
~~Other service charges, commissions and~~ fees, ~~(increased $122 thousand or 4.04%):~~ ~~This account increased primarily due to increases in merchant processing fee income and debit card fee income.~~

~~Third Quarter Review~~

~~Unless otherwise noted, all comparisons in this section are between the third quarter of 2017 and the third quarter of 2016.~~

~~Income from fiduciary activities increased $45 thousand or 5.24% and~~ other service charges, commissions and fees, ~~increased $82 thousand or 8.47%. Both changes~~and mortgage banking income were offset by the impact of non-recurring gains on available for sale securities and fixed assets that were recognized during the second quarter of 2020, which resulted in a decline in noninterest income for the ~~reasons discussed~~second quarter of 2021 when compared to the prior year quarter. Year over year, fiduciary and asset management fees and other service charges, commission and fees increased while service charges on deposit accounts decreased primarily due to lower nonsufficient funds, or NSF, fees which historically trend downward during periods of economic uncertainty and lower service charges due to higher deposit balances. Mortgage banking income increased primarily due to (i) higher volume resulting from the current interest rate environment, (ii) higher gains on sales of loans as a result of higher margins on loan originated for resale and (iii) expansion of the mortgage lending team. Excluding non-recurring gains recognized in ~~the "Year-to-Date Review" section above.~~2020, noninterest income increased quarter-over-quarter and year-over-year.

~~- 40 -~~

Noninterest Expense

Noninterest expense was $10.6 million for the second quarter of 2021, an increase of $1.3 million, or 14.5%, from the second quarter of 2020. For the six months ended June 30, 2021, noninterest expense was $21.1 million, an increase of $1.9 million, or 9.7% over the comparative 2020 period. The quarter-over-quarter and year-over-year increases are primarily related to salaries and employee benefits, data processing, other taxes expense, and other operating expense, partially offset by decreases in occupancy and equipment.

Total salaries and benefits costs increased ~~$827~~$763 thousand, or ~~3.15%~~14.0%, when comparing the ~~nine~~second quarters of 2021 and 2020 and $996 thousand, or 8.7%, when comparing the six months ended ~~September~~June 30, ~~2017~~2021 to the same period in ~~2016 and increased $427 thousand or 4.91% when comparing the third quarters of 2017 and 2016.~~

~~Year-to-Date Review~~

~~Unless otherwise noted, all comparisons~~2020. The increase in ~~this section are between the nine months ended September 30, 2017 and 2016.~~

Noninterest expense in 2016 was impacted by the Company's early payoff of an FHLB advance in the first quarter of that year, which required the Company to pay a fee of $391 thousand. The lack of such a fee in 2017, along with decreases in certain categories of noninterest expense, reduces the impact of increases in other categories of noninterest expense.

~~Salaries~~salaries and employee benefits ~~(increased $543 thousand~~is primarily attributable to (i) increased commission expense related to higher mortgage loan origination volume in 2021; (ii) increased temporary employee expense; and (iii) lower levels of deferred costs related to PPP loan origination, partially offset by reduced salary expense related primarily to lower full time equivalent employee levels. The costs related to PPP loan originations were deferred at time of origination and are being amortized to interest income over the remaining lives of the loans, which may be 24 or ~~3.59%):~~ In60 months at origination. These costs are amortized against the ~~second quarter~~related loan fees received for the origination of ~~2017,~~the PPP loans. Recognition of the deferred costs and related fees will be accelerated upon forgiveness or repayment of the PPP loans. The Company has benefited from the early retirement transitions to redeploy resources in highly skilled and experienced relationship officers as well as officers with experience in creating efficiencies through improvements in operations and technology.

35
Index
As part of the Company’s 2021 roadmap for implementing bank-wide technology and efficiency initiatives, the Company ~~accrued for the compensation package provided to its retiring Chief Financial Officer.~~has fully implemented a new loan origination system and a new online appointment scheduling solution. In addition, the Company remains on track to ~~this accrual,~~implement a deposit origination platform and a new online account opening solution, and complete the ~~consolidation of OPM increased salary and commission expenses, as did the hiring of additional lending staff to support the Company's strategic plan.~~
~~Occupancy and equipment (increased $226 thousand or 5.48%):~~ ~~The Company continues to improve its disaster recovery plan, building on the more sophisticated disaster recovery plan initially begun~~ATM upgrade project in the third quarter of ~~2015. New service contracts~~2021. The Company plans to complete upgrades to critical infrastructure software related to imaging and ~~purchases~~to implement a new data analytics solution and teller system during the fourth quarter of ~~depreciable equipment both contributed~~2021. These initiatives have driven an increase of $393 thousand from the quarter ended June 30, 2020 to the ~~increase~~quarter ended June 30, 2021 and are expected to continue to contribute to increased noninterest expenses during the implementation and transition timeframes as our operational structure pivoted from in-house to outsourced environments and shifted costs previously included in occupancy and ~~equipment.~~
~~Legal and audit expenses (decreased $265 thousand or 30.49%):~~ The inclusion in the 2016 proxy statement and the implementation of stockholder-approved proposals following the 2016 Annual Meeting of Stockholders increased legal and audit expense during 2016, while there were no equivalent expenses in 2017.
~~Other outside service fees (increased $236 thousand or 42.07%):~~ ~~Due to the large increase in the Bank's auto dealer loan portfolio, costs to process and service these loans also increased.~~
~~Employee professional development (increased $177 thousand or 37.34%):~~equipment expense. The Company ~~incurred higher recruiting costs associated with an executive search.~~expects to continue its bank-wide technology initiative implementations into 2022.
~~Loan~~
Increase in other tax expenses ~~(increased $380 thousand or 368.93%):~~ ~~As with other outside service fees, the Bank's new dealer lending program increased the cost~~was driven by resolution of ~~credit reports, which are included in this line item. Expenses~~certain tax credits related to ~~problem credits were also higher as the Company worked to reduce nonperforming assets.~~
~~ATM~~bank franchise tax of $94 thousand and ~~other losses (increased $134 thousand or 44.52%):~~ Branch robberies and fraud losses increased this expense in the first half of 2017. The Company has implemented improvements to its fraud detection process and continues to monitor new frauds to determine if additional changes are necessary.
~~Loss (gain) on other real estate owned (decreased $171 thousand or 111.76%):~~ ~~In 2016 and 2017, the Company worked diligently to sell the properties held~~increases in other ~~real estate owned, with the last two sales closing in the second quarter of 2017. Prior~~operating expense is primarily related to ~~2017, both properties had already been written down~~increased FDIC assessments and loan processing expense due to ~~the anticipated sales price (less costs to sell); the Company recorded a small gain on the final sales in 2017, as compared to a loss in the first half of 2016.~~increased volume levels.

The ~~Company's~~Company’s income tax expense decreased ~~$119~~$166 thousand for the second quarter and increased $288 thousand for first six months of 2021 when compared to the same periods in 2020 primarily due to ~~both lower taxable~~changes in the levels of net income and a lower ~~effective tax rate. The Company's effective tax rate remains low due to its investments in tax-exempt securities and its receipt of~~ federal income tax credits for ~~its~~ investment in certain housing projects. AsThe effective federal income tax rates for the ~~Company's income before taxes~~three and six months ended June 30, 2021 was ~~lower in 2017 than in 2016 while~~12.7% and 14.7% and the ~~amount of tax-exempt income and tax credits increased, the Company's~~ effective tax ~~rate~~rates for the ~~first nine~~three and six months ~~of 2017 is negative.~~

ended June 30, 2020 was 14.7% and 12.8%, respectively.

~~Third Quarter Review~~

~~Unless otherwise noted, all comparisons in this section are between the third quarter of 2017 and the third quarter of 2016.~~

The most significant changes in quarterly noninterest expense were in four line items: occupancy and equipment (increased $71 thousand or 5.17%); legal and audit expenses (decreased $156 thousand or 41.94%); other outside service fees (increased $92 thousand or 46.00%); and loan expenses (increased $256 thousand or 556.52%). All of these categories were affected by the same factors as discussed above for the year-to-date periods.

Income tax expense for the quarter was down from the comparable period last year due to lower net income before taxes. As in the year-to-date periods discussed above, the Company's investments in tax-exempt securities and low-income housing projects have generally helped to keep its effective tax rate low, which management expects will continue.

~~- 41 -~~

Balance Sheet Review

Unless otherwise noted, all comparisons in this section are between balances at December 31, ~~2016~~2020 and ~~September~~June 30, ~~2017.~~2021.

~~Assets~~Total assets of $1.3 billion as of ~~September~~June 30, ~~2017 were $954.5~~2021 increased by $48.6 million ~~an increase of $51.5~~from December 31, 2020. Net loans held for investment decreased $3.6 million, or ~~5.71%~~0.4%, ~~with~~from December 31, 2020 to $823.2 million at June 30, 2021. The change in net loans held for investment ~~growing $96.4 million. During the first half of 2017, loan growth~~ was primarily ~~funded~~attributed to a decline of $25.7 million in the PPP loan segment due to forgiveness of $74.0 million of PPP loans, which was partially offset by ~~increases~~new PPP originations of $48.3 million. Loan growth in ~~low-cost deposits. However, deposit balances declined during June of 2017~~the commercial real estate and ~~did not show consistent growth again until September of 2017. As of September 30, 2017, total deposits were $2.1~~construction, land deployment, and other land loan segments was $20.9 million on a combined basis for the same period. Cash and cash equivalents increased $35.1 million, or ~~0.26% lower than~~29.1%. Securities available for sale, at fair value, increased $26.8 million from December 31, 2020 to $213.2 million at June 30, 2021, as additional liquidity provided by growth in deposit accounts continues to be deployed in the Company’s investment portfolio.

Total deposits increased $66.8 million, or 6.3%, to $1.1 billion at June 30, 2021. Noninterest-bearing deposits increased $38.5 million, or 10.6%, savings deposits increased $42.8 million, or 8.3%, and time deposits decreased $14.3 million, or 7.4%. Growth in the Company’s deposits continues to be driven by government stimulus, PPP loan related deposits, and higher levels of consumer savings. Key strategies continue to be expanding the low cost deposit base and re-pricing to reduce interest expense and buffer NIM compression during this low rate environment. Total borrowings decreased $21.0 million from December 31, 2020 to June 30, 2021. The primary driver of the decrease was repayment of borrowing under the Paycheck Protection Program Liquidity Facility (PPPLF) initiated by the Federal Reserve to partially fund PPP loan originations, resulting in the Company borrowing $3.3 million as of June 30, 2021 as compared to $28.6 million at December 31, ~~2016. Historically,~~2020. PPPLF borrowings are fully collateralized by PPP loans and will mature in concert with the ~~Company's deposit balances have shown similar seasonal variations in June and July, with balances growing again in the latter part~~underlying collateral, all of the third quarter and in the fourth quarter. Management monitors available liquidity closely and adjusts deposit rates according to the Company's needs. To supplement its deposit base, the Company funded loan growth from the securities portfolio ($35.3 million) and additional FHLB advances ($45.0 million).

The majority of the Company's loan growth was in the consumer loans category and was driven by indirect dealer lending. In September 2016, the Company re-opened its dealer lending department. The consumer auto loan portfolio grew $83.6 million in the first ninewhich will mature within 24 months of 2017, which contributed positively to interest income during 2017; management expects this trend will continue in the future. While there are risks inherent in any new loan program, the Company has hired knowledgeable staff and put in place programs and policies to mitigate those risks. Management is monitoring the allowance for loan losses carefully and will make changes as the portfolio ages.origination.

Consumer loans were also increased by the purchase of $8.9 million in consumer installment loans. The Company maintains a dedicated reserve account funded by the seller of these consumer installment loans, with the balance in the reserve averaging 10 - 12% of the outstanding principal balance. Any loan losses in this portfolio are covered first by the reserve account; loans are charged against the allowance for loan losses only if the funds available in the reserve account are not sufficient.

Average assets for the first ~~nine~~six months of ~~2017 were $929.2~~2021 increased $141.1 million, or 12.6%, compared to ~~$874.5 million for~~ the first ~~nine~~six months of ~~2016, an increase of 6.25%.~~2020. Comparing the first ~~nine~~six months of ~~2017~~2021 to the first ~~nine~~six months of ~~2016,~~ 2020, average ~~loan growth of $76.0~~loans increased $41.6 million, ~~was funded by average deposit growth ($42.7 million), average FHLB advances ($13.5 million),~~ and average ~~available liquidity from cash~~investment securities increased $38.8 million. Total average deposits increased $171.8 million with year-over-year average balance increases of 33.1% in non-interest bearing deposits and ~~due from banks ($20.5 million).~~24.7% in savings deposits, including interest-bearing transaction and money market accounts. Average borrowings decreased $41.1 million.

The Company's holdings of "Alt-A" type mortgage loans such as adjustable rate and nontraditional type loans were inconsequential, amounting to less than 1.00% of the Company's loan portfolio as of September 30, 2017.

The Company does not have a formal program for subprime lending. The Company is required by law to comply with the requirements of the Community Reinvestment Act (the CRA), which imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low- and moderate-income borrowers. In order to comply with the CRA and meet the credit needs of its local communities, the Company finds it necessary to make certain loans with subprime characteristics.

For the purposes of this discussion, a "subprime loan" is defined as a loan to a borrower having a credit score of 660 or below. The majority of the Company's subprime loans are to customers in the Company's local market area. The following table details the Company's loans with subprime characteristics that were secured by 1-4 family first mortgages, 1-4 family open-end loans (i.e., equity lines of credit) and 1-4 family junior lien loans (e.g., second mortgages) for which the Company has recorded a credit score in its system.

Loans Secured by 1 - 4 Family First Mortgages,
1 - 4 Family Open-end and 1 - 4 Family Junior Liens
As of September 30, 2017
(dollars in thousands)

Amount

Percent

Subprime $ 21,406 12.88 %
Non-subprime 144,829 87.12 %
$ 166,235 100.00 %

Total loans $ 700,996

Percentage of Real Estate-Secured Subprime Loans to Total Loans 3.05 %

~~- 42 -~~

In addition to the subprime loans secured by real estate discussed above, as of September 30, 2017, the Company had an additional $14.2 million in subprime consumer loans that were not government guaranteed, were unsecured, or were secured by collateral other than real estate. Together with the subprime loans secured by real estate, the Company's total subprime loans as of September 30, 2017 were $35.6 million, amounting to 5.08% of the Company's total loans at September 30, 2017.

~~Additionally, the Company has no investments secured by "Alt-A" type mortgage loans such as adjustable rate and nontraditional type mortgages or subprime loans.~~

Liquidity

Liquidity is the ability of the Company to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, investments in securities and loans maturing within one year. The ~~Company's~~Company’s internal sources of such liquidity are deposits, loan and investment repayments and securities available-for-sale. As of ~~September~~June 30, ~~2017,~~2021, the ~~Bank's~~Bank’s unpledged, available-for-sale securities totaled ~~$93.2~~$143.2 million. The ~~Company's~~Company’s primary external source of liquidity is advances from the FHLB. In addition, the Company had cash and cash equivalents of $155.5 million at June 30, 2021, including interest-bearing deposits in other banks of $134.4 million, that could provide additional liquidity to the Company

Index

A major source of the ~~Company's~~Company’s liquidity is its large, stable deposit base. In addition, secondary liquidity sources are available through the use of borrowed funds if the need should arise, including secured advances from the ~~FHLB.~~FHLB and FRB. As of the end of the ~~third~~second quarter of ~~2017,~~2021, the Company had ~~$141.0~~$375.1 million in FHLB borrowing availability based on loans and securities currently available for ~~pledging, less advances currently outstanding.~~pledging. The Company believes that the availability at the FHLB is sufficient to meet future cash-flow needs. The Company also has available short-term, unsecured borrowed funds in the form of federal funds lines of credit with correspondent banks. As of the end of the ~~third~~second quarter of ~~2017,~~2021, the Company had ~~$55.0~~$105.0 million available in federal funds lines to address any short-term borrowing needs.

As disclosed in the ~~Company's~~Company’s consolidated statements of cash flows, net cash provided by operating activities was ~~$7.0~~$15.9 million, net cash used in investing activities was ~~$64.8~~$25.5 million, and net cash provided by financing activities was ~~$47.4~~$44.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2021. Combined, this contributed to a ~~$10.4~~$35.1 million ~~decrease~~increase in cash and cash equivalents for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2021.

Management is not aware of any market or institutional trends, events or uncertainties, other than potential impacts from the COVID-19 pandemic, that are expected to have a material effect on the liquidity, capital resources or operations of the Company. Nor is management aware of any current recommendations by regulatory authorities that would have a material effect on liquidity, capital resources or operations.

Based on the ~~Company's~~Company’s management of liquid assets, the availability of borrowed funds, and the ~~Company's~~Company’s ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its ~~depositors'~~depositors’ requirements and to meet its ~~customers'~~customers’ future borrowing needs.

Notwithstanding the foregoing, the ~~Company's~~Company’s ability to maintain sufficient liquidity may be affected by numerous factors, including economic conditions nationally and in the ~~Company's~~Company’s markets. Depending on its liquidity levels, its capital position, conditions in the capital markets and other factors, the Company may from time to time consider the issuance of debt, equity, other securities or other possible capital markets transactions, the proceeds of which could provide additional liquidity for the ~~Company's~~Company’s operations.

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, loans past due 90 days or more and accruing interest, restructured loans that are accruing interest and not performing according to their modified terms, and OREO. ~~See Note 3 of the Notes to the Consolidated Financial Statements included in this quarterly report on Form 10-Q for an explanation of the loan categories.~~ OREO consists of real estate from ~~foreclosures~~a foreclosure on loan ~~collateral~~collateral. The Company had no OREO as of June 30, 2021 and ~~one former Bank building.~~December 31, 2020.

The majority of the loans past due 90 days or more and accruing interest at June 30, 2021 are student loans with principal and interest amounts that are 97 - 98% guaranteed by the federal government. When a loan changes from ~~"past~~“past due 90 days or more and accruing ~~interest"~~interest” status to ~~"nonaccrual"~~“nonaccrual” status, the loan is reviewed for impairment. In most cases, if the loan is considered impaired, then the difference between the value of the collateral and the principal amount outstanding on the loan is charged off. If the Company is waiting on an appraisal to determine the ~~collateral's~~collateral’s value or is in negotiations with the borrower or other parties that may affect the value of the collateral, management allocates funds to the allowance for loan losses to cover the anticipated deficiency, based on information available to management at that time.

In the case of TDRs, the restructuring may be to modify to an unsecured loan (e.g., a short sale) that the borrower can afford to repay. In these circumstances, the entire balance of the loan would be specifically allocated for, unless the present value of expected future cash flows was more than the current balance on the loan. It would not be charged off if the loan documentation supports the ~~borrower's~~borrower’s ability to repay the modified loan.

~~- 43 -~~

Index

The following table presents information on nonperforming assets, as of the dates indicated:

NONPERFORMING ASSETS
September 30, December 31, Increase
2017 2016 (Decrease)
(in thousands)
Nonaccrual loans
Commercial $ 771 $ 231 $ 540
Real estate-construction 518 - 518
Real estate-mortgage (1) 8,923 6,847 2,076
Consumer loans - 81 (81 )
Total nonaccrual loans $ 10,212 $ 7,159 $ 3,053

Loans past due 90 days or more and accruing interest
Commercial $ 473 $ - $ 473
Real estate-mortgage (1) 1,026 276 750
Consumer loans (2) 2,482 2,603 (121 )
Other 2 5 (3 )
Total loans past due 90 days or more and accruing interest $ 3,983 $ 2,884 $ 1,099

Restructured loans
Commercial $ 100 $ 144 $ (44 )
Real estate-construction 93 96 (3 )
Real estate-mortgage (1) 13,586 11,616 1,970
Total restructured loans $ 13,779 $ 11,856 $ 1,923
Less nonaccrual restructured loans (included above) 8,321 2,838 5,483
Less restructured loans currently in compliance (3) 5,458 9,018 (3,560 )
Net nonperforming, accruing restructured loans $ - $ - $ -

Nonperforming loans $ 14,195 $ 10,043 $ 4,152

Other real estate owned
Construction, land development, and other land $ - $ 940 $ (940 )
Former bank building - 127 (127 )
Total other real estate owned $ - $ 1,067 $ (1,067 )

Total nonperforming assets $ 14,195 $ 11,110 $ 3,085

(1) The real estate-mortgage segment includes residential 1 – 4 family, commercial real estate, second mortgages and equity lines of credit.
(2) Amounts listed include student loans with principal and interest amounts that are 97 - 98% guaranteed by the federal government. The portion of these guaranteed loans that is past due 90 days or more totaled $4.1 million at September 30, 2017 and $4.8 million at December 31, 2016.
(3) As of September 30, 2017 and December 31, 2016, all of the Company's restructured accruing loans were performing in compliance with their modified terms.

NONPERFORMING ASSETS

(dollars in thousands)	June 30, 2021		December 31, 2020		Increase (Decrease)
Nonaccrual loans
Real estate-mortgage (1)	$	245	$	311	$	(66	)
Real estate-commercial		1,028		903		125
Construction		130		-		130
Total nonaccrual loans	$	1,403	$	1,214	$	189

Loans past due 90 days or more and accruing interest
Real estate-mortgage (1)	$	58	$	-	$	58
Consumer loans (2)	$	935	$	744	$	191
Total loans past due 90 days or more and accruing interest	$	993	$	744	$	249

Restructured loans
Real estate-construction	$	81	$	83	$	(2	)
Real estate-mortgage (1)		471		492		(21	)
Real estate-commercial		1,276		1,352		(76	)
Total restructured loans	$	1,828	$	1,927	$	(99	)
Less nonaccrual restructured loans (included above)		1,047		1,120		(73	)
Less restructured loans currently in compliance (3)		781		807		(26	)
Net nonperforming, accruing restructured loans	$	-	$	-	$	-
Nonperforming loans	$	2,396	$	1,958	$	438

Total nonperforming assets	$	2,396	$	1,958	$	438

(1) The real estate-mortgage segment includes residential 1 – 4 family, second mortgages and equity lines of credit.

(2) Amounts listed include student loans with principal and interest amounts that are 97 - 98% guaranteed by the federal government. The

portion of these guaranteed loans that is past due 90 days or more totaled $626 thousand at June 30, 2021 and $547 million at December 31, 2020.

(3) As of June 30, 2021 and December 31, 2020, all of the Company’s restructured accruing loans were performing in compliance with their modified terms.

Nonperforming assets as of ~~September~~June 30, ~~2017~~2021 were ~~$14.2~~$2.4 million, ~~$3.1 million~~$438 thousand higher than nonperforming assets as of December 31, ~~2016.~~2020. Nonaccrual loans increased ~~$3.1 million~~$189 thousand when comparing the balances as of ~~September~~June 30, ~~2017~~2021 to December 31, ~~2016.~~2020. The increase was primarily driven by one credit relationship of $130 thousand which has subsequently been resolved. See Note 3 of the Notes to the Consolidated Financial Statements included in this quarterly report on Form 10-Q for additional information about the change in nonaccrual loans. Management has set aside specific allocations on those loans where it is deemed appropriate based on the information available to management at this time regarding the cash flow, anticipated financial performance, and collateral securing these loans. Management believes that the collateral and/or discounted cash flow on these loans will be sufficient to cover balances for which it has no specific allocation.

~~- 44 -~~

The majority of the balance of nonaccrual loans at ~~September~~June 30, ~~2017~~2021 was related to ~~a few~~one large credit ~~relationships. Of~~relationship of $843 thousand, representing 60.1% of the ~~$10.2~~$1.4 million of nonaccrual loans at ~~September~~June 30, ~~2017, $7.7 million, or approximately 75.40%, was comprised of three credit relationships of $3.7 million, $2.3 million, and $1.8~~ ~~million. All loans in these relationships have~~2021. This relationship has been analyzed to determine whether the cash flow of the borrower and the Company believes that the collateral pledged to secure the loans is sufficient to cover the outstanding principal ~~balances.~~balance. The Company has set aside specific allocations for those loans without sufficient cash flow or collateral and charged off any balance that management does not expect to collect.

The majority of the loans that make up the nonaccrual balance have been written down to their net realizable value. If the Company is waiting on an appraisal to determine the collateral's value, management allocates funds to cover the deficiency to the allowance for loan losses based on information available to management at the time. As shown in the table above, the majority of nonaccrual loans at September 30, 2017 and December 31, 2016 were collateralized by real estate.

Loans past due 90 days or more and accruing interest increased ~~$1.1 million.~~$249 thousand. As of ~~September~~June 30, ~~2017, $2.3 million~~2021, $626 thousand of the ~~$4.0 million~~$993 thousand of loans past due 90 days or more and accruing interest were government-guaranteed student loans on which the Company expects to experience minimal losses. Because the federal government has provided guarantees of repayment of these ~~student~~ loans in an amount ranging from 97% to 98% of the total principal and interest of the loans, management does not expect even significant increases in past due student loans to have a material effect on the Company. Net of past due government-guaranteed student loans, loans past due 90 days or more and accruing interest increased $1.4 million primarily due to the maturity of a single real estate mortgage loan that was renewed in October; the majority of the remainder is guaranteed by the SBA.

Index

Total restructured loans ~~increased~~decreased by ~~$1.9 million~~$99 thousand from December 31, ~~2016~~2020 to ~~September~~June 30, ~~2017~~2021 primarily due to ~~paydowns~~pay-offs and ~~charge-offs on restructured loans, partially offset by the restructuring of two additional loans.~~paydowns. All accruing TDRs are performing in accordance with their modified terms and have been evaluated for impairment, with any necessary reserves recorded as needed.

~~The Company's two remaining OREO properties were sold in the second quarter of 2017, and no additional properties were added.~~

Management believes the Company has excellent credit quality review processes in place to identify problem loans quickly. This allows management to work with problem loan relationships to identify any payment shortfall and assist these borrowers to improve performance or correct the problems.

Allowance for Loan Losses

The allowance for loan losses is based on several components. The first component of the allowance for loan losses is determined based on specifically identified loans that may become impaired. These loans are individually analyzed for impairment and include nonperforming loans and both performing and nonperforming TDRs. This component may also include loans considered impaired for other reasons, such as outdated financial information on the borrower or guarantors or financial problems of the borrower, including operating losses, marginal working capital, inadequate cash flow, or business interruptions. Changes in TDRs and nonperforming loans affect the dollar amount of the allowance. Increases in the impairment allowance for TDRs and nonperforming loans are reflected as an increase in the allowance for loan losses except in situations where the TDR or nonperforming loan does not require a specific allocation (i.e. the discounted present value of expected future cash flows or the collateral value is considered sufficient).

The majority of the ~~Company's~~Company’s TDRs and nonperforming loans are collateralized by real estate. When reviewing loans for impairment, the Company obtains current appraisals when applicable. If the Company is waiting on an appraisal to determine the ~~collateral's~~collateral’s value or is in negotiations with the borrower or other parties that may affect the value of the collateral, any loan balance that is in excess of the estimated appraised value is allocated in the allowance. As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the impaired loan component of the allowance for loan losses was ~~$439~~$51 thousand and ~~$800~~$11 thousand, respectively.

The second component of the allowance consists of qualitative factors and includes items such as economic conditions, growth trends, loan concentrations, changes in certain loans, changes in underwriting, changes in management and legal and regulatory ~~changes. For~~changes, and as of June 30, 2021 and December 31, 2020 included factors related to the September 30, 2017 calculation, the qualitative factor that had the most significant impact on the allowance was the one impacted by changes in collateral-dependent loans, which increased the allowance.COVID-19 pandemic.

Historical loss is the final component of the allowance for loan losses and is calculated based on the migration of loans from performing to charge-off over a period of time that management deems appropriate to provide a reasonable estimate of losses inherent in the loan portfolio. ~~With the December 31, 2016 calculation, the historical~~Historical loss ~~was~~is based on ~~four~~eight migration periods of twelve quarters each. Beginning with the September 30, 2017 calculation, management added four additional migration periods to its analysis to better reflect the risks inherent in the loan portfolio. This change is discussed in more detail below.

~~- 45 -~~

Both the historical loss and qualitative factor components of the allowance are applied to loans evaluated collectively for impairment. The portfolio is segmented based on the loan classifications set by the Federal Financial Institutions Examination Council in the instructions for the call report applicable to the Bank. Consumer loans not secured by real estate and made to individuals for household, family and other personal expenditures are segmented into pools based on whether the ~~loan's~~loan’s payments are current (including loans 1 – 29 days past due), or are 30 – 59 days past due, 60 – 89 days past due, or 90 days or more past due. All other loans, including loans to consumers that are secured by real estate, are segmented by the ~~Company's~~Company’s internally assigned risk grades: substandard, other assets especially mentioned (OAEM, rated just above substandard), and pass (all other loans).

~~During the~~ ~~nine months~~ ~~ended September 30, 2017, the Company saw a decrease of $1.3 million in loans rated OAEM and a decrease of $2.1 million in loans rated substandard, based on internally assigned risk grades.~~ The Company may also assign loans to the risk grades of ~~doubtful~~Doubtful or ~~loss,~~Loss, but as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020 the Company had no loans in these categories.

The overall historical loss rate from December 31, 2020 to June 30, 2021, decreased 9 basis points as a percentage of loans evaluated collectively for impairment as a result of overall improving asset quality combined with sustained levels of non-performing assets. For the same period, the qualitative factor components increased 6 basis points as a percentage of loans evaluated collectively for impairment overall. This increase was primarily due to segment adjustments for economic conditions and uncertainty related to the COVID-19 pandemic and change in volume for certain segments. While there have not been significant changes in overall credit quality of the loan portfolio from December 31, 2020 to June 30, 2021, the economic impact of the COVID-19 pandemic and the effects of government stimulus, including PPP loans, may be delaying signs of credit deterioration, potentially resulting in elevated levels of risk within the loan portfolio which may require additional increases in the allowance for loan losses.

On a combined basis, the historical loss and qualitative factor components amounted to ~~$8.5 million and $7.4~~$9.4 million as of ~~September~~June 30, ~~2017~~2021 and $9.5 million at December 31, ~~2016, respectively, with the increase primarily attributable~~2020. Management is monitoring portfolio activity, such as levels of deferral and/or modification requests, deferral and/or modification concentration levels by collateral, as well as industry concentration levels to ~~growth in~~identify areas within the loan ~~portfolio.~~portfolio which may create elevated levels of risk should the economic environment created by the COVID-19 pandemic or effects of federal government relief programs present indications of economic instability that is other than temporary in nature.

Index

The allowance for loan losses was ~~1.28%~~1.14% of total loans held for investment on ~~September~~June 30, ~~2017~~2021 and ~~1.37% of total loans on~~ December 31, ~~2016.~~2020. Excluding PPP loans, the ALLL as a percentage of loans held for investment was 1.23% at June 30, 2021 and 1.27% at December 31, 2020. The decrease in the ALLL as a percentage of loans held for investment, excluding PPP loans, from December 31, 2020 to June 30, 2021 is primarily related to higher outstanding loan balances, excluding PPP, combined with decreasing historical loss rates partially offset by increased qualitative reserves. Loans held for investment excluding PPP loans is a non-GAAP financial measure. For more information about financial measures that are not calculated in accordance with GAAP, please see “Non-GAAP Financial Measures” below. As of ~~September~~June 30, ~~2017,~~2021, the allowance for loan losses was ~~63.06%~~395.4% of nonperforming loans and nonperforming assets, respectively; this compares to 487.3% of both nonperforming ~~assets~~loans and nonperforming ~~loans, compared to 74.21% and 82.10%, respectively,~~assets as of December 31, 2016. The decrease in the allowance as a percent of total loans is primarily due to declines in loans rated OAEM and substandard, as well as charge-offs on certain loans for which the Company had a specific allocation. Although the allowance as a percent of nonperforming loans decreased between December 31, 2016 and September 30, 2017, management2020. Management believes it has provided an adequate reserve for nonperforming loans at ~~September 30, 2017.~~

~~Change in Migration Periods~~

Historical loss rates calculated by migration analysis are determined by the performance of a loan over a period of time (the migration period). Multiple migration periods can also be calculated, allowing the Company to assess the migration of loans based on more than one starting point. For example, the Company could run a migration analysis that begins on June 30, ~~2014 and follows~~2021.

Acquired loans are recorded at their fair value at acquisition date without carryover of the ~~performance~~acquiree’s previously established ALLL, as credit discounts are included in the determination of fair value. The fair value of the loans ~~outstanding on that date through June 30, 2017, assessing changes~~is determined using market participant assumptions in ~~risk ratings and~~estimating the amount and timing of ~~any charge-offs to determine the historical loss rate. The Company could then run a second migration analysis that begins on September 30, 2014~~both principal and ~~follows those loans through September 30, 2017 to calculate a second historical loss rate. These two loss rates would then be averaged to determine the overall loss rate applied to the loan portfolio.~~

The length of a migration period can also be extended. Adding additional quarters to the migration analysis extends the period over which the loan could cease to perform, increasing the number of loans that default and thus also increasing the historical loss rates. While a longer migration period provides a more conservative estimate of expected future losses, extending the migration period too far can provide less accurate estimates if there have been changes in the economy or the Company's loan management processes.

Increasing the number of migration periods, as opposed to lengthening the individual migration periods, provides the Company with an average loss rate that is less affected by unusual balances in the segments of the portfolio. Because migration analysis follows only those loans outstanding at the beginning of the migration period, a significant change in the balance of a loan pool during the migration period can produce results that are not indicative of the performance of the pool.

For example, a migration period of twelve quarters (three years) may apply to a pool of loans that has a balance of $300 thousand at the beginning of the migration period. If a new loan of $150 thousand is added to the pool in the following quarter, and this loan is charged off ten quarters later, the migration analysis would show a loss rate of 50%, based on the original outstanding balance of $300 thousand and a charge-off of $150 thousand. In this example, the 50% loss rate calculated for the migration period would result from the unique timing and loan balance factors within the period and would not necessarily provide an appropriate reflection of the performance of the loans in the pool. By using multiple migration periods, such unusual situations have less of an impact on the calculated historical loss rate, providing a more accurate representation of the lossesinterest cash flows expected to be ~~incurred.~~collected on the loans and then applying a market-based discount rate to those cash flows. During evaluation upon acquisition, acquired loans are also classified as either purchased credit-impaired (or PCI) or purchased performing.

~~As part~~Purchased performing loans are accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs. The difference between the fair value and unpaid principal balance of the ~~quarterly calculation, management reviews~~loan at acquisition date (premium or discount) is amortized or accreted into interest income over the ~~length~~life of the ~~migration periods and~~loans. If the ~~number~~purchased performing loan has revolving privileges, it is accounted for using the straight-line method; otherwise, the effective interest method is used. The adequacy of ~~migration periods used. To better reflect~~ the ~~risks inherent in~~remaining discount as compared to the reserve that would be required under the Company’s allowance for loan ~~portfolio, in the third quarter of 2017, the Company increased the number of migration periods from four to eight. As with~~loss methodology is evaluated quarterly. Should the methodology ~~in prior quarters, each migration period covers twelve quarters, with~~reserve exceed the ~~most recent migration period ending with the current quarter (in this case, September 30, 2017).~~remaining discount, additional provision would be recognized.

Capital Resources

Total ~~stockholders'~~stockholders’ equity as of ~~September~~June 30, ~~2017~~2021 was ~~$97.6~~$119.9 million, an increase of ~~$3.7~~$2.8 million or ~~3.88%~~2.4% from ~~$94.0~~$117.1 million at December 31, ~~2016.~~2020. The increase was the result of increased retained earnings partially offset by net unrealized loss on available-for-sale securities, a component of accumulated other comprehensive income on the consolidated balance sheets. The movement in the unrealized gain/loss position was driven by changes in market rates and shift in portfolio composition.

~~- 46 -~~

The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. The Company’s principal goals related to the maintenance of capital are to provide adequate capital to support the Company’s risk profile consistent with the board approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, and provide a competitive return to stockholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital and Total capital for the Bank are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.

In June 2013, the federal bank regulatory agencies adopted the Basel III Capital Rules (i) to implement the Basel III capital framework and (ii) for calculating risk-weighted assets. These rules became effective January 1, 2015, subject to limited phase-in periods. The EGRRCPA, enacted in May 2018, required action by the Federal Reserve to expand the applicability of its small bank holding company policy statement, which, among other things, exempts certain bank holding companies from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements that apply to other bank holding companies. In August 2018, the Federal Reserve issued an interim final rule provisionally expanding the applicability of the small bank holding company policy statement to bank holding companies with consolidated total assets of less than $3 billion. The statement previously applied only to bank holding companies with consolidated total assets of less than $1 billion. As a result of the interim final rule, which was effective upon its issuance, the Company expects that it will be treated as a small bank holding company and will no longer be subject to regulatory capital requirements. For ~~purposes~~an overview of the Basel III ~~Final~~Capital Rules ~~(i) common equity~~and the EGRRCPA, refer to “Regulation and Supervision” included in Item 1, “Business” of the Company’s 2020 Annual Report on Form 10-K.

On September 17, 2019 the federal bank regulatory agencies finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the EGRRCPA. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.

In order to qualify for the CBLR framework, a community banking organization must have a Tier 1 ~~capital (CET1) consists principally~~leverage ratio of common stock (including surplus) and retained earnings; (ii) Tier 1 capital consists principally of CET1 plus non-cumulative preferred stock and related surplus, and certain grandfathered cumulative preferred stock and trust preferred securities; and (iii) Tier 2 capital consists principally of qualifying subordinated debt and preferred stock,greater than 9 percent, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the ~~allowance~~CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The CBLR framework was available for ~~loan losses. Total Capital is Tier 1 plus Tier 2 capital. Each regulatory capital classification is subject~~banks to ~~certain adjustments and limitations, as implemented by~~begin using in their March 31, 2020, Call Report. The Bank did not opt into the Basel III Final Rules. The Basel III Final Rules also implement a "countercyclical capital buffer," generally designed to absorb losses during periods of economic stress and to be imposed when national regulators determine that excess aggregate credit growth becomes associated with a buildup of systemic risk. The Basel III Final Rules are discussed in detail in the Company's 2016 annual report on Form 10-K.CBLR framework.

Index

The following is a summary of the ~~Company's~~Bank’s capital ratios at ~~September~~June 30, ~~2017.~~2021. As shown below, these ratios were all well above the recommended regulatory minimum ~~levels~~levels.

	2021 Regulatory Minimums			June 30, 2021
Common Equity Tier 1 Capital to Risk-Weighted Assets		4.500	%		11.49	%
Tier 1 Capital to Risk-Weighted Assets		6.000	%		11.49	%
Tier 1 Leverage to Average Assets		4.000	%		8.52	%
Total Capital to Risk-Weighted Assets		8.000	%		12.51	%
Capital Conservation Buffer		2.500	%		4.51	%
Risk-Weighted Assets (in thousands)				$	931,383

On July 14, 2021, the Company issued $30.0 million in aggregate principal amount of 3.50% fixed-to-floating rate subordinated notes due 2031 (the Notes) in a private placement transaction. The Notes initially bear interest at a fixed rate of 3.50% for five years and ~~demonstrate~~at the three month SOFR plus 286 basis points, resetting quarterly, thereafter. The Notes were structured to qualify as Tier 2 capital for regulatory purposes, and the Company expects that the ~~Company's~~Notes will be included in certain of the Company’s regulatory capital ~~position remains strong.~~ratios as of September 30, 2021 and thereafter.

2017
Regulatory
Minimums
September 30, 2017
Common Equity Tier 1 Capital 4.500 % 12.06 %
Tier 1 Capital 6.000 % 12.06 %
Tier 1 Leverage 4.000 % 10.47 %
Total Capital 8.000 % 13.16 %
Capital Conservation Buffer 1.250 % 5.16 %

Book value per share was ~~$19.50~~$22.87 at ~~September~~June 30, ~~2017~~2021 as compared to ~~$19.45~~$22.19 at ~~September~~June 30, ~~2016.~~2020. Cash dividends were ~~$1.6~~$1.3 million or ~~$0.33~~$0.24 per share in the first ~~nine~~six months of ~~2017~~2021 and ~~$1.5 million or $0.30 per share in the first nine months of 2016.~~2020, respectively.

Contractual Obligations

In the normal course of business there are various outstanding contractual obligations of the Company that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit that may or may not require cash outflows.

The Company obtained a loan maturing on April 1, 2023 from a correspondent bank during the second quarter of 2018 to provide partial funding for the Citizens acquisition. The Company elected to pay the loan in full during the first quarter of 2021.

As of ~~September~~June 30, ~~2017,~~2021, there have been no material changes outside the ordinary course of business in the ~~Company's~~Company’s contractual obligations disclosed in the ~~Company's 2016 annual report~~Company’s 2020 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2017,~~2021, there were no material changes in the ~~Company's~~Company’s off-balance sheet arrangements disclosed in the ~~Company's 2016 annual report~~Company’s 2020 Annual Report on Form 10-K.

Index

Non-GAAP Financial Measures

In reporting the results of the quarter ended June 30, 2021, the Company has provided supplemental financial measures on a tax equivalent or an adjusted basis. These non-GAAP financial measures are a supplement to GAAP, which is used to prepare the Company’s financial statements, and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company’s non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company uses the non-GAAP financial measures discussed herein in its analysis of the Company’s performance. The Company’s management believes that these non-GAAP financial measures provide additional understanding of ongoing operations and enhance comparability of results of operations with prior periods presented without the impact of items or events that may obscure trends in the Company’s underlying performance. A reconciliation of the non-GAAP financial measures used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures is presented below.

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar in thousands, except per share data)	2021			2020			2021			2020
Fully Taxable Equivalent Net Interest Income
Net interest income (GAAP)	$	9,106		$	8,473		$	19,262		$	16,891
FTE adjustment		63			49			122			85
Net interest income (FTE) (non-GAAP)	$	9,169		$	8,522		$	19,384		$	16,976
Noninterest income (GAAP)		3,538			3,958			7,672			7,236
Total revenue (FTE) (non-GAAP)	$	12,707		$	12,480		$	27,056		$	24,212
Noninterest expense (GAAP)		10,535			9,204			21,093			19,234

Average earning assets	$	1,179,276		$	1,067,679		$	1,164,834		$	1,015,378
Net interest margin		3.10	%		3.19	%		3.33	%		3.35	%
Net interest margin (FTE) (non-GAAP)		3.12	%		3.21	%		3.36	%		3.36	%

Efficiency ratio		83.32	%		74.04	%		78.31	%		79.72	%
Efficiency ratio (FTE) (non-GAAP)		82.91	%		73.75	%		77.96	%		79.44	%

ALLL as a Percentage of Loans Held for Investment	June 30, 2021			December 31, 2020
Loans held for investment (net of deferred fees and costs) (GAAP)	$	832,673		$	836,300
Less PPP originations		6,306			85,983
Loans held for investment, (net of deferred fees and costs), excluding PPP (non-GAAP)	$	826,367		$	750,317

ALLL	$	9,473		$	9,541

ALLL as a Percentage of Loans Held for Investment		1.14	%		1.14	%
ALLL as a Percentage of Loans Held for Investment, net of PPP originations		1.23	%		1.27	%

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Not required.

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk.~~

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company's primary component of market risk is interest rate volatility. Fluctuations in interest rates will impact the amount of interest income and expense the Company receives or pays on a significant portion of its assets and liabilities and the market value of its interest-earning assets and interest-bearing liabilities, excluding those which have a very short-term until maturity. Management is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to this risk.

Three complementary modeling techniques are utilized to measure and monitor the exposure to interest rate risk: static gap analysis, earnings simulation analysis, and economic value of equity (EVE) analysis. Static gap measures the aggregate dollar volume of rate-sensitive assets relative to rate-sensitive liabilities re-pricing over various time horizons. This metric does not effectively capture the re-pricing characteristics or embedded optionality of the Company's assets and liabilities, so it is not relied upon or addressed here. Earnings simulation measures the potential effect of changes in market interest rates on future net interest income. This analysis incorporates management's assumptions for product pricing and pre-payment expectations and is the Company's preferred tool to assess its interest rate sensitivity in the short- to medium-term. The simulation utilizes a "static" balance sheet approach, which assumes that management makes no changes to the composition of the balance sheet to mitigate the impact of interest rate changes. EVE modeling estimates the fair value of assets and liabilities in different interest rate environments using discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. This measure provides an indication of the future earnings capacity of the balance sheet, and the change in EVE over different rate scenarios is a measure of long-term interest rate risk. The Company places less emphasis on EVE results due to the inherent imprecision of cash flow estimations and the limited utility of a static balance sheet assumption over the long-term.

~~- 47 -~~

The Company determines the overall magnitude of interest sensitivity risk and then formulates policies governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisions are based on management's expectations regarding future interest rate movements, the state of the national and regional economy, and other financial and business risk factors.

When the Company is liability sensitive, net interest income should improve if interest rates fall since liabilities will reprice faster than assets (depending on the optionality or prepayment speeds of the assets). Conversely, if interest rates rise, net interest income should decline. When the Company is asset sensitive, net interest income should improve if interest rates rise and fall if rates fall. The rate change model assumes that these changes will occur gradually over the course of a year.

~~The table below shows the Company's interest rate sensitivity for the periods and rate scenarios presented (dollars in thousands):~~

Change In Net Interest Income
As of September 30,
2017 2016
Change in interest Rates % $ % $
+300 basis points (0.29 )% (92 ) 1.06 % 285
+200 basis points (0.08 )% (26 ) 0.74 % 198
+100 basis points 0.10 % 30 0.46 % 122
Unchanged 0.00 % 0 0.00 % 0
-50 basis points (0.77 )% (242 ) (0.46 )% (122 )
-100 basis points (1.52 )% (478 ) (0.64 )% (171 )

~~Item 4.~~

Item 4.

Controls and Procedures.

Disclosure Controls and Procedures.Management evaluated, with the participation of the ~~Company's~~Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the ~~Company's~~Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) ~~under~~of the ~~Securities Exchange Act of 1934, as amended (the~~ Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, the ~~Company's~~ Chief Executive Officer and the Chief

Financial Officer have concluded that the ~~Company's~~Company’s disclosure controls and procedures ~~are~~were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in ~~the~~ reports that ~~the Company~~it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in ~~the SEC's~~SEC rules and forms and that such information is accumulated and communicated to the Company’s management, including the ~~Company's~~Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). No changes in the Company's internal control over financial reporting occurred during the fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Because of its inherent limitations, a system of 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.

Changes in Internal Controls. There were no changes in the Company’s internal control over financial reporting during the Company’s second quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

~~Item 1. Legal Proceedings.~~

There are no pending legal proceedings to which the Company, or any of its subsidiaries, is a party or to which the property of the Company or any of its subsidiaries is subject that, in the opinion of management, may materially impact the financial condition of the Company.

~~- 48 -~~

Index

~~Item 1A.~~

Item 1A.

Risk Factors.

~~The following risk factors should be considered~~There have been no material changes in ~~addition to~~ the risk factors faced by the Company from those disclosed in the ~~Company's 2016 annual report~~Company’s 2020 Annual Report on Form ~~10-K:~~10-K.

~~Combining the Company and Citizens National may be more difficult, costly or time-consuming than we expect.~~

The success of the Pending Acquisition will depend, in part, on the Company's ability to realize the anticipated benefits and cost savings from integrating Citizens National into the Bank in a manner that permits growth opportunities and cost savings to be realized without materially disrupting the existing customer relationships of Citizens National or the Bank or decreasing revenues due to loss of customers. However, to realize these anticipated benefits and cost savings, the Company must successfully combine the businesses of the Bank and Citizens National. If the Company is not able to achieve these objectives, the anticipated benefits and cost savings of the Pending Acquisition may not be realized fully, or at all, or may take longer to realize than expected.

The Bank and Citizens National have operated, and, until the completion of the Pending Acquisition, will continue to operate, independently. The success of the Pending Acquisition and the future operating performance of the Company and the Bank will depend, in part, on the Company's ability to successfully integrate Citizens National into the Bank. The success of the Pending Acquisition will, in turn, depend on a number of factors, including the Company's ability to: (i) integrate the operations of Citizens National into the Bank; (ii) retain the deposits and customers of Citizens National and the Bank; (iii) control the incremental increase in noninterest expense arising from the Pending Acquisition in a manner that enables the combined bank to improve its overall operating efficiencies; and (iv) retain and integrate the appropriate personnel of Citizens National into the operations of the Bank. The integration of Citizens National and the Bank will require the dedication of the time and resources of the banks' management and may temporarily distract managements' attention from the day-to-day business of the banks. If the Bank is unable to successfully integrate Citizens National, the Bank may not be able to realize expected operating efficiencies and eliminate redundant costs.

The integration process in the Pending Acquisition could result in the loss of key employees, the disruption of each party's ongoing business, inconsistencies in standards, controls, procedures and policies that affect adversely either party's ability to maintain relationships with customers and employees or achieve the anticipated benefits of the Pending Acquisition. As with any merger of financial institutions, there also may be disruptions that cause the Bank and Citizens National to lose customers or cause customers to withdraw their deposits from Citizens National or the Bank, or other unintended consequences that could have a material adverse effect on the Company's results of operations or financial condition after the Pending Acquisition. These integration matters could have an adverse effect on each of Citizens National, the Company and the Bank during this transition period and for an undetermined period after completion of the Pending Acquisition.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the surviving company following the Pending Acquisition.

Before the Pending Acquisition may be completed, the Company, the Bank and Citizens National must obtain approvals from the Federal Reserve, OCC and the Virginia State Corporation Commission. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals the regulators consider a variety of factors, including the regulatory standing of each party, and the competitive effects of the contemplated transactions. An adverse development in either party's regulatory standing or these factors could result in an inability to obtain approval or delay their receipt. The CRA also requires that the bank regulatory authorities, in deciding whether to approve the Pending Acquisition, assess the records of performance of the Bank and Citizens National in meeting the credit needs of the communities they serve, including low and moderate income neighborhoods. Each of the Bank and Citizens National currently maintains a CRA rating of "Satisfactory" from its primary federal regulator. As part of the review process under the CRA, it is not unusual for the bank regulatory authorities to receive protests and other adverse comments from community groups and others. Any such protests or adverse comments could prolong the period during which the Pending Acquisition are subject to review by the bank regulatory authorities.

These regulators may impose conditions on the completion of the Pending Acquisition or require changes to the terms of the Pending Acquisition. Such conditions or changes could have the effect of delaying or preventing completion of the Pending Acquisition or imposing additional costs on or limiting the revenues of the surviving company following the Pending Acquisition, any of which might have an adverse effect on the surviving company following the Pending Acquisition.

~~The Pending Acquisition may distract management of the Company, the Bank and Citizens National from their other responsibilities.~~

The Pending Acquisition could cause the respective management groups of the Company, the Bank and Citizens National to focus their time and energies on matters related to the transaction that otherwise would be directed to their business and operations. Any such distraction on the part of the Company's, the Bank's, or Citizen National's management could affect its ability to service existing business and develop new business and adversely affect the business and earnings of the Company, the Bank or Citizens National before the Pending Acquisition, or the business and earnings of the Company and the Bank after the Pending Acquisition.

~~- 49 -~~

Termination of the Agreement and Plan of Reorganization by and among the Company, the Bank and Citizens National, dated October 27, 2017 (the merger agreement) could negatively impact the Company or Citizens National.

If the merger agreement is terminated, the Company's or Citizens National's business may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Pending Acquisition, without realizing any of the anticipated benefits of completing the Pending Acquisition. Additionally, if the merger agreement is terminated, the market price of the Company's common stock could decline to the extent that the current market price reflects a market assumption that the Pending Acquisition will be completed. Furthermore, costs relating to the Pending Acquisition, such as legal, accounting and financial advisory fees, must be paid even if the Pending Acquisition is not completed. If the merger agreement is terminated under certain circumstances, including circumstances involving a change in recommendation by the Citizens National's board of directors, Citizens National may be required to pay the Company a termination fee of $375,000.

~~The Company, the Bank and Citizens National will be subject to business uncertainties and contractual restrictions until the Pending Acquisition is completed.~~

Uncertainty about the effect of the Pending Acquisition on employees and customers may have an adverse effect on the Company, the Bank and Citizens National. These uncertainties may impair the Company's and Citizens National's ability to attract, retain and motivate key personnel until the Pending Acquisition is completed, and could cause customers and others that deal with the Company, the Bank and Citizens National to seek to change existing business relationships with the Company, the Bank and Citizens National. Retention of certain employees by the Company, the Bank and Citizens National may be challenging until the Pending Acquisition is completed, as certain employees may experience uncertainty about their future roles with the Company, the Bank or Citizens National. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company, the Bank or Citizens National, the Bank's or Citizens National's business, or the business of the combined company following the Pending Acquisition, could be harmed. The loss of key employees could adversely affect the Bank's ability to successfully conduct its business in the markets in which Citizens National now operates, which could have an adverse effect on the Company's financial results and the value of its common stock. In addition, subject to certain exceptions, the Company, the Bank and Citizens National have each agreed to operate its business in the ordinary course prior to completion of the Pending Acquisition and refrain from taking certain specified actions until the Pending Acquisition occurs, which may prevent the Company, the Bank or Citizens National from pursuing attractive business opportunities that may arise prior to completion of the Pending Acquisition.

~~If the Pending Acquisition is not completed, the Company and Citizens National will have incurred substantial expenses without realizing the expected benefits of the Pending Acquisition.~~

Each of the Company and Citizens National has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing and mailing a joint proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the Pending Acquisition. If the Pending Acquisition is not completed, the Company and Citizens National would have to incur these expenses without realizing the expected benefits of the Pending Acquisition.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.~~

Pursuant to the ~~Company's~~Company’s equity compensation plans, participants may pay the exercise price of certain awards or satisfy tax withholding requirements associated with awards by surrendering shares of the ~~Company's~~Company’s common stock that the participants already own. Additionally, participants may also surrender shares upon vesting of restricted stock awards to satisfy tax withholding requirements. Shares surrendered by participants of these plans are repurchased at current market value pursuant to the terms of the applicable awards. During the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2021, the Company ~~repurchased 1,083~~did not repurchase any shares related to the ~~exercise of~~equity compensation plan awards.

During the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2021, the Company did not repurchase any shares pursuant to the ~~Company's stock repurchase program.~~

~~- 50 -~~

~~The following table summarizes repurchases of the Company's common stock that occurred during the three months ended September 30, 2017 in connection with the exercise of stock options.~~

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 Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2017-July 31, 2017 0 $ 0 n/a n/a
August 1, 2017-August 31, 2017 819 30.58 n/a n/a
September 1, 2017-September 30, 2017 264 30.49 n/a n/a

Total 1,083 $ 30.56

⁽¹⁾These shares were repurchased in connection with payment of the exercise price upon the exercise of stock options. Accordingly, these shares are not included in the calculation of the 248,063 shares that may yet be purchased under the Company'sCompany’s stock repurchase program. The Company is authorized to repurchase, during any given calendar year, up to an aggregate of 5 percent of the shares of the ~~Company's~~Company’s common stock outstanding as of January 1 of that calendar year.

Item 3.

Defaults Upon Senior Securities.

~~Item 3. Defaults Upon Senior Securities.~~

None.

Item 4.

Mine Safety Disclosures.

~~Item 4. Mine Safety Disclosures.~~

None.

Item 5.

Other Information.

Information Required by Item ~~5. Other Information.~~407(c)(3) of Regulation S-K:

The Company has made no changes to the process by which security holders may recommend nominees to its ~~board~~Board of ~~directors,~~Directors, which is discussed in the ~~Company's~~Company’s Proxy Statement for the ~~Company's 2017~~Company’s 2021 Annual Meeting of Stockholders.

~~- 51 -~~Amendment No. 1 to Settlement Agreement

On August 12, 2021, the Company entered into Amendment No. 1 (the “Amendment”) to the Settlement Agreement, which was initially entered into as of March 16, 2016 (as amended, the “Settlement Agreement”), with Financial Edge Fund, L.P., Financial Edge-Strategic Fund, L.P., PL Capital/Focused Fund, L.P., PL Capital, LLC, PL Capital Advisors, LLC, Goodbody/PL Capital, L.P., Goodbody/PL Capital, LLC, Mr. John W. Palmer and Mr. Richard J. Lashley, as Managing Members of PL Capital, LLC, PL Capital Advisors, LLC and Goodbody/PL Capital, LLC (collectively, the “PL Capital Group”), and Mr. William F. Keefe (“Mr. Keefe”).

Among other things, the Amendment increases from 9.99% to 14.99% the proportionate ownership, control or beneficial ownership of the Company’s common stock that the PL Capital Group and Mr. Keefe may acquire, offer or agree to acquire, or acquire rights to acquire without the prior written consent of the Company’s Board of Directors.

As amended, the Settlement Agreement may be terminated by either party, upon five (5) Business Days’ advance written notice, beginning on the day after the Company’s 2022 Annual Meeting of Stockholders, provided that the termination date may not occur during any time period between the notice deadline pursuant to the Company’s bylaws for nominating director candidates for election to the Company’s Board of Directors for an annual meeting of shareholders and the conclusion of such annual meeting. In addition, certain obligations of the parties under the Settlement Agreement may terminate in certain circumstances in connection with a material breach of the Settlement Agreement.

Capitalized terms under this Item 5, unless otherwise defined herein, have the meaning ascribed to them in the Settlement Agreement.

See the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16, 2016 for additional disclosure regarding the terms of the Settlement Agreement.

The above summary is qualified in its entirety by reference to the full text of the Amendment, a copy of which is filed as Exhibit 10.14.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

Index

Item 6.

Exhibits.

~~Item 6. Exhibits.~~

Exhibit No.		~~Description~~
~~2.1~~		Description
2.1		Agreement and Plan of Reorganization, dated as of October 27, 2017, by and among Old Point Financial Corporation, The Old Point National Bank of Phoebus, and Citizens National Bank (incorporated by reference to Exhibit 2.1 to Form 8-K filed November 2, 2017)

3.1		Articles of Incorporation of Old Point Financial Corporation, as amended effective June 22, 2000 (incorporated by reference to Exhibit 3.1 to Form 10-K filed March 12, 2009)

3.1.1		Articles of Amendment to Articles of Incorporation of Old Point Financial Corporation, effective May 26, 2016 (incorporated by reference to Exhibit 3.1.1 to Form 8-K filed May 31, 2016)

3.2		Bylaws of Old Point Financial Corporation, as amended and restated August 9, 2016 (incorporated by reference to Exhibit 3.2 to Form 10-Q filed August 10, 2016)

4.1		Form of Subordinated Note (incorporated by reference to Exhibit 4.1 to Form 8-K filed July 16, 2021)

10.1		Form of Subordinated Note Purchase Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K filed July 16, 2021)

10.14.1		Amendment No. 1 to Settlement Agreement, dated August 12, 2021, among Old Point Financial Corporation, Financial Edge Fund, L.P., Financial Edge-Strategic Fund, L.P., PL Capital/Focused Fund, L.P., PL Capital, LLC, PL Capital Advisors, LLC, Goodbody/PL Capital, L.P., Goodbody/PL Capital, LLC, Mr. John W. Palmer and Mr. Richard J. Lashley, as Managing Members of PL Capital, LLC, PL Capital Advisors, LLC and Goodbody/PL Capital, LLC and Mr. William F. Keefe

~~10.19~~ 31.1		~~Time-Based Restricted Stock Agreement, dated July 11, 2017, between Old Point Financial Corporation and Jeffrey W. Farrar (incorporated by reference to Exhibit 10.19 to Form 8-K filed July 13, 2017)~~

~~31.1~~		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from Old Point Financial ~~Corporation's~~Corporation’s quarterly report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2021, formatted in Inline XBRL, ~~(Extensible Business Reporting Language),~~ filed herewith: (i) Consolidated Balance Sheets (unaudited for ~~September~~June 30, ~~2017)~~2021), (ii) Consolidated Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in ~~Stockholders'~~Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited)

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2021, formatted in Inline XBRL (included with Exhibit 101)

SIGNATURES

Pursuant to the requirements 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.

		OLD POINT FINANCIAL CORPORATION

~~November 14, 2017~~	August 16, 2021	/s/Robert F. Shuford, ~~Sr.~~Jr.
		Robert F. Shuford, ~~Sr.~~Jr.
		Chairman, President & Chief Executive Officer
		(Principal Executive Officer)

~~November 14, 2017~~	August 16, 2021	/s/~~Jeffrey W. Farrar~~Elizabeth T. Beale
		~~Jeffrey W. Farrar~~Elizabeth T. Beale
		Chief Financial Officer & Senior Vice President/Finance
		(Principal Financial & Accounting Officer)

~~- 52 -~~

~~VIRGINIA~~Virginia		54-1265373
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $5.00 par value	OPOF	The NASDAQ Stock Market LLC

	Large accelerated filer	☐	Accelerated filer ☐

~~Non-accelerated filer~~	☐ ~~(Do not check if a smaller reporting company)~~	~~Smaller reporting company~~ ☒

	Non-accelerated filer	☒	Smaller reporting company ☒
			Emerging growth company ☐

~~ALLL~~ 2020 Annual Report on Form 10-K	Annual Report on Form 10-K for the year ended December 31, 2020
ALLL	Allowance for Loan and Lease Losses
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Bank	The Old Point National Bank of Phoebus
~~CET1~~ The CARES Act	The Coronavirus Aid, Relief, and Economic Security Act
CET1	Common Equity Tier 1
Citizens ~~National~~	Citizens National Bank
Company	Old Point Financial Corporation and its subsidiaries
~~CRA~~ CBB	Community ~~Reinvestment Act~~Bankers Bank
~~ESPP~~ CBLR	Community Bank Leverage Ratio
EGRRCPA	Economic Growth, Regulatory Relief, and Consumer Protection Act
EPS	earnings per share
ESPP	Employee Stock Purchase Plan
~~EVE~~ Exchange Act	~~Economic Value~~ Securities Exchange Act of ~~Equity~~1934, as amended
FASB	Financial Accounting Standards Board
~~FHLB~~ FDIC	Federal Deposit Insurance Corporation
FHLB	Federal Home Loan Bank
~~FOMC~~	~~Federal Open Market Committee~~
Federal Reserve	Board of Governors of the Federal Reserve System
FRB	Federal Reserve Bank
GAAP	Generally Accepted Accounting Principles
Incentive Stock Plan	Old Point Financial Corporation 2016 Incentive Stock Plan
~~IRS~~ NIM	~~Internal Revenue Service~~ Net Interest Margin
~~OAEM~~ Notes	The Company’s 3.50% fixed-to-floating rate subordinated notes due 2031
OAEM	Other Assets Especially Mentioned
~~OCC~~ OREO	~~Office of the Comptroller of the Currency~~
~~OPM~~	~~Old Point Mortgage~~
~~OREO~~	Other Real Estate Owned
~~Pending Acquisition~~ PPP	~~Acquisition of Citizens National pursuant to a definitive merger agreement by and among the Company, the Bank and Citizens National, dated as of October 27, 2017~~ Paycheck Protection Program
~~SEC~~ PPPLF	Paycheck Protection Program Liquidity Facility
SEC	Securities and Exchange Commission
~~TDR~~ SBA	Small Business Administration
SOFR	Secured overnight financing rate
TDR	Troubled Debt Restructuring
Trust	Old Point Trust & Financial Services N.A.
~~VIE~~	~~Variable Interest Entities~~

ALLOWANCE FOR LOAN LOSSES AND RECORDED INVESTMENT IN LOANS
(in thousands)
For the Nine Months Ended September 30, 2017	Commercial			Real Estate - Construction			Real Estate - Mortgage ⁽¹⁾			Consumer ⁽²⁾			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	1,493		$	846		$	5,267		$	455		$	184		$	8,245
Charge-offs		(629	)		-			(1,473	)		(228	)		(136	)		(2,466	)
Recoveries		32			104			40			33			38			247
Provision for loan losses		679			(332	)		1,573			909			96			2,925
Ending balance	$	1,575		$	618		$	5,407		$	1,169		$	182		$	8,951
Ending balance individually evaluated for impairment	$	183		$	18		$	238		$	-		$	-		$	439
Ending balance collectively evaluated for impairment		1,392			600			5,169			1,169			182			8,512
Ending balance	$	1,575		$	618		$	5,407		$	1,169		$	182		$	8,951
Loan Balances:
Ending balance individually evaluated for impairment	$	771		$	93		$	14,245		$	-		$	-		$	15,109
Ending balance collectively evaluated for impairment		59,232			23,622			439,715			150,427			12,891			685,887
Ending balance	$	60,003		$	23,715		$	453,960		$	150,427		$	12,891		$	700,996

		Page

Item 1.	Financial Statements	1

	Consolidated Balance Sheets ~~September~~ as of June 30, ~~2017~~2021 (unaudited) and December 31, ~~2016~~2020	1

	Consolidated Statements of Income ~~Three Months Ended September~~ (unaudited) for the three and six months ended June 30, ~~2017~~2021 and ~~2016 (unaudited)~~ ~~Nine Months Ended September 30, 2017 and 2016 (unaudited)~~2020	2

	Consolidated Statements of Comprehensive Income ~~Three Months Ended September~~ (unaudited) for the three and six months ended June 30, ~~2017~~2021 and ~~2016 (unaudited)~~ ~~Nine Months Ended September 30, 2017 and 2016 (unaudited)~~2020	3

	Consolidated Statements of Changes in ~~Stockholders'~~Stockholders’ Equity ~~Nine Months Ended September~~ (unaudited) for the three and six months ended June 30, ~~2017~~2021 and ~~2016 (unaudited)~~2020	4

	Consolidated Statements of Cash Flows ~~Nine Months Ended September~~ (unaudited) for the six months ended June 30, ~~2017~~2021 and ~~2016 (unaudited)~~2020	56

	Notes to Consolidated Financial Statements (unaudited)	67

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	3529

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4742

Item 4.	Controls and Procedures	4842

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	4842

Item 1A.	Risk Factors	4943

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5043

Item 3.	Defaults Upon Senior Securities	5143

Item 4.	Mine Safety Disclosures	5143

Item 5.	Other Information	5143

Item 6.	Exhibits	5244

	Signatures	5244

	September 30, 2017			December 31, 2016			June 30,		December 31,
	(dollars in thousands except per share data)
(dollars in thousands, except share data)							2021		2020
	(unaudited)				*		(unaudited)
Assets

Cash and due from banks	$	12,496		$	21,885		$	21,118	$	21,799
Interest-bearing due from banks		1,648			1,667			134,377		98,633
Federal funds sold		1,291			2,302			3		5
Cash and cash equivalents		15,435			25,854			155,498		120,437
Securities available-for-sale, at fair value		164,112			199,365			213,211		186,409
Restricted securities, at cost		2,890			970			1,033		1,367
Loans held for sale, at fair value		981			-
Loans held for investment, net of allowance for loan losses of $8,951 and $8,245		692,045			595,637
Loans held for sale								2,284		14,413
Loans, net								823,200		826,759
Premises and equipment, net		37,750			39,324			32,419		33,613
Premises and equipment, held for sale								871		0
Bank-owned life insurance		25,802			25,206			28,817		28,386
Other real estate owned, net of valuation allowance		-			1,067
Goodwill								1,650		1,650
Core deposit intangible, net								297		319
Other assets		15,482			15,543			15,531		12,838
Total assets	$	954,497		$	902,966		$	1,274,811	$	1,226,191

Liabilities & Stockholders' Equity
Liabilities & Stockholders’ Equity

Deposits:
Noninterest-bearing deposits	$	223,442		$	228,641		$	398,908	$	360,602
Savings deposits		344,654			344,452			555,744		512,936
Time deposits		214,349			211,409			179,365		193,698
Total deposits		782,445			784,502			1,134,017		1,067,236
Federal funds purchased		2,000			-
Overnight repurchase agreements		21,885			18,704			12,239		6,619
Federal Home Loan Bank advances		45,000			-
Federal Reserve Bank borrowings								3,313		28,550
Other borrowings								0		1,350
Accrued expenses and other liabilities		5,526			5,770			5,314		5,291
Total liabilities		856,856			808,976			1,154,883		1,109,046

Commitments and contingencies

Stockholders' equity:
Common stock, $5 par value, 10,000,000 shares authorized; 5,009,630 and 4,961,258 shares outstanding (includes 2,245 and zero shares of nonvested restricted stock)		25,037			24,806
Stockholders’ equity:
Common stock, $5 par value, 10,000,000 shares authorized; 5,244,635 and 5,224,019 shares outstanding (includes 39,103 and 29,576 of nonvested restricted stock, respectively)								26,028		25,972
Additional paid-in capital		17,112			16,427			21,372		21,245
Retained earnings		58,179			56,965			69,457		65,859
Accumulated other comprehensive loss, net		(2,687	)		(4,208	)
Total stockholders' equity		97,641			93,990
Total liabilities and stockholders' equity	$	954,497		$	902,966
Accumulated other comprehensive income, net								3,071		4,069
Total stockholders’ equity								119,928		117,145
Total liabilities and stockholders’ equity							$	1,274,811	$	1,226,191

	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2017			2016			2017			2016
	(unaudited, dollars in thousands except per share data)
(unaudited, dollars in thousands, except per share data)												2021		2020		2021		2020
Interest and Dividend Income:
Interest and fees on loans	$	7,642		$	6,646		$	21,532		$	19,619
Interest on due from banks		4			25			12			30
Interest on federal funds sold		1			2			6			4
Interest on securities:
Loans, including fees												$	8,814	$	8,924	$	18,768	$	17,751
Due from banks													52		32		95		183
Federal funds sold													0		0		0		12
Securities:
Taxable		487			357			1,474			1,376		791		712		1,561		1,576
Tax-exempt		385			371			1,232			1,131		191		137		372		223
Dividends and interest on all other securities		49			35			98			76		11		43		41		89
Total interest and dividend income		8,568			7,436			24,354			22,236		9,859		9,848		20,837		19,834

Interest Expense:
Interest on savings deposits		103			56			240			165
Interest on time deposits		560			538			1,599			1,572
Interest on federal funds purchased, securities sold under agreements to repurchase and other borrowings		13			6			26			20
Interest on Federal Home Loan Bank advances		161			33			233			177
Checking and savings deposits													235		298		450		638
Time deposits													511		883		1,095		1,855
Federal funds purchased, securities sold under agreements to repurchase and other borrowings													7		15		30		37
Federal Home Loan Bank advances													0		179		0		413
Total interest expense		837			633			2,098			1,934		753		1,375		1,575		2,943
Net interest income		7,731			6,803			22,256			20,302		9,106		8,473		19,262		16,891
Provision for (recovery of) loan losses		1,275			(100	)		2,925			1,300
Net interest income, after provision for (recovery of) loan losses		6,456			6,903			19,331			19,002
Provision for loan losses													0		300		150		600
Net interest income after provision for loan losses													9,106		8,173		19,112		16,291

Noninterest Income:
Income from fiduciary activities		903			858			2,820			2,636
Fiduciary and asset management fees													1,051		909		2,078		1,926
Service charges on deposit accounts		1,001			1,039			2,844			3,035		700		615		1,388		1,510
Other service charges, commissions and fees		1,050			968			3,141			3,019		1,120		980		2,068		1,923
Income from bank-owned life insurance		198			215			595			647
Income from mortgage banking activities		172			187			462			276
Bank-owned life insurance income													204		192		430		423
Mortgage banking income													381		223		1,569		380
Gain on sale of available-for-sale securities, net		2			7			89			522		0		184		0		184
Gain on acquisition of Old Point Mortgage		-			-			550			-
Gain on sale of fixed assets													0		818		0		818
Other operating income		35			53			114			143		82		37		139		72
Total noninterest income		3,361			3,327			10,615			10,278		3,538		3,958		7,672		7,236

Noninterest Expense:
Salaries and employee benefits		5,104			5,063			15,650			15,107		6,227		5,464		12,454		11,458
Occupancy and equipment		1,444			1,373			4,347			4,121		1,123		1,188		2,325		2,454
Data processing		473			419			1,328			1,276		1,197		804		2,240		1,623
FDIC insurance		128			66			322			387
Customer development		153			146			451			450		69		71		147		185
Legal and audit expenses		216			372			604			869
Other outside service fees		292			200			797			561
Professional services													620		590		1,165		1,065
Employee professional development		196			147			651			474		192		93		333		313
Loan expenses		302			46			483			103
Capital stock tax		141			128			422			390
Other taxes													171		158		422		308
ATM and other losses		103			131			435			301		17		60		156		158
Prepayment fee on Federal Home Loan Bank advance		-			-			-			391
Loss (gain) on other real estate owned		-			45			(18	)		153
Other operating expenses		564			553			1,620			1,682		919		776		1,851		1,670
Total noninterest expense		9,116			8,689			27,092			26,265		10,535		9,204		21,093		19,234
Income before income taxes		701			1,541			2,854			3,015		2,109		2,927		5,691		4,293
Income tax expense (benefit)		(56	)		212			(6	)		113
Income tax expense													267		433		837		549
Net income	$	757		$	1,329		$	2,860		$	2,902	$	1,842	$	2,494	$	4,854	$	3,744

Basic earnings per share
Basic Earnings per Share:
Weighted average shares outstanding		4,993,805			4,959,009			4,985,135			4,959,009		5,237,479		5,220,137		5,231,026		5,210,139
Net income per share of common stock	$	$0.15		$	$0.27		$	$0.57		$	$0.59	$	0.35	$	0.48	$	0.93	$	0.72

Diluted earnings per share
Diluted Earnings per Share:
Weighted average shares outstanding		5,003,785			4,959,009			4,997,231			4,959,009		5,237,479		5,220,262		5,231,026		5,210,573
Net income per share of common stock	$	$0.15		$	$0.27		$	$0.57		$	$0.59	$	0.35	$	0.48	$	0.93	$	0.72

	Shares of Common Stock			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	(unaudited, dollars in thousands except per share data)
NINE MONTHS ENDED SEPTEMBER 30, 2017

Balance at beginning of period		4,961,258		$	24,806		$	16,427		$	56,965		$	(4,208	)	$	93,990
Net income		-			-			-			2,860			-			2,860
Other comprehensive income, net of tax		-			-			-			-			1,521			1,521
Exercise of stock options		48,287			241			727			-			-			968
Employee Stock Purchase Plan share issuance		2,523			13			58			-			-			71
Repurchase of common stock related to stock option exercises		(4,683	)		(23	)		(109	)		-			-			(132	)
Stock-based compensation expense		-			-			9			-			-			9
Cash dividends ($0.33 per share)		-			-			-			(1,646	)		-			(1,646	)

Balance at end of period		5,007,385		$	25,037		$	17,112		$	58,179		$	(2,687	)	$	97,641


NINE MONTHS ENDED SEPTEMBER 30, 2016

Balance at beginning of period		4,959,009		$	24,795		$	16,392		$	55,151		$	(3,162	)	$	93,176
Net income		-			-			-			2,902			-			2,902
Other comprehensive income, net of tax		-			-			-			-			1,877			1,877
Cash dividends ($0.30 per share)		-			-			-			(1,488	)		-			(1,488	)

Balance at end of period		4,959,009		$	24,795		$	16,392		$	56,565		$	(1,285	)	$	96,467

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2017			2016				2017			2016
Securities Available-for-sale
Realized gains on sales of securities		$	2		$	24			$	89		$	578
Realized losses on sales of securities			-			(17	)			-			(56	)
Net realized gain		$	2		$	7			$	89		$	522

September 30, 2017
	Less Than Twelve Months						More Than Twelve Months						Total
September 30, 2017	Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses		Fair Value			Number of Securities
	(dollars in thousands)
Securities Available-for-Sale
Obligations of U.S. Government agencies		$	10		$	4,393		$	82		$	3,120	$	92		$	7,513		11
Obligations of state and political subdivisions			80			5,006			72			6,898		152			11,904		15
Mortgage-backed securities			257			32,054			863			45,262		1,120			77,316		24
Corporate bonds			1			1,299			4			295		5			1,594		10
Total securities available-for-sale		$	348		$	42,752		$	1,021		$	55,575	$	1,369		$	98,327		60

Credit Quality Information
As of September 30, 2017
(in thousands)
	Pass		OAEM		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	98,829	$	-	$	1,917	$	-	$	100,746
Commercial		256,898		11,696		13,034		-		281,628
Construction		22,920		74		721		-		23,715
Second mortgages		16,952		446		159		-		17,557
Equity lines of credit		53,686		-		343		-		54,029
Total mortgage loans on real estate		449,285		12,216		16,174		-		477,675
Commercial and industrial loans		58,192		1,037		774		-		60,003
Consumer automobile loans		93,984		-		57		-		94,041
Other consumer loans		56,336		-		50		-		56,386
Other		12,891		-		-		-		12,891
Total	$	670,688	$	13,253	$	17,055	$	-	$	700,996

Credit Quality Information
As of December 31, 2016
(in thousands)
	Pass		OAEM		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	92,458	$	1,138	$	1,231	$	-	$	94,827
Commercial		260,948		10,014		14,467		-		285,429
Construction		22,219		162		735		-		23,116
Second mortgages		16,445		475		208		-		17,128
Equity lines of credit		50,387		500		137		-		51,024
Total mortgage loans on real estate		442,457		12,289		16,778		-		471,524
Commercial and industrial loans		49,979		2,278		2,177		-		54,434
Consumer automobile loans		10,407		-		-		-		10,407
Other consumer loans		48,334		-		166		-		48,500
Other		19,017		-		-		-		19,017
Total	$	570,194	$	14,567	$	19,121	$	-	$	603,882

Troubled Debt Restructurings by Class
For the Three Months Ended September 30, 2016
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on September 30, 2016
	(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family		4	$	1,002	$	1,002	$	1,002
Commercial		1		150		150		150
Second mortgages		1		53		53		53
Equity lines of credit		1		93		93		93
Total mortgage loans on real estate		7		1,298		1,298		1,298
Other consumer loans		2		8		8		8
Total		9	$	1,306	$	1,306	$	1,306

Troubled Debt Restructurings by Class
For the Nine Months Ended September 30, 2017
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on September 30, 2017
	(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family		1	$	142	$	142	$	141
Commercial		2		3,663		3,663		3,653
Total		3	$	3,805	$	3,805	$	3,794

Impaired Loans by Class
	As of December 31, 2016											For the Year Ended December 31, 2016
			Recorded Investment
	Unpaid Principal Balance		Without Valuation Allowance			With Valuation Allowance			Associated Allowance			Average Recorded Investment			Interest Income Recognized
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	2,496		$	1,835		$	622		$	75		$	2,741		$	119
Commercial		16,193			11,095			4,274			415			11,885			727
Construction		619			528			96			22			496			43
Second mortgages		526			309			141			17			511			25
Equity lines of credit		87			86			-			-			46			3
Total mortgage loans on real estate	$	19,921		$	13,853		$	5,133		$	529		$	15,679		$	917
Commercial loans		1,077			-			989			271			827			74
Other consumer loans		81			81			-			-			68			1
Total	$	21,079		$	13,934		$	6,122		$	800		$	16,574		$	992

For the Six Months ended June 30, 2021
(Dollars in thousands)	Commercial and Industrial			Real Estate Construction		Real Estate - Mortgage ⁽¹⁾			Real Estate - Commercial			Consumer ⁽²⁾			Other			Unallocated			Total
Allowance for loan losses:
Balance, beginning	$	650		$	339	$	2,560		$	4,434		$	1,302		$	123		$	133		$	9,541
Charge-offs		(4	)		0		(1	)		0			(434	)		(186	)		0			(625	)
Recoveries		21			0		56			1			250			79			0			407
Provision for loan losses		54			77		(150	)		(39	)		170			148			(110	)		150
Ending Balance	$	721		$	416	$	2,465		$	4,396		$	1,288		$	164		$	23		$	9,473

Individually evaluated for impairment	$	0		$	0	$	39		$	12		$	0		$	0		$	0		$	51
Collectively evaluated for impairment		721			416		2,426			4,384			1,288			164			23			9,422
Purchased credit-impaired loans		0			0		0			0			0			0						0

Ending Balance	$	721		$	416	$	2,465		$	4,396		$	1,288		$	164		$	23		$	9,473

Loans Balances:
Individually evaluated for impairment		3			211		512			1,530			11			0			0			2,267
Collectively evaluated for impairment		119,908			50,603		199,200			335,811			116,523			8,361			0			830,406
Purchased credit-impaired loans		0			0		0			0			0			0						0
Ending Balance	$	119,911		$	50,814	$	199,712		$	337,341		$	116,534		$	8,361		$	0		$	832,673

For the Year ended December 31, 2020
(Dollars in thousands)	Commercial and Industrial			Real Estate Construction		Real Estate - Mortgage ⁽¹⁾			Real Estate - Commercial			Consumer ⁽²⁾			Other			Unallocated		Total
Allowance for loan losses:
Balance, beginning	$	1,244		$	258	$	2,505		$	3,663		$	1,694		$	296		$	0	$	9,660
Charge-offs		(25	)		0		(149	)		(654	)		(822	)		(355	)		0		(2,005	)
Recoveries		47			10		69			317			377			66			0		886
Provision for loan losses		(616	)		71		135			1,108			53			116			133		1,000
Ending Balance	$	650		$	339	$	2,560		$	4,434		$	1,302		$	123		$	133	$	9,541

Individually evaluated for impairment	$	0		$	0	$	10		$	1		$	0		$	0		$	0	$	11
Collectively evaluated for impairment		650			339		2,550			4,433			1,302			123			133		9,530
Purchased credit-impaired loans		0			0		0			0			0			0					0

Ending Balance	$	650		$	339	$	2,560		$	4,434		$	1,302		$	123		$	133	$	9,541

Loans Balances:
Individually evaluated for impairment		6			83		586			1,427			14			0			0		2,116
Collectively evaluated for impairment		141,740			43,649		206,950			315,424			118,354			8,067			0		834,184
Purchased credit-impaired loans		0			0		0			0			0			0					0
Ending Balance	$	141,746		$	43,732	$	207,536		$	316,851		$	118,368		$	8,067		$	0	$	836,300

(dollars in thousands)	June 30, 2021
Lease liabilities	$	1,199
Right-of-use assets	$	1,179
Weighted average remaining lease term	4.06 years
Weighted average discount rate		1.71	%

	Three Months Ended June 30,				Six Months Ended June 30,
Lease cost (in thousands)	2021		2020		2021		2020
Operating lease cost	$	81	$	91	$	185	$	179
Total lease cost	$	81	$	91	$	185	$	179

Cash paid for amounts included in the measurement of lease liabilities	$	84	$	93	$	187	$	177

	Calculated Provision Based on Current Quarter Methodology			Calculated Provision Based on Prior Quarter Methodology			Difference
	(in thousands)
Portfolio Segment:
Commercial	$	679		$	970		$	(291	)
Real estate - construction		(332	)		(815	)		483
Real estate - mortgage		1,573			1,859			(286	)
Consumer loans		909			1,262			(353	)
Other		96			96			-
Total	$	2,925		$	3,372		$	(447	)

Lease payments due (in thousands)	As of June 30, 2021
Six months ending December 31, 2021	$	165
Twelve months ending December 31, 2022		339
Twelve months ending December 31, 2023		248
Twelve months ending December 31, 2024		240
Thereafter		309
Total undiscounted cash flows	$	1,301
Discount		(102	)
Lease liabilities	$	1,199

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Options outstanding, January 1, 2017		60,605		$	20.05
Granted		-			-
Exercised		(48,287	)		20.05
Canceled or expired		(1,250	)		20.05
Options outstanding, September 30, 2017		11,068		$	20.05		0.04		$	137
Options exercisable, September 30, 2017		11,068		$	20.05		0.04		$	137

	Shares		Weighted Average Grant Date Fair Value
Nonvested, January 1, 2017		-	$	-
Issued		2,245		33.60
Vested		-		-
Forfeited		-		-
Nonvested, September 30, 2017		2,245	$	33.60

	Shares			Weighted Average Grant Date Fair Value
Nonvested, January 1, 2021		29,576		$	18.46
Issued		18,048			22.35
Vested		(8,521	)		17.50
Forfeited		0			0
Nonvested, June 30, 2021		39,103		$	20.46

				Fair Value Measurements at September 30, 2017 Using
	Balance			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(in thousands)
Available-for-sale securities
Obligations of U.S. Government agencies		$	9,493		$	-		$	9,493		$	-
Obligations of state and political subdivisions			68,434			-			68,434			-
Mortgage-backed securities			77,316			-			77,316			-
Money market investments			1,169			-			1,169			-
Corporate bonds			7,510			-			7,510			-
Other marketable equity securities			190			-			190			-
Total available-for-sale securities		$	164,112		$	-		$	164,112		$	-

Quantitative Information About Level 3 Fair Value Measurements
	Fair Value at September 30, 2017 (dollars in thousands)		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans
Residential 1-4 family real estate	$	316	Market comparables	Selling costs		0.00% - 7.25% (3.36	%)
				Liquidation discount		0.00% - 4.00% (3.12	%)
Commercial real estate	$	349	Market comparables	Selling costs		7.25	%
				Liquidation discount		4.00	%
Construction	$	74	Market comparables	Selling costs		7.25	%
				Liquidation discount		4.00	%
Equity lines of credit	$	229	Market comparables	Selling costs		6.07	%
				Liquidation discount		4.00	%

Quantitative Information About Level 3 Fair Value Measurements
	Fair Value at December 31, 2016 (dollars in thousands)		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans
Residential 1-4 family real estate	$	400	Market comparables	Selling costs		7.25	%
				Liquidation discount		4.00	%
Commercial real estate	$	1,483	Market comparables	Selling costs		7.25	%
				Liquidation discount		4.00	%
Construction	$	74	Market comparables	Selling costs		7.25	%
				Liquidation discount		4.00	%
Commercial loans	$	718	Market comparables	Selling costs		0.00	%
				Liquidation discount		0.00% - 38.58% (32.40	%)

Other real estate owned
Construction	$	940	Market comparables	Selling costs		7.25	%
				Liquidation discount		0.00	%

AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND RATES*
	For the quarter ended September 30,
	2017								2016
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate**			Balance			Expense		Rate**
	(dollars in thousands)
ASSETS
Loans held for investment*	$	693,693		$	7,661		4.42	%	$	590,964		$	6,678		4.52	%
Loans held for sale		1,090			12		4.40	%		0			0		0.00	%
Investment securities:
Taxable		101,612			487		1.92	%		88,462			357		1.61	%
Tax-exempt*		64,662			584		3.61	%		64,389			563		3.50	%
Total investment securities		166,274			1,071		2.58	%		152,851			920		2.41	%
Interest-bearing due from banks		1,093			4		1.46	%		19,671			25		0.51	%
Federal funds sold		457			1		0.88	%		1,596			2		0.50	%
Other investments		3,132			49		6.26	%		1,935			35		7.24	%
Total earning assets		865,739		$	8,798		4.06	%		767,017		$	7,660		3.99	%
Allowance for loan losses		(9,128	)							(8,048	)
Other non-earning assets		97,420								141,759
Total assets	$	954,031							$	900,728

LIABILITIES AND STOCKHOLDERS' EQUITY
Time and savings deposits:
Interest-bearing transaction accounts	$	27,705		$	2		0.03	%	$	27,404		$	2		0.03	%
Money market deposit accounts		231,785			90		0.16	%		213,597			44		0.08	%
Savings accounts		84,220			11		0.05	%		78,997			10		0.05	%
Time deposits		207,491			560		1.08	%		212,057			538		1.01	%
Total time and savings deposits		551,201			663		0.48	%		532,055			594		0.45	%
Federal funds purchased, repurchase agreements and other borrowings		27,046			13		0.19	%		26,506			6		0.09	%
Federal Home Loan Bank advances		50,707			161		1.27	%		22,717			33		0.58	%
Total interest-bearing liabilities		628,954			837		0.53	%		581,278			633		0.44	%
Demand deposits		222,429								217,020
Other liabilities		5,006								6,294
Stockholders' equity		97,642								96,136
Total liabilities and stockholders' equity	$	954,031							$	900,728
Net interest margin				$	7,961		3.68	%				$	7,027		3.66	%

*Computed on a fully tax-equivalent basis using a 34% rate; the tax-equivalent adjustment to interest income was $230 thousand and $224 thousand for the three months ended September 30, 2017 and 2016, respectively.
**Annualized

AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND RATES*
	For the nine months ended September 30,
	2017								2016
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate**			Balance			Expense		Rate**
	(dollars in thousands)
ASSETS
Loans held for investment*	$	656,937		$	21,607		4.39	%	$	580,900		$	19,717		4.53	%
Loans held for sale		373			20		7.15	%		0			0		0.00	%
Investment securities:
Taxable		104,059			1,474		1.89	%		104,631			1,376		1.75	%
Tax-exempt*		69,274			1,867		3.59	%		65,610			1,713		3.48	%
Total investment securities		173,333			3,341		2.57	%		170,241			3,089		2.42	%
Interest-bearing due from banks		1,502			12		1.07	%		7,867			30		0.51	%
Federal funds sold		1,096			6		0.73	%		1,549			4		0.34	%
Other investments		2,075			98		6.30	%		1,491			76		6.80	%
Total earning assets		835,316		$	25,084		4.00	%		762,048		$	22,916		4.01	%
Allowance for loan losses		(8,851	)							(7,893	)
Other non-earning assets		102,726								120,346
Total assets	$	929,191							$	874,501

LIABILITIES AND STOCKHOLDERS' EQUITY
Time and savings deposits:
Interest-bearing transaction accounts	$	28,121		$	7		0.03	%	$	17,559		$	7		0.05	%
Money market deposit accounts		234,446			202		0.11	%		219,907			129		0.08	%
Savings accounts		82,160			31		0.05	%		78,033			29		0.05	%
Time deposits		206,150			1,599		1.03	%		209,654			1,572		1.00	%
Total time and savings deposits		550,877			1,839		0.45	%		525,153			1,737		0.44	%
Federal funds purchased, repurchase agreements and other borrowings		24,684			26		0.14	%		26,151			20		0.10	%
Federal Home Loan Bank advances		25,879			233		1.20	%		12,372			177		1.91	%
Total interest-bearing liabilities		601,440			2,098		0.47	%		563,676			1,934		0.46	%
Demand deposits		226,103								209,147
Other liabilities		5,477								6,507
Stockholders' equity		96,171								95,171
Total liabilities and stockholders' equity	$	929,191							$	874,501
Net interest margin				$	22,986		3.67	%				$	20,982		3.67	%

*Computed on a fully tax-equivalent basis using a 34% rate; the tax-equivalent adjustment to interest income was $730 thousand and $680 thousand for the nine months ended September 30, 2017 and 2016, respectively.
**Annualized

Loans Secured by 1 - 4 Family First Mortgages,
1 - 4 Family Open-end and 1 - 4 Family Junior Liens
As of September 30, 2017
(dollars in thousands)

	Amount		Percent
Subprime	$	21,406		12.88	%
Non-subprime		144,829		87.12	%
	$	166,235		100.00	%

Total loans	$	700,996

Percentage of Real Estate-Secured Subprime Loans to Total Loans				3.05	%

	2017 Regulatory Minimums			September 30, 2017
Common Equity Tier 1 Capital		4.500	%		12.06	%
Tier 1 Capital		6.000	%		12.06	%
Tier 1 Leverage		4.000	%		10.47	%
Total Capital		8.000	%		13.16	%
Capital Conservation Buffer		1.250	%		5.16	%

	Change In Net Interest Income
	As of September 30,
	2017						2016
Change in interest Rates	%			$				%		$
+300 basis points		(0.29	)%		(92	)		1.06	%	285
+200 basis points		(0.08	)%		(26	)		0.74	%	198
+100 basis points		0.10	%		30			0.46	%	122
Unchanged		0.00	%		0			0.00	%	0
-50 basis points		(0.77	)%		(242	)		(0.46	)%	(122	)
-100 basis points		(1.52	)%		(478	)		(0.64	)%	(171	)

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		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2017-July 31, 2017		0	$	0		n/a		n/a
August 1, 2017-August 31, 2017		819		30.58		n/a		n/a
September 1, 2017-September 30, 2017		264		30.49		n/a		n/a

Total		1,083	$	30.56