Old Point Financial (OPOF) 10-Q 2024 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

or

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

For the transition period from____________ to___________

Commission File Number: 000-12896

OLD POINT FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

101 East Queen Street, Hampton, Virginia 23669

(Address of principal executive offices) (Zip Code)

(757) 728-1200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares outstanding of the registrant’s common stock, ($5.00 par value per share) as of May 9, 2024 was 5,075,596 shares.

OLD POINT FINANCIAL CORPORATION

FORM 10-Q

INDEX

ITEM		PAGE
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023	1
	Consolidated Statements of Income (unaudited) for the three months ended March 31, 2024 and 2023	2
	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2024 and 2023	3
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2024 and 2023	4
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2024 and 2023	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signatures	44

GLOSSARY OF ACRONYMS AND DEFINED TERMS

2023 Form 10-K	Annual Report on Form 10-K for the year ended December 31, 2023
ACL	Allowance for Credit Losses
ACLL	Allowance for Credit Losses on Loans, a component of ACL
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Bank	The Old Point National Bank of Phoebus
CECL	Current Expected Credit Losses
CET1	Common Equity Tier 1
Company	Old Point Financial Corporation and its subsidiaries
CBB	Community Bankers Bank
CBLR	Community Bank Leverage Ratio Framework
EGRRCPA	Economic Growth, Regulatory Relief, and Consumer Protection Act
EPS	Earnings per share
ESPP	Employee Stock Purchase Plan
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FHLB	Federal Home Loan Bank
FRB	Federal Reserve Bank
GAAP	Generally Accepted Accounting Principles
Incentive Stock Plan	Old Point Financial Corporation 2016 Incentive Stock Plan
IRLC	Interest Rate Lock Commitments
NIM	Net Interest Margin
Notes	The Company’s 3.50% fixed-to-floating rate subordinated notes due 2031
OAEM	Other Assets Especially Mentioned
OREO	Other Real Estate Owned
ROE	Return on Average Equity
SEC	U.S. Securities and Exchange Commission
SOFR	Secured overnight financing rate
TDR	Troubled Debt Restructuring
Wealth	Old Point Trust & Financial Services N.A.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Old Point Financial Corporation and Subsidiaries

Consolidated Balance Sheets

	March 31,			December 31,
(dollars in thousands, except per share amounts)	2024			2023
Assets	(unaudited)
Cash and due from banks	$	16,427		$	14,731
Interest-bearing due from banks		75,584			63,539
Federal funds sold		1,300			489
Cash and cash equivalents		93,311			78,759
Securities available-for-sale, at fair value		199,798			204,278
Restricted securities, at cost		5,239			5,176
Loans held for sale		-			470
Loans, net		1,055,955			1,068,046
Premises and equipment, net		30,178			29,913
Premises and equipment, held for sale		344			344
Bank-owned life insurance		35,353			35,088
Goodwill		1,650			1,650
Core deposit intangible, net		176			187
Other assets		23,485			22,471
Total assets	$	1,445,489		$	1,446,382
Liabilities & Stockholders’ Equity
Deposits:
Noninterest-bearing deposits	$	355,140		$	331,992
Savings deposits		632,696			655,694
Time deposits		240,433			242,711
Total deposits		1,228,269			1,230,397
Overnight repurchase agreements		1,684			2,383
Federal Home Loan Bank advances		69,450			69,450
Subordinated notes		29,701			29,668
Accrued expenses and other liabilities		8,755			7,706
Total liabilities		1,337,859			1,339,604
Stockholders’ equity:
Common stock, $5 par value, 10,000,000 shares authorized; 5,040,391 and 5,040,095 shares outstanding (includes 51,169 and 53,660 of nonvested restricted stock, respectively)		24,946			24,932
Additional paid-in capital		17,193			17,099
Retained earnings		83,289			82,277
Accumulated other comprehensive loss, net		(17,798	)		(17,530	)
Total stockholders’ equity		107,630			106,778
Total liabilities and stockholders’ equity	$	1,445,489		$	1,446,382

See accompanying notes to consolidated financial statements.

1

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Income

	Three Months Ended
	March 31,
(unaudited, dollars in thousands, except per share amounts)	2024		2023
Interest and dividend income:
Loans, including fees	$	14,544	$	13,041
Due from banks		799		64
Federal funds sold		9		6
Securities:
Taxable		1,798		1,764
Tax-exempt		139		212
Dividends and interest on all other securities		94		66
Total interest and dividend income		17,383		15,153
Interest expense:
Checking and savings deposits		2,597		854
Time deposits		2,172		537
Federal funds purchased, securities sold under agreements to repurchase and other borrowings		1		37
Federal Home Loan Bank advances		778		295
Long-term borrowings		295		617
Total interest expense		5,843		2,340
Net interest income		11,540		12,813
Provision for credit losses		80		376
Net interest income after provision for credit losses		11,460		12,437
Noninterest income:
Fiduciary and asset management fees		1,192		1,116
Service charges on deposit accounts		758		753
Other service charges, commissions and fees		883		1,109
Bank-owned life insurance income		265		254
Mortgage banking income		16		95
Gain on sale of repossessed assets		22		-
Other operating income		86		94
Total noninterest income		3,222		3,421
Noninterest expense:
Salaries and employee benefits		7,831		7,363
Occupancy and equipment		1,173		1,195
Data processing		1,315		1,179
Customer development		55		113
Professional services		585		673
Employee professional development		211		234
Other taxes		261		213
ATM and other losses		231		255
Other operating expenses		1,041		943
Total noninterest expense		12,703		12,168
Income before income taxes		1,979		3,690
Income tax expense		262		607
Net income	$	1,717	$	3,083
Basic Earnings per Share:
Weighted average shares outstanding		5,039,819		4,999,887
Net income per share of common stock	$	0.34	$	0.62
Diluted Earnings per Share:
Weighted average shares outstanding		5,039,876		5,000,020
Net income per share of common stock	$	0.34	$	0.62

See accompanying notes to consolidated financial statements.

2

Old Point Financial Corporation

Consolidated Statements of Comprehensive Income

	Three Months Ended
	March 31,
(unaudited, dollars in thousands)	2024			2023
Net income	$	1,717		$	3,083
Other comprehensive income (loss), net of tax
Net unrealized gain (loss) on available-for-sale securities		(268	)		2,332
Other comprehensive income (loss), net of tax		(268	)		2,332
Comprehensive income	$	1,449		$	5,415

See accompanying notes to consolidated financial statements.

3

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

											Accumulated
	Shares of				Additional						Other
	Common		Common		Paid-in			Retained			Comprehensive
(unaudited dollars in thousands, except per share amounts)	Stock		Stock		Capital			Earnings			Income (Loss)			Total
Balance at December 31, 2023		4,986,435	$	24,932	$	17,099		$	82,277		$	(17,530	)	$	106,778
Net income		-		-		-			1,717			-			1,717
Other comprehensive loss, net of tax		-		-		-			-			(268	)		(268	)
Employee Stock Purchase Plan share issuance		2,026		10		23			-			-			33
Restricted stock vested		761		4		(4	)		-			-			-
Share-based compensation expense		-		-		75			-			-			75
Cash dividends ($0.14 per share)		-		-		-			(705	)		-			(705	)
Balance at March 31, 2024		4,989,222	$	24,946	$	17,193		$	83,289		$	(17,798	)	$	107,630
Balance at December 31, 2022		4,952,094	$	24,761	$	16,593		$	78,147		$	(20,767	)	$	98,734
Net income		-		-		-			3,083			-			3,083
Other comprehensive income, net of tax		-		-		-			-			2,332			2,332
Impact of adoption of new accounting pronouncement		-		-		-			(991	)		-			(991	)
Employee Stock Purchase Plan share issuance		1,248		6		27			-			-			33
Share-based compensation expense		-		-		107			-			-			107
Cash dividends ($0.14 per share)		-		-		-			(700	)		-			(700	)
Balance at March 31, 2023		4,953,342	$	24,767	$	16,727		$	79,539		$	(18,435	)	$	102,598

See accompanying notes to consolidated financial statements.

4

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

	Three Months Ended March 31,
(unaudited, dollars in thousands)	2024			2023
Operating activities:
Net income	$	1,717		$	3,083
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		534			534
Amortization of right of use lease asset		91			101
Accretion related to acquisition, net		11			11
Amortization of subordinated debt issuance costs		33			32
Provision for credit losses		80			376
Net amortization of securities		154			186
Decrease in loans held for sale, net		470			96
Net gain on write-down/sale of repossessed assets		(22	)		-
Income from bank owned life insurance		(265	)		(254	)
Stock compensation expense		75			107
(Increase) decrease in other assets		(147	)		621
Increase (decrease) in accrued expenses and other liabilities		1,047			(1,392	)
Net cash provided by operating activities		3,778			3,501
Investing activities:
Purchases of available-for-sale securities		(1,230	)		(1,145	)
Purchase of restricted securities, net		(63	)		(1,045	)
Proceeds from maturities and paydowns of available-for-sale securities		570			-
Proceeds from sales of available-for-sale securities		450			1,300
Paydowns on available-for-sale securities		4,197			4,216
Net decrease (increase) in loans held for investment		11,148			(54,359	)
Purchases of premises and equipment		(799	)		(130	)
Net cash provided by (used in) investing activities		14,273			(51,163	)
Financing activities:
Increase (decrease) in noninterest-bearing deposits		23,148			(13,422	)
(Decrease) increase in savings deposits		(22,998	)		44,956
(Decrease) increase in time deposits		(2,278	)		12,062
Decrease in federal funds purchased, repurchase agreements and other borrowings, net		(699	)		(11,848	)
Increase in Federal Home Loan Bank advances		34,200			145,500
Repayment of Federal Home Loan Bank advances		(34,200	)		(119,100	)
Proceeds from Employee Stock Purchase Plan issuance		33			33
Cash dividends paid on common stock		(705	)		(700	)
Net cash (used in) provided by financing activities		(3,499	)		57,481
Net increase in cash and cash equivalents		14,552			9,819
Cash and cash equivalents at beginning of period		78,759			19,250
Cash and cash equivalents at end of period	$	93,311		$	29,069
Supplemental disclosures of cash flow information
Cash payments for:
Interest	$	6,007		$	2,417
Supplemental schedule of noncash transactions
Unrealized gain (loss) on securities available-for-sale	$	(339	)	$	2,952
Loans transferred to repossessed assets	$	865		$	-
Impact of adoption of ASC 326	$	-		$	991

See accompanying notes to consolidated financial statements.

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies

The Company

Headquartered in Hampton, Virginia, Old Point Financial Corporation (NASDAQ: OPOF) (the Company) is a holding company that conducts substantially all of its operations through two wholly-owned subsidiaries, The Old Point National Bank of Phoebus (the Bank) and Old Point Trust & Financial Services, N.A. (Wealth). The Bank serves individual and commercial customers, the majority of which are in the Hampton Roads region of Virginia. As of March 31, 2024, the Bank had 14 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 Old Point Mortgage. A full array of insurance products is also offered through Old Point Insurance, LLC in partnership with Morgan Marrow Company. Wealth 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.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company, and its wholly-owned subsidiaries, the Bank and Wealth. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of the Company and its subsidiaries have been prepared in accordance with U.S. GAAP for interim financial information. 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 related statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the three months ended March 31, 2024 and 2023. 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 2023 Form 10-K. Certain previously reported amounts have been reclassified to conform to current period presentation, none of which were material in nature.

Estimates

In preparing Consolidated Financial Statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Balance Sheets and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the ACL and evaluation of goodwill for impairment. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

Reclassification

Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. None of these reclassifications are considered material and did not affect net income or total equity.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” Subsequently, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This guidance provides temporary, optional expedients and exceptions to ease the potential burden in accounting for modifications of loan contracts, borrowings, and other transactions related to reference rate reform associated with the LIBOR transition if certain criteria are met. The amendments are effective as of March 12, 2020 through December 31, 2024 and can be adopted at an instrument level. These modifications have not had and are not expected to have a material impact on the consolidated financial statements.

In November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures.” The amendments in ASU 2023-07 require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, require other segment items by reportable segment to be disclosed and a description of their composition, and require disclosure of the title and position of the chief operating decision maker and an explanation of how they use the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments apply to all public entities that are required to report segment information in accordance with Topic 280, “Segment Reporting,” and are effective for fiscal years beginning after December 15, 2023, and interim periods with fiscal years beginning after December 15, 2024.  Early adoption is permitted. The amendments are to be applied retrospectively to all prior periods presented. The Company does not expect the adoption of ASU 2023-07 to have a material effect on its consolidated financial statements.

6

In November 2023, FASB issued ASU 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures.” The amendments in ASU 2023-09 require that a public entity disclose, on an annual basis, specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, the amount of income taxes paid disaggregated by federal, state and foreign taxes, and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid. The amendments also require that entities disclose income from continuing operations before income tax expense disaggregated between domestic and foreign, as well as income tax expense from continuing operations disaggregated by federal, state, and foreign. The amendments apply to all public entities that are subject to Topic 740, “Income Taxes,” and are effective for annual periods beginning after December 15, 2024.  Early adoption is permitted. The amendments are to be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material effect on its consolidated financial statements.

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

Note 2. Securities

The Company’s debt securities all of which are classified as available for sale, are summarized as follows:

	March 31, 2024
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		(Losses)			Value
U.S. Treasury securities	$	4,060	$	-	$	(216	)	$	3,844
Obligations of U.S. Government agencies		40,097		259		(490	)		39,866
Obligations of state and political subdivisions		58,020		10		(7,972	)		50,058
Mortgage-backed securities		89,823		17		(10,712	)		79,128
Money market investments		2,827		-		-			2,827
Corporate bonds and other securities		27,500		-		(3,425	)		24,075
	$	222,327	$	286	$	(22,815	)	$	199,798

	December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		(Losses)			Value
U.S. Treasury securities	$	4,068	$	-	$	(211	)	$	3,857
Obligations of U.S. Government agencies		43,233		167		(665	)		42,735
Obligations of state and political subdivisions		58,292		13		(7,708	)		50,597
Mortgage-backed securities		91,328		84		(10,105	)		81,307
Money market investments		2,047		-		-			2,047
Corporate bonds and other securities		27,500		-		(3,765	)		23,735
	$	226,468	$	264	$	(22,454	)	$	204,278

7

The amortized cost and fair value of securities at March 31, 2024 and December 31, 2023, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

	March 31, 2024
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	4,227	$	4,195
Due after one year through five years		20,528		18,941
Due after five through ten years		54,655		47,257
Due after ten years		142,917		129,405
	$	222,327	$	199,798

	December 31, 2023
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	3,617	$	3,588
Due after one year through five years		12,962		12,178
Due after five through ten years		63,248		54,806
Due after ten years		146,641		133,706
	$	226,468	$	204,278

The Company did not record any gains or losses on the sale of investment securities during the three months ended March 31, 2024 and 2023, respectively.

The following tables show the gross unrealized losses and fair value of the Company’s investments with unrealized losses for which an ACL has not been recorded as of March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates indicated:

	March 31, 2024
	Less than 12 months				12 months or more				Total
	Gross				Gross				Gross				Number
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		of
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value		Securities
U.S. Treasury securities	$	-	$	-	$	216	$	3,844	$	216	$	3,844		1
Obligations of U.S. Government agencies		43		8,009		447		18,975		490		26,984		39
Obligations of state and political subdivisions		-		-		7,972		49,060		7,972		49,060		42
Mortgage-backed securities		169		4,281		10,543		70,182		10,712		74,463		39
Corporate bonds and other securities		-		-		3,425		23,075		3,425		23,075		23
Total securities available-for-sale	$	212	$	12,290	$	22,603	$	165,136	$	22,815	$	177,426		144

	December 31, 2023
	Less than 12 months				12 months or more				Total
	Gross				Gross				Gross				Number
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		of
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value		Securities
U.S. Treasury securities	$	-	$	-	$	211	$	3,857	$	211	$	3,857		1
Obligations of U.S. Government agencies		91		8,803		574		22,817		665		31,620		43
Obligations of state and political subdivisions		-		-		7,708		49,597		7,708		49,597		43
Mortgage-backed securities		96		4,423		10,009		73,347		10,105		77,770		40
Corporate bonds and other securities		-		-		3,765		22,735		3,765		22,735		23
Total securities available-for-sale	$	187	$	13,226	$	22,267	$	172,353	$	22,454	$	185,579		150

The number of investments in an unrealized loss position as of March 31, 2024 and December 31, 2023 were 144 and 150, respectively. The Company concluded no ACL should be recognized as of March 31, 2024 and December 31, 2023 based primarily on the fact that (1) changes in fair value were caused primarily by fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not that the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest. Additionally, the Company’s state and political subdivision securities are rated AA or better and the Company receives a surveillance report that is reviewed quarterly for indications of credit concerns. The Company’s mortgage-backed securities are entirely issued by either U.S. government agencies or U.S. government-sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. government, that investors in such mortgage-backed securities will receive timely principal and interest payments. The Company’s corporate bonds and other securities portfolio issuers consist of bank holding companies that are monitored on a quarterly basis by the Company’s credit department for indications of declining credit quality.

8

Restricted Stock

The restricted stock category is comprised of stock in FHLB, FRB, and 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 CBB stock are 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. The Company did not consider its investment in restricted stock to be impaired at March 31, 2024 and no impairment has been recognized.

Note 3. Loans and the Allowance for Credit Losses on Loans

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

	March 31,		December 31,
(dollars in thousands)	2024		2023
Mortgage loans on real estate:
Residential 1-4 family	$	190,184	$	188,517
Commercial - owner occupied		153,815		156,466
Commercial - non-owner occupied		289,183		285,250
Multifamily		29,506		29,207
Construction and land development		109,971		107,179
Second mortgages		9,891		10,148
Equity lines of credit		57,880		55,981
Total mortgage loans on real estate		840,430		832,748
Commercial and industrial loans		57,195		64,112
Consumer automobile loans		148,277		160,437
Other consumer loans		19,555		19,718
Other  (1)		2,446		3,237
Total loans, net of deferred fees (2)		1,067,903		1,080,252
Less:  Allowance for credit losses on loans		11,948		12,206
Loans, net of allowance and deferred fees (2)	$	1,055,955	$	1,068,046

(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 $423 thousand and $244 thousand at March 31, 2024 and December 31, 2023, respectively.

(2) Net deferred loan costs totaled $1.3 million on March 31, 2024 and $1.2 million on December 31, 2023.

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. The following tables show the aging of the Company’s loan portfolio, by class, as of March 31, 2024 and December 31, 2023.

9

Age Analysis of Past Due Loans as of March 31, 2024

(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due and still Accruing		Nonaccrual (2)		Total Current Loans (1)		Total Loans
Mortgage loans on real estate:
Residential 1-4 family	$	280	$	44	$	-	$	139	$	189,718	$	190,184
Commercial - owner occupied		-		-		-		-		153,815		153,815
Commercial - non-owner occupied		-		-		92		-		289,091		289,183
Multifamily		-		-		-		-		29,506		29,506
Construction and land development		-		-		-		-		109,971		109,971
Second mortgages		49		-		61		-		9,781		9,891
Equity lines of credit		50		-		-		45		57,784		57,880
Total mortgage loans on real estate	$	379	$	44	$	153	$	184	$	839,666	$	840,430
Commercial and industrial loans		271		-		193		-		56,731		57,195
Consumer automobile loans		2,325		585		473		10		144,894		148,277
Other consumer loans		675		95		59		-		18,726		19,555
Other		56		-		-		-		2,390		2,446
Total	$	3,706	$	724	$	878	$	194	$	1,062,407	$	1,067,903

Age Analysis of Past Due Loans as of December 31, 2023

(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due and still Accruing		Nonaccrual (2)		Total Current Loans (1)		Total Loans
Mortgage loans on real estate:
Residential 1-4 family	$	1,194	$	-	$	368	$	142	$	186,813	$	188,517
Commercial - owner occupied		100		-		322		-		156,044		156,466
Commercial - non-owner occupied		-		896		-		-		284,354		285,250
Multifamily		-		-		-		-		29,207		29,207
Construction and land development		-		-		-		-		107,179		107,179
Second mortgages		160		6		-		-		9,982		10,148
Equity lines of credit		205		-		-		46		55,730		55,981
Total mortgage loans on real estate	$	1,659	$	902	$	690	$	188	$	829,309	$	832,748
Commercial and industrial loans		527		427		306		-		62,852		64,112
Consumer automobile loans		3,254		706		661		-		155,816		160,437
Other consumer loans		634		264		123		-		18,697		19,718
Other		29		-		-		-		3,208		3,237
Total	$	6,103	$	2,299	$	1,780	$	188	$	1,069,882	$	1,080,252

(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 nonaccrual column and not also in its respective past due column.

10

The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of March 31, 2024 and December 31, 2023. All nonaccrual loans had an ACLL as of March 31, 2024 and December 31, 2023.

	Nonaccrual
(dollars in thousands)		March 31, 2024		December 31, 2023
Mortgage loans on real estate:
Residential 1-4 family		$	139	$	142
Commercial - non-owner occupied			-		-
Second mortgages			-		-
Equity lines of credit			45		46
Total mortgage loans on real estate			184		188
Commercial and industrial loans			-		-
Consumer automobile loans			10		-
Other consumer loans			-		-
Total		$	194	$	188

The Company’s loan portfolio may include certain loans modified, where economic concessions have been granted to borrowers who are experiencing financial difficulties. These concessions typically result from the 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 closely monitors the performance of modified loans to understand the effectiveness of modification efforts. Upon the determination that all or a portion of a modified loan is uncollectible, that amount is charged against the ACL. The Company did not grant any such modifications during the three months ended March 31, 2024 and March 31, 2023.

Allowance for Credit Losses on Loans

ACLL is a material estimate for the Company. The Company estimates its ACLL on a quarterly basis. The Company models the ACLL using two primary segments, commercial and consumer. Within each segment, loan classes are further identified based on similar risk characteristics. The Company has identified the following classes within each segment:

● Commercial: commercial and industrial, real estate - construction and land development, real estate – commercial (owner occupied and non-owner occupied), and other loans

● Consumer: real estate - mortgage, and consumer loans

Each portfolio class has risk characteristics as follows:

● 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.

● Real estate-construction and land development: 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 - commercial (owner occupied and non-owner occupied): 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.

● 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.

● 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.

● Other loans: Other loans are loans to mortgage companies, loans for purchasing or carrying securities, and loans to insurance, investment and finance companies. These loans carry risks associated with the successful operation of a business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time, depend on interest rates or fluctuate in active trading markets.

11

The following tables presents the activity in the ACLL by portfolio class for the three months ended March 31, 2024 and March 31, 2023.

Allowance for Credit Losses and Recorded Investment in Loans

For the Three Months ended March 31, 2024

(dollars in thousands)	Commercial and Industrial			Real Estate Construction and Land Development		Real Estate - Mortgage (1)			Real Estate - Commercial (2)			Consumer (3)			Other			Unallocated		Total
Allowance for credit losses on loans:
Balance, beginning	$	573		$	982	$	2,904		$	5,742		$	1,827		$	178		$	-	$	12,206
Charge-offs		-			-		-			-			(462	)		(32	)		-		(494	)
Recoveries		4			-		13			11			123			7			-		158
Provision for loan losses		(91	)		33		(72	)		(129	)		294			43			-		78
Ending Balance	$	486		$	1,015	$	2,845		$	5,624		$	1,782		$	196		$	-	$	11,948

For the Three Months Ended March 31, 2023

(dollars in thousands)	Commercial and Industrial			Real Estate Construction		Real Estate - Mortgage (1)		Real Estate - Commercial (2)		Consumer (3)			Other			Unallocated			Total
Allowance for loan losses:
Balance, beginning	$	673		$	552	$	2,575	$	4,499	$	2,065		$	156		$	6		$	10,526
Day 1 impact of adoption of CECL		(11	)		19		87		1,048		(365	)		(137	)		-			641
Charge-offs		-			-		-		-		(377	)		(72	)		-			(449	)
Recoveries		8			-		11		-		237			14			-			270
Provision for loan losses		(6	)		82		199		70		81			143			(6	)		563
Ending Balance	$	664		$	653	$	2,872	$	5,617	$	1,641		$	104		$	-		$	11,551

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

(2) The real estate-commercial segment included commercial-owner occupied and commercial non-owner occupied.

(3) The consumer segment includes consumer automobile loans.

The following table presents a breakdown of the provision for credit losses for the periods indicated.

	Three Months Ended March 31,
(dollars in thousands)	2024			2023
Provision for credit losses:
Provision for loans		$	78		$	563
Provison for (recovery of) unfunded commitments			2			(187	)
Total		$	80		$	376

Credit Quality Indicators

Credit quality indicators are utilized to help estimate the collectability of each loan. Consumer loans not secured by real estate and made to individuals for household, family and other personal expenditures are segmented into pools based on days past due, while all other loans, including loans to consumers that are secured by real estate, are segmented by risk grades. While other credit quality indicators are evaluated and analyzed as part of the Company’s credit risk management activities, the Company uses internally-assigned risk grades as the primary indicator to estimate the capability of borrowers to repay the contractual obligations of their loan agreements as scheduled or at all. The 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 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.

● 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.

12

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

	March 31, 2024
	Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
Construction and land development
Pass	$	7,703	$	37,156	$	33,585	$	25,750	$	3,095	$	561	$	2,121	$	109,971
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total construction and land development	$	7,703	$	37,156	$	33,585	$	25,750	$	3,095	$	561	$	2,121	$	109,971
Commercial real estate - owner occupied
Pass	$	423	$	11,214	$	34,968	$	20,108	$	13,443	$	66,123	$	3,870	$	150,149
OAEM		-		-		-		-		-		2,827		750		3,577
Substandard		-		-		-		-		-		89		-		89
Total commercial real estate - owner occupied	$	423	$	11,214	$	34,968	$	20,108	$	13,443	$	69,039	$	4,620	$	153,815
Commercial real estate - non-owner occupied
Pass	$	3,802	$	31,415	$	52,870	$	95,747	$	38,377	$	63,915	$	2,271	$	288,397
OAEM		-		-		-		-		-		786		-		786
Substandard		-		-		-		-		-		-		-		-
Total commercial real estate - non-owner occupied	$	3,802	$	31,415	$	52,870	$	95,747	$	38,377	$	64,701	$	2,271	$	289,183
Commercial and industrial
Pass	$	763	$	15,494	$	17,561	$	3,897	$	1,357	$	4,590	$	13,533	$	57,195
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total commercial and industrial	$	763	$	15,494	$	17,561	$	3,897	$	1,357	$	4,590	$	13,533	$	57,195
Multifamily real estate
Pass	$	-	$	6,542	$	2,092	$	2,134	$	599	$	14,818	$	3,321	$	29,506
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total multifamily real estate	$	-	$	6,542	$	2,092	$	2,134	$	599	$	14,818	$	3,321	$	29,506
Residential 1-4 family
Pass	$	2,508	$	30,437	$	42,352	$	36,680	$	26,018	$	63,752	$	55,682	$	257,429
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		341		45		140		-		526
Total residential 1-4 family	$	2,508	$	30,437	$	42,352	$	37,021	$	26,063	$	63,892	$	55,682	$	257,955
Consumer - automobile
Pass	$	4,861	$	47,701	$	75,758	$	11,189	$	3,536	$	5,232	$	-	$	148,277
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total consumer - automobile	$	4,861	$	47,701	$	75,758	$	11,189	$	3,536	$	5,232	$	-	$	148,277
Consumer - other
Pass	$	156	$	289	$	483	$	309	$	65	$	15,572	$	2,681	$	19,555
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total consumer - other	$	156	$	289	$	483	$	309	$	65	$	15,572	$	2,681	$	19,555
Other
Pass	$	979	$	-	$	-	$	292	$	-	$	1,175	$	-	$	2,446
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total other	$	979	$	-	$	-	$	292	$	-	$	1,175	$	-	$	2,446
Total loans
Pass	$	21,195	$	180,248	$	259,669	$	196,106	$	86,490	$	235,738	$	83,479	$	1,062,925
OAEM		-		-		-		-		-		3,613		750		4,363
Substandard		-		-		-		341		45		229		-		615
Total loans	$	21,195	$	180,248	$	259,669	$	196,447	$	86,535	$	239,580	$	84,229	$	1,067,903

13

	December 31, 2023
	Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Construction and land development
Pass	$	40,168	$	36,581	$	25,770	$	3,630	$	297	$	285	$	448	$	107,179
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total construction and land development	$	40,168	$	36,581	$	25,770	$	3,630	$	297	$	285	$	448	$	107,179
Commercial real estate - owner occupied
Pass	$	10,145	$	33,720	$	21,058	$	13,708	$	12,025	$	56,978	$	5,680	$	153,314
OAEM		-		-		-		-		77		2,985		-		3,062
Substandard		-		-		-		-		-		90		-		90
Total commercial real estate - owner occupied	$	10,145	$	33,720	$	21,058	$	13,708	$	12,102	$	60,053	$	5,680	$	156,466
Commercial real estate - non-owner occupied
Pass	$	31,539	$	53,217	$	96,755	$	38,704	$	10,517	$	51,451	$	2,263	$	284,446
OAEM		-		-		-		-		804		-		-		804
Substandard		-		-		-		-		-		-		-		-
Total commercial real estate - non-owner occupied	$	31,539	$	53,217	$	96,755	$	38,704	$	11,321	$	51,451	$	2,263	$	285,250
Commercial and industrial
Pass	$	18,248	$	21,698	$	4,300	$	1,691	$	2,192	$	2,075	$	13,908	$	64,112
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total commercial and industrial	$	18,248	$	21,698	$	4,300	$	1,691	$	2,192	$	2,075	$	13,908	$	64,112
Multifamily real estate
Pass	$	6,568	$	3,841	$	2,151	$	605	$	5,955	$	9,005	$	1,082	$	29,207
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total multifamily real estate	$	6,568	$	3,841	$	2,151	$	605	$	5,955	$	9,005	$	1,082	$	29,207
Residential 1-4 family
Pass	$	27,497	$	41,062	$	39,937	$	26,368	$	13,009	$	52,148	$	54,087	$	254,108
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		350		46		142		-		538
Total residential 1-4 family	$	27,497	$	41,062	$	39,937	$	26,718	$	13,055	$	52,290	$	54,087	$	254,646
Consumer - automobile
Pass	$	52,750	$	83,885	$	13,184	$	4,152	$	1,618	$	4,848	$	-	$	160,437
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total consumer - automobile	$	52,750	$	83,885	$	13,184	$	4,152	$	1,618	$	4,848	$	-	$	160,437
Consumer - other
Pass	$	323	$	765	$	330	$	109	$	11	$	16,089	$	2,091	$	19,718
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total consumer - other	$	323	$	765	$	330	$	109	$	11	$	16,089	$	2,091	$	19,718
Other
Pass	$	1,620	$	-	$	292	$	-	$	-	$	1,325	$	-	$	3,237
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total other	$	1,620	$	-	$	292	$	-	$	-	$	1,325	$	-	$	3,237
Total loans
Pass	$	188,858	$	274,769	$	203,777	$	88,967	$	45,624	$	194,204	$	79,559	$	1,075,758
OAEM		-		-		-		-		881		2,985		-		3,866
Substandard		-		-		-		350		46		232		-		628
Total loans	$	188,858	$	274,769	$	203,777	$	89,317	$	46,551	$	197,421	$	79,559	$	1,080,252

14

The following tables detail the current period gross charge-offs of loans by year of origination for the three months ended March 31, 2024 and March 31, 2023:

	March 31, 2024
	Current Period Charge-offs by Origination Year
(dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total
Consumer - automobile	$	-	$	79	$	266	$	102	$	3	$	10	$	-	$	460
Consumer - other		-		-		-		-		-		2		-		2
Other (1)		32		-		-		-		-		-		-		32
Total	$	32	$	79	$	266	$	102	$	3	$	12	$	-	$	494

(1) Gross charge-offs of other loans for the three months ended March 31, 2024 included $32 thousand of demand deposit overdrafts that originated in 2024.

	March 31, 2023
	Current Period Charge-offs by Origination Year
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Consumer - automobile	$	-	$	192	$	114	$	34	$	4	$	29	$	-	$	373
Consumer - other		-		-		2		-		-		2		-		4
Other (1)		72		-		-		-		-		-		-		72
Total	$	72	$	192	$	116	$	34	$	4	$	31	$	-	$	449

(1) Gross charge-offs of other loans for the three months ended March 31, 2023 included $72 thousand of demand deposit overdrafts that originated in 2023.

As of March 31, 2024 and December 31, 2023, the Company had no collateral dependent loans for which repayment was expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty.

Note 4. Leases

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease.  Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs, and any incentives received from the lessor.

The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The right-of-use asset and lease liability are included in “Other Assets” and “Other Liabilities”, respectively, in the Consolidated Balance Sheets. There were no new leases executed during the three months ended March 31, 2024. The following tables present information about the Company’s leases:

(dollars in thousands)	March 31, 2024				December 31, 2023
Lease liabilities		$	1,149		$	1,248
Right-of-use assets		$	1,057		$	1,148
Weighted average remaining lease term	3.17 years				3.37 years
Weighted average discount rate			3.10	%		3.06	%

	Three Months Ended March 31,
(dollars in thousands)	2024		2023
Operating lease cost	$	106	$	101
Total lease cost	$	106	$	101
Cash paid for amounts included in the measurement of lease liabilities	$	108	$	91

15

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:

	As of
(dollars in thousands)	March 31, 2024
Nine months ending December 31, 2024	$	315
Twelve months ending December 31, 2025		382
Twelve months ending December 31, 2026		278
Twelve months ending December 31, 2027		208
Thereafter		24
Total undiscounted cash flows	$	1,207
Discount		(58	)
Lease liabilities	$	1,149

Note 5. Borrowings

Short-Term Borrowings

The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Short-term borrowings sources consist of federal funds purchased, overnight repurchase agreements (which are secured transactions with customers that generally mature within one to four days), and advances from the FHLB.

The Company maintains federal funds lines with several correspondent banks to address short-term borrowing needs. As of March 31, 2024 and December 31, 2023, the remaining credit available from these lines totaled $90.0 million and $90.0 million, respectively. The Company has a collateral dependent line of credit with the FHLB with remaining credit availability of $361.8 million and $362.1 million as of March 31, 2024 and December 31, 2023, respectively.

The following table presents total short-term borrowings as of the dates indicated:

(dollars in thousands)	March 31, 2024			December 31, 2023
Federal funds purchased	$	-		$	-
Overnight repurchase agreements		1,684			2,383
Federal Home Loan Bank advances		39,450			9,450
Total short-term borrowings	$	41,134		$	11,833
Maximum month-end outstanding balance (year-to-date)	$	41,682		$	84,360
Average outstanding balance during the period	$	42,200		$	53,466
Average interest rate (year-to-date)		4.73	%		4.90	%
Average interest rate at end of period		5.66	%		5.65	%

Long-Term Borrowings

The Company had long-term FHLB advances totaling $30.0 million outstanding at March 31, 2024 with scheduled maturities through November 27, 2026 and rates ranging from 4.01% to 4.28%. The Company had long-term FHLB advances totaling $60.0 million outstanding at December 31, 2023 with scheduled maturities through November 29, 2028 and rates ranging from 3.37% to 4.28%.

On July 14, 2021, the Company completed a $30.0 million issuance, ($29.4 million, net of issuance costs) of subordinated notes (the Notes) in a private placement transaction. The Notes are due in 2031 and 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.

Note 6. Commitments and Contingencies

Credit-Related Financial Instruments

The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making such commitments as it does for on-balance-sheet instruments.

16

Financial instruments whose contract amounts represent credit risk were outstanding as of March 31, 2024 and December 31, 2023 were as follows:

	March 31,		December 31,
(dollars in thousands)	2024		2023
Commitments to extend credit:
Home equity lines of credit	$	93,118	$	91,885
Commercial real estate, construction and development loans committed but not funded		79,960		74,218
Other lines of credit (principally commercial)		49,360		47,622
Total	$	222,438	$	213,725
Letters of credit	$	872	$	802

Note 7. Share-Based Compensation

The Company has adopted an ESPP and offers share-based compensation through its equity compensation plan. Share-based compensation arrangements may include stock options, restricted and unrestricted stock awards, restricted stock units, performance units and stock appreciation rights. Accounting standards require all share-based payments to employees and non-employee directors to be valued using a fair value method on the date of grant and to be expensed based on that fair value over the applicable vesting period. The Company accounts for forfeitures during the vesting period as they occur.

Employee Stock Purchase Plan

Under the Company’s ESPP, substantially all employees of the Company and its subsidiaries can authorize a specific payroll deduction from their base compensation for the periodic purchase of the Company’s common stock. Shares of stock are issued quarterly at a discount to the market price of the Company’s stock on the day of purchase, which can range from 0-15% and was set at 5% for 2023 and for the first three months of 2024.

Total stock purchases under the ESPP amounted to 2,026 shares during the three months ended March 31, 2024. At March 31, 2024, the Company had 212,327 remaining shares reserved for issuance under the ESPP.

Incentive Stock Plan

The Incentive Stock Plan permits the issuance of up to 300,000 shares of common stock for awards to key employees and non-employee directors of the Company and its subsidiaries in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards and performance units. As of March 31, 2024, only restricted stock had been granted under the Incentive Stock Plan.

Restricted stock activity for the three months ended March 31, 2024 and March 31, 2023 is summarized below:

				Weighted Average
				Grant Date
	Shares			Fair Value
Nonvested, December 31, 2023		53,660		$	22.32
Vested		(761	)		22.35
Forfeited		(1,730	)		20.53
Nonvested, March 31, 2024		51,169		$	22.38

			Weighted Average
			Grant Date
	Shares		Fair Value
Nonvested, December 31, 2022		46,989	$	22.49
Issued		-		-
Vested		-		-
Forfeited		-		-
Nonvested, March 31, 2023		46,989	$	22.49

17

The weighted average period over which nonvested awards are expected to be recognized in compensation expense is 1.18 years.

The remaining unrecognized compensation expense for nonvested restricted stock shares totaled $428 thousand as of March 31, 2024 and $386 thousand as of March 31, 2023.

Stock-based compensation expense was $75 thousand and $107 thousand for the three months ended March 31, 2024 and 2023, respectively.

Note 8. Stockholders’ Equity and Earnings per Common Share

Stockholders’ Equity – Accumulated Other Comprehensive Income (Loss)

There were no amounts reclassified out of accumulated other comprehensive income (loss), by category, during the three months ended March 31, 2024 and 2023, respectively.

The following table presents the changes in accumulated other comprehensive 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 (Loss) Income
Three Months Ended March 31, 2024
Balance at beginning of period	$	(17,530	)	$	(17,530	)
Net other comprehensive loss		(268	)		(268	)
Balance at end of period	$	(17,798	)	$	(17,798	)
Three Months Ended March 31, 2023
Balance at beginning of period	$	(20,767	)	$	(20,767	)
Net other comprehensive income		2,332			2,332
Balance at end of period	$	(18,435	)	$	(18,435	)

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

	Three Months Ended March 31, 2024
(dollars in thousands)	Pretax			Tax		Net-of-Tax
Unrealized losses on available-for-sale securities:
Unrealized holding losses arising during the period	$	(339	)	$	71	$	(268	)
Total change in accumulated other comprehensive loss, net	$	(339	)	$	71	$	(268	)

	Three Months Ended March 31, 2023
(dollars in thousands)	Pretax		Tax			Net-of-Tax
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period	$	2,952	$	(620	)	$	2,332
Total change in accumulated other comprehensive income, net	$	2,952	$	(620	)	$	2,332

Earnings Per Common Share

Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of potentially dilutive common shares attributable to the ESPP. The Company had no antidilutive shares outstanding in the three months ended March 31, 2024 and 2023, 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.

18

Note 9. Fair Value Measurements

Determination of Fair Value
The Company follows ASC 820, “Fair Value Measurements and Disclosures” to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. 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 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. 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, 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 and Liabilities 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 loss. 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.

The Company recognizes IRLCs at fair value. Fair value of IRLCs is based on either (i) the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis or (ii) the observable price for individual loans traded in the secondary market for loans that will be delivered on a mandatory basis. All of the Company’s IRLCs are classified as Level 2. At March 31, 2024, there were no IRLCs and at December 31, 2023, there were $10 thousand of IRLCs.

19

The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Company simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. These back-to-back loan swaps are derivative financial instruments and are reported at fair value in “other assets” and “other liabilities” in the Consolidated Balance Sheets.  Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of swaps with borrowers and swaps with dealer counterparties. All of the Company’s interest rate swaps on loans are classified as Level 2.

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. There were no loans held for sale at March 31, 2024.

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 March 31, 2024 Using
(dollars in thousands)	Balance		Level 1		Level 2		Level 3
Assets:
Available-for-sale securities
U.S. Treasury securities	$	3,844	$	-	$	3,844	$	-
Obligations of  U.S. Government agencies		39,866		-		39,866		-
Obligations of state and political subdivisions		50,058		-		50,058		-
Mortgage-backed securities		79,128		-		79,128		-
Money market investments		2,827		-		2,827		-
Corporate bonds and other securities		24,075		-		24,075		-
Total available-for-sale securities		199,798		-		199,798		-
Derivatives
Interest rate swap on loans		1,652		-		1,652		-
Total assets	$	201,450	$	-	$	201,450	$	-
Liabilities:
Derivatives
Interest rate swap on loans		1,652		-		1,652		-
Total liabilities	$	1,652	$	-	$	1,652	$	-

20

			Fair Value Measurements at December 31, 2023 Using
(dollars in thousands)	Balance		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury securities	$	3,857	$	-	$	3,857	$	-
Obligations of  U.S. Government agencies		42,735		-		42,735		-
Obligations of state and political subdivisions		50,597		-		50,597		-
Mortgage-backed securities		81,307		-		81,307		-
Money market investments		2,047		-		2,047		-
Corporate bonds and other securities		23,735		-		23,735		-
Total available-for-sale securities	$	204,278	$	-	$	204,278	$	-
Loans held for sale		470		-		470		-
Derivatives
Interest rate lock		10		-		10		-
Interest rate swap on loans		1,249		-		1,249		-
Total assets	$	206,007	$	-	$	206,007	$	-
Liabilities:
Derivatives
Interest rate swap on loans		1,249		-		1,249		-
Total liabilities	$	1,249	$	-	$	1,249	$	-

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure and recognize certain assets at fair value on a nonrecurring basis in accordance with GAAP. As of March 31, 2024 and December 31, 2023, the Company had no assets or liabilities recorded at fair value on a nonrecurring basis.

Fair Value of Financial Instruments

FASB ASC 825, “Financial Instruments”, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis.

21

The following tables reflect the carrying amounts and estimated fair values of the Company’s financial instruments whether or not recognized on the Consolidated Balance Sheets at fair value.

			Fair Value Measurements at March 31, 2024 Using
(dollars in thousands)	Carrying Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	93,311	$	93,311	$	-	$	-
Securities available-for-sale		199,798		-		199,798		-
Restricted securities		5,239		-		5,239		-
Loans, net		1,055,955		-		-		994,232
Derivatives
Interest rate swap on loans		1,652		-		1,652		-
Bank owned life insurance		35,353		-		35,353		-
Accrued interest receivable		4,984		-		4,984		-
Liabilities
Deposits	$	1,228,269	$	-	$	1,226,351	$	-
Overnight repurchase agreements		1,684		-		1,684		-
Federal Home Loan Bank advances		69,450		-		69,450		-
Subordinated notes		29,701		-		25,524		-
Derivatives
Interest rate swap on loans		1,652		-		1,652		-
Accrued interest payable		1,775		-		1,775		-

			Fair Value Measurements at December 31, 2023 Using
(dollars in thousands)	Carrying Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	78,759	$	78,759	$	-	$	-
Securities available-for-sale		204,278		-		204,278		-
Restricted securities		5,176		-		5,176		-
Loans held for sale		470		-		470		-
Loans, net		1,068,046		-		-		1,025,622
Derivatives
Interest rate lock		10		-		10		-
Interest rate swap on loans		1,249		-		1,249		-
Bank owned life insurance		35,088		-		35,088		-
Accrued interest receivable		4,921		-		4,921		-
Liabilities
Deposits	$	1,230,397	$	-	$	1,228,477	$	-
Overnight repurchase agreements		2,383		-		2,383		-
Federal Home Loan Bank advances		69,450		-		69,450		-
Subordinated notes		29,668		-		25,561		-
Derivatives
Interest rate swap on loans		1,249		-		1,249		-
Accrued interest payable		1,972		-		1,972		-

Note 10. Segment Reporting

The Company operates in a decentralized fashion in three principal business segments: the Bank, Wealth, and the Company (for purposes of this Note, the Parent). Revenues from the Bank’s operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Wealth’s operating revenues consist principally of income from fiduciary and asset management fees. The Parent’s revenues are mainly interest and dividends received from the Bank and Wealth. The Company has no other segments. The 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.

22

Information about reportable segments, and reconciliation of such information to the Consolidated Financial Statements as of and for the three months ended March 31, 2024 and 2023 follows:

	Three Months Ended March 31, 2024
(dollars in thousands)	Bank		Wealth		Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	17,341	$	42	$	800		$	(800	)	$	17,383
Income from fiduciary activities		-		1,217		-			(25	)		1,192
Other income		1,834		211		50			(65	)		2,030
Total operating income		19,175		1,470		850			(890	)		20,605
Expenses
Interest expense		5,548		-		295			-			5,843
Provision for credit losses		80		-		-			-			80
Salaries and employee benefits		6,641		1,024		191			(25	)		7,831
Other expenses		4,485		398		54			(65	)		4,872
Total operating expenses		16,754		1,422		540			(90	)		18,626
Income (loss) before taxes		2,421		48		310			(800	)		1,979
Income tax expense (benefit)		353		12		(103	)		-			262
Net income	$	2,068	$	36	$	413		$	(800	)	$	1,717
Capital expenditures	$	799	$	-	$	-		$	-		$	799
Total assets	$	1,436,417	$	7,250	$	137,600		$	(135,778	)	$	1,445,489

23

	Three Months Ended March 31, 2023
(dollars in thousands)	Bank		Wealth		Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	15,121	$	32	$	3,505		$	(3,505	)	$	15,153
Income from fiduciary activities		-		1,116		-			-			1,116
Other income		2,066		254		50			(65	)		2,305
Total operating income		17,187		1,402		3,555			(3,570	)		18,574
Expenses
Interest expense		2,045		-		295			-			2,340
Provision for credit losses		376		-		-			-			376
Salaries and employee benefits		6,085		1,074		204			-			7,363
Other expenses		4,481		304		85			(65	)		4,805
Total operating expenses		12,987		1,378		584			(65	)		14,884
Income (loss) before taxes		4,200		24		2,971			(3,505	)		3,690
Income tax expense (benefit)		713		6		(112	)		-			607
Net income	$	3,487	$	18	$	3,083		$	(3,505	)	$	3,083
Capital expenditures	$	130	$	-	$	-		$	-		$	130
Total assets	$	1,407,919	$	7,093	$	132,434		$	(131,295	)	$	1,416,151

The accounting policies of the segments are the same as those described in the summary of significant accounting policies reported in the Company’s 2023 Form 10-K. The Company evaluates performance based on profit or loss from operations before income taxes, not including nonrecurring gains or losses.

24

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

The following discussion is intended to assist readers in understanding and evaluating the results of operations, financial condition, liquidity, and capital resources of the Company, consisting of the parent company (the Parent) and its wholly-owned subsidiaries, the Bank and Wealth. This discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements, the notes to the financial statements, and the other financial information contained elsewhere in this report, as well as the Company’s 2023 Form 10-K. In addition to current and historical information, the following discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to the Company’s future business, financial condition, or results of operations. For a description of certain factors that may have a significant impact on the Company’s future business, financial condition, or results of operations, see “Cautionary Statement Regarding Forward-Looking Statements” at the end of this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Results of operations for the three months ended March 31, 2024 and 2023 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.

Overview

The Company’s primary goals are to maximize earnings by maintaining strong asset quality and deploying capital in profitable growth initiatives that will enhance long-term stockholder value. The Company operates in three principal business segments: the Bank, Wealth, and the Company as a separate segment, the Parent. Revenues from the Bank’s operations consist primarily of interest earned on loans and investment securities, fees earned on deposit accounts, debit card interchange, and treasury and commercial services and mortgage banking income. Wealth’s operating revenues consist principally of income from fiduciary and asset management fees. The Parent’s revenues are mainly fees and dividends received from the Bank and Wealth.

Net income for the three months ended March 31, 2024 was $1.7 million ($0.34 diluted earnings per share) compared to $3.1 million ($0.62 per diluted share) for the three months ended March 31, 2023.

25

Key highlights of the first quarter are as follows, with comparisons against the three months ended March 31, 2023 unless otherwise stated:

• During the first quarter of 2024, the Company continued a series of initiatives that began in late 2023, to reduce noninterest expense. The noninterest expense reduction initiatives are expected to reduce noninterest expense by approximately $5.0 million on an annualized pre-tax basis (excluding one-time costs). Part of these initiatives is the difficult, but important, decision to reduce our employee headcount by approximately 12%, saving approximately $3.7 million annually (excluding one-time costs) and having a meaningful impact on the Company’s earnings and efficiency ratios going forward. During the first quarter of 2024, the Company incurred one-time costs of $345 thousand related to these initiatives. These initiatives are expected to have a minimal positive impact on the Company’s earnings in the second quarter of 2024 due to additional one-time costs, but earnings should begin to reflect the impact of these initiatives in the third quarter of 2024 with substantially all benefits realized by mid-2025.

• Total assets were $1.4 billion at March 31, 2024, decreasing $893 thousand or 0.06% from December 31, 2023. Net loans held for investment were $1.1 billion at March 31, 2024, decreasing $12.1 million, or 1.1%, from December 31, 2023.

• Total deposits decreased $2.1 million, or 0.2%, from December 31, 2023.

• Return on average equity (ROE) was 6.4% for the first quarter of 2024, compared to 5.9% for the fourth quarter of 2023, 5.3% for the third quarter of 2023, and 12.5% for the first quarter of 2023.

• Net income improved $234 thousand, or 15.8%, to $1.7 million for the first quarter of 2024 from $1.5 million for the fourth quarter of 2023. Net income improved $356 thousand, or 26.1% from $1.4 million for the third quarter of 2023. Net income decreased $1.4 million, or 44.3%, from $3.1 million in the first quarter of 2023.

• Net interest margin (NIM) was 3.45% in the first quarter of 2024 compared to 4.02% in the first quarter of 2023.  NIM on a fully tax-equivalent basis (FTE) (non-GAAP) was 3.46% in the first quarter of 2024 compared to 4.04% in the first quarter of 2023.

• Net interest income for the first quarter of 2024, decreased $321 thousand, or 2.7%, compared to the prior quarter and $1.3 million, or 9.9%, compared to the first quarter of 2023.

• Provision for credit losses of $80 thousand was recognized for the first quarter of 2024, compared to $1.4 million for the fourth quarter of 2023 and $376 thousand for the first quarter of 2023.

• Non-performing assets stayed flat at $2.2 million or 0.15% of total assets at March 31, 2024 compared to December 31, 2023.

• Liquidity as of March 31, 2024, defined as cash and cash equivalents, unpledged securities, and available secured borrowing capacity, totaled $379.2 million, representing 26.2% of total assets compared to $342.5 million, representing 23.7% of total assets as of December 31, 2023.

For more information about financial measures that are not calculated in accordance with GAAP, please see “Non-GAAP Financial Measures” below.

Capital Management and Dividends

Total equity was $107.6 million as of March 31, 2024, compared to $106.8 million at December 31, 2023. Total equity increased $852 thousand at March 31, 2024 compared to December 31, 2023, due primarily to an increase in earnings, partially offset by unrealized losses in the market value of securities available-for-sale, which are recorded as a component of accumulated other comprehensive income (loss), and cash dividend payments. The Company’s securities available for sale are fixed income and variable rate debt securities, and their unrealized loss position is a result of increases in market interest rates rather than credit quality issues. The Company does not expect these unrealized losses to affect the earnings or regulatory capital of the Company or its subsidiaries.

For the first quarter of 2024, the Company declared dividends of $0.14 per share, consistent with the first quarter of 2023. The dividend represents a payout ratio of 41.1% of EPS for the first three months of 2024. The Board of Directors of the Company continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital requirements, and expected future earnings. 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. See “Table 13. Regulatory Capital” below for additional information.

26

At March 31, 2024, the book value per share of the Company’s common stock was $21.35, and tangible book value per share (non-GAAP) was $20.99, compared to $21.19 and $20.82, respectively, at December 31, 2023. Refer to “Non-GAAP Financial Measures,” below, for information about non-GAAP financial measures, including a reconciliation to the most directly comparable financial measures calculated in accordance with U.S. GAAP.

Critical Accounting Estimates

The accounting and reporting policies of 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 in the Company’s consolidated financial position and/or results of operations. Those accounting policies with the greatest uncertainty and that require management’s most difficult, subjective, or complex judgments affecting the application of these policies, and the greatest likelihood that materially different amounts would be reported under different conditions, or using different assumptions, are described below.

For further information on the Company’s critical accounting estimates, refer to “Note 1. Description of Business and Summary of Significant Accounting Policies” and under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in its 2023 Form 10-K.

Allowance for Credit Losses on Loans

The ACLL represents the estimated balance the Company considers adequate to absorb expected credit losses over the expected contractual life of the loan portfolio. The ACLL is estimated using a loan-level discounted cash flows method for all loans with the exception of its automobile, farmland, and consumer portfolios. For the automobile, farmland, and consumer portfolios, the Company has elected to pool those loans based on similar risk characteristics to determine the ACLL using the remaining life method.

Determining the appropriateness of the ACLL is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACLL in future periods. There are both internal factors (i.e., loan balances, credit quality, and the contractual lives of loans) and external factors (i.e., economic conditions such as trends in interest rates, GDP, inflation, and unemployment) that can impact the ACLL estimate.

For instance, the Company considers the Virginia and regional unemployment rate as an external economic variable in developing the ACLL. The quantitative ACLL estimate is sensitive to changes in the unemployment rate. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans and therefore the appropriateness of the ACLL, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall ACLL because changes in those factors and inputs may not occur at the same rate and may not be consistent across all loan types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

The Company reviews its ACLL estimation process regularly for appropriateness as the economic and internal environment are constantly changing. While the ACLL estimate represents management’s current estimate of expected credit losses, due to uncertainty surrounding internal and external factors, there is potential that the estimate may not be adequate over time to cover credit losses in the portfolio. While management uses available information to estimate expected losses on loans, future changes in the ACLL may be necessary based on changes in portfolio composition, portfolio credit quality, economic conditions and/or other factors.

For further information on the Company’s critical accounting estimates, refer to “Note 1. Description of Business and Summary of Significant Accounting Policies” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in its 2023 Form 10-K.

Results of Operations

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 NIM is calculated by dividing net interest income by average earning assets, or on a fully tax-equivalent basis, tax-equivalent net interest income by average earning assets.

27

Net interest income for the first quarter of 2024 was $11.5 million, a decrease of $1.3 million, or 9.9%, from the first quarter of 2023. The decrease from the prior year quarter is due primarily to higher average interest-bearing liabilities at higher average rates partially offset by higher average yields on earning asset balances due to the effect of rising market interest rates.

Net interest income, on a fully tax-equivalent basis (non-GAAP), was $11.6 million for the first quarter of 2024, a decrease of $1.3 million from the 2023 comparative quarter. NIM for the first quarter of 2024 was 3.45%, a decrease from 4.02% for the prior year quarter. On a fully tax-equivalent basis (non-GAAP), NIM was 3.46% and 4.04% for the three months ended March 31, 2024 and 2023, respectively. For more information on these FTE financial measures, please see “Non-GAAP Financial Measures” below.

Average earning asset balances for the first quarter increased $50.9 million compared to the first quarter of 2023 with yields on average earning assets increasing 43 basis points due to deployment of liquidity into higher earning assets and the effects of the rising interest rate environment.

Average loans increased $21.0 million, or 2.0% for the three months ended March 31, 2024, compared to the same period of 2023.  The increase in average loans outstanding in 2024 compared to 2023 was due primarily to growth in construction and land development, residential real estate, and commercial real estate segments of the loan portfolio. Average loan yields were higher for the first quarter of 2024 by 41 basis points compared to the same period of 2023 due primarily to the effects of rising interest rates.

Average securities available for sale decreased $23.1 million for the three months ended March 31, 2024, compared to the same period in 2023, due primarily to fluctuations in fair market value, maturities, and principal paydowns. The average yield on the investment securities portfolio on a taxable-equivalent basis increased 26 basis points for the first three months of 2024, compared to the same period in 2023 due primarily to the effects of rising interest rates on the Company’s variable rate investment securities portfolio.

Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the FRB, increased $51.3 million for the first quarter of 2024, compared to the respective period in 2023 due primarily to deployment of liquidity in loans held for investment. The average yield on interest-bearing deposits in other banks increased 159 basis points for the first quarter of 2024 compared to the same period in 2023 due to rising interest rates. The FRB interest rate on excess cash reserve balances was 5.40 percent at March 31, 2024.

Average interest-bearing liabilities increased $121.8 million for the first quarter of 2024 compared to the same period of 2023, with costs increasing 129 basis points. The higher interest cost of interest-bearing liabilities was due to higher interest rates on money market and time deposits as well as additional borrowing costs associated with FHLB advances during the period to help fund loan growth, partially offset by increases in noninterest-bearing demand deposits and declines in savings and time deposits. Average money market and interest-bearing demand deposits increased $23.3 million and $24.2 million for the first quarter of 2024, respectively, and average time deposits increased $89.5 million for the first quarter of 2024, compared to the same period in 2023. Average savings deposits declined $26.8 million for the first quarter of 2024, compared to the same period in 2023. Average noninterest-bearing demand deposits decreased $77.7 million for the first quarter of 2024, compared to the same period in 2023. The average cost of interest-bearing deposits increased 145 basis points for the first quarter of 2024 compared to the same period in 2023, due primarily to higher rates on deposits driven by depositors seeking increased yields and competitive pricing pressures. While changes in rates take effect immediately for interest checking, money market and savings accounts, changes in the average cost of time deposits lag changes in pricing based on the repricing of time deposits at maturity and the pace with which customers move funds from other deposit products into or out of time deposit products.

During 2023, market interest rates increased, and while the Company expects asset yields to continue to rise, the cost of funds are also expected to rise. The extent to which rising interest rates will ultimately affect the Company’s NIM is uncertain.

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

28

Table 1: Average Balance Sheets, Net Interest Income and Rates

	For the quarters ended March 31,
	2024								2023
(dollars in thousands)	Average Balance			Interest Income/ Expense		Yield/ Rate**			Average Balance			Interest Income/ Expense		Yield/ Rate**
Assets
Loans*	$	1,076,894		$	14,544		5.42	%	$	1,055,878		$	13,042		5.01	%
Investment securities:
Taxable		175,241			1,798		4.12	%		186,292			1,764		3.84	%
Tax-exempt*		26,115			176		2.70	%		38,206			268		2.85	%
Total investment securities		201,356			1,974		3.93	%		224,498			2,032		3.67	%
Interest-bearing due from banks		57,921			799		5.53	%		6,596			64		3.94	%
Federal funds sold		709			9		5.09	%		577			6		4.23	%
Other investments		5,201			94		7.27	%		3,632			66		7.32	%
Total earning assets		1,342,081		$	17,420		5.21	%		1,291,181		$	15,210		4.78	%
Allowance for credit losses		(12,393	)							(11,339	)
Other non-earning assets		105,193								104,511
Total assets	$	1,434,881							$	1,384,353
Liabilities and Stockholders’ Equity
Interest-bearing deposits:
Interest-bearing transaction accounts	$	94,434		$	3		0.01	%	$	70,254		$	3		0.02	%
Money market deposit accounts		452,198			2,587		2.29	%		428,941			842		0.80	%
Savings accounts		89,035			7		0.03	%		115,880			9		0.03	%
Time deposits		238,076			2,172		3.66	%		148,563			537		1.47	%
Total time and savings deposits		873,743			4,769		2.19	%		763,638			1,391		0.74	%
Federal funds purchased, repurchase agreements and other borrowings		2,484			1		0.16	%		7,959			37		1.91	%
Federal Home Loan Bank advances		69,716			778		4.48	%		52,626			617		4.69	%
Long term borrowings		29,680			295		3.99	%		29,551			295		4.00	%
Total interest-bearing liabilities		975,623			5,843		2.40	%		853,774			2,340		1.11	%
Demand deposits		344,098								421,779
Other liabilities		8,209								8,347
Stockholders’ equity		106,951								100,453
Total liabilities and stockholders’ equity	$	1,434,881							$	1,384,353
Net interest margin				$	11,577		3.46	%				$	12,870		4.04	%

*Computed on a fully tax-equivalent basis using a 21% rate, adjusting interest income

by $37 thousand and $57 thousand for the three months ended March 31, 2024 and 2023, respectively.

**Annualized

Interest income and expense are affected by fluctuations in interest rates, by changes in volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. The following table shows the direct causes of the period-to-period changes in the components of net interest income.  The Company calculates the rate and volume variances using a formula prescribed by the SEC. Rate/volume variances, the third element in the calculation, are not show separately in the table, but are allocated to the rate and volume variances in proportion to the absolute dollar amounts of each.

29

Table 2: Volume and Rate Analysis*

	For the three months ended March 31, 2024 from 2023 Increase (Decrease)
	Due to Changes in:
(dollars in thousands)	Volume			Rate			Total
Earning Assets
Loans*	$	260		$	1,242		$	1,502
Investment securities:
Taxable		(105	)		139			34
Tax-exempt*		(85	)		(7	)		(92	)
Total investment securities		(190	)		132			(58	)
Federal funds sold		1			2			3
Other investments**		527			237			764
Total earning assets		598			1,613			2,211
Interest-Bearing Liabilities
Interest-bearing transaction accounts		1			(1	)		-
Money market deposit accounts		46			1,699			1,745
Savings accounts		(2	)		-			(2	)
Time deposits		324			1,311			1,635
Total time and savings deposits		369			3,009			3,378
Federal funds purchased, repurchase agreements and other borrowings		(25	)		(10	)		(35	)
Federal Home Loan Bank advances		200			(39	)		161
Long term borrowings		1			(1	)		-
Total interest-bearing liabilities		545			2,959			3,504
Change in net interest income	$	53		$	(1,346	)	$	(1,293	)

* Computed on a fully tax-equivalent basis, non-GAAP, using a 21% rate.

** Other investments include interest-bearing balances due from banks.

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, inflationary pressures, the timing and extent of any economic recovery, which are inherently uncertain; (2) possible changes in the composition of earning assets which may result from decreased loan demand as a result of the current economic environment; and (3) possible changes in the composition of interest-bearing liabilities, which may result from decreased deposit balances or increased competition for deposits, or from changes in the availability of certain types of wholesale funding.

Provision for Credit Losses

For the three months ended March 31, 2024, the Company recognized a provision for credit losses of $80 thousand compared to $376 thousand for the three months ended March 31, 2023.  The provision for credit losses for the first quarter of 2024 included a provision for loans of $78 thousand and a provision for unfunded commitments of $2 thousand. Charged-off loans totaled $494 thousand and $449 thousand in the first three months of 2024 and 2023, respectively. Recoveries amounted to $158 thousand and $270 thousand for the three months ended March 31, 2024 and 2023, respectively. The Company’s annualized net loans charged off to average loans were 0.12% for the first quarter of 2024 compared to 0.07% for the first quarter of 2023. The decreased provision for credit losses for the three months ended March 31, 2024 compared to the same period in 2023 is primarily due to the reduction in size of the loan portfolio.

The state of the local economy can have a significant impact on the level of loan charge-offs. If the economy begins to contract, nonperforming assets could increase as a result of declines in real estate values and home sales or increases in unemployment rates and financial stress on borrowers. Increased nonperforming assets would increase charge-offs and reduce earnings due to larger contributions to the provision for credit losses.

Noninterest Income

Total noninterest income was $3.2 million for the first quarter of 2024, decreasing $199 thousand compared to the first quarter of 2023. The decrease over the prior year quarter was primarily driven by decreases in other service charges, commissions and fees and mortgage banking income, partially offset by increases in fiduciary and asset management fees. The decrease in mortgage banking income for the first quarter of 2024 compared to the first quarter of 2023 was due to declines in volume of mortgage originations attributable to changes in mortgage market conditions.

30

Noninterest Expense

Noninterest expense totaled $12.7 million for the first quarter of 2024 compared to $12.2 million for the first quarter of 2023. The increase over the prior year quarter was primarily driven by increased salaries and employee benefit expense, data processing, and other operating expenses, partially offset by declines in expenses for customer development and professional services.  The increase in salaries and employee benefits in the first quarter of 2024 was primarily driven by higher average headcount and one-time costs related to the cost savings initiatives. The noninterest expense reduction initiatives reduced this employee headcount late in the first quarter of 2024 and into the second quarter by approximately 12%.

The Company’s income tax expense decreased $345 thousand for the first quarter of 2024 compared to the first quarter of 2023 primarily due to changes in the levels of pre-tax income and the mix of effective tax-exempt income. The effective federal income tax rate for the three months ended March 31, 2024 was 13.2% and the effective tax rate for the three months ended March 31, 2023 was 16.5%.

Balance Sheet Review

As of March 31, 2024, the Company had total assets of $1.4 billion, a decrease of $893 thousand compared to assets at December 31, 2023.

Net loans held for investment decreased $12.1 million or 1.1%, from December 31, 2023 to $1.1 billion as of March 31, 2024, driven by the following: decreases to consumer and commercial loans of $12.3 million and $7.4 million respectively, partially offset by increases to construction loans of $2.8 million, residential real estate loans of $3.6 million, and commercial real estate loans of $1.3 million. Cash and cash equivalents increased $14.6 million from December 31, 2023 to March 31, 2024. Securities available-for-sale, at fair value, decreased $4.5 million from December 31, 2023 to $199.8 million as of March 31, 2024 driven primarily by maturities and principal pay downs.

Total deposits of $1.2 billion as of March 31, 2024 decreased $2.1 million, or 0.2% from December 31, 2023. Savings deposits decreased $23.0 million, or 3.5%, time deposits decreased $2.3 million, or 0.9%, and noninterest-bearing deposits increased $23.1 million, or 7.0%.

The Company utilizes FHLB advances as a primary source of liquidity as needed. As of March 31, 2024 and December 31, 2023, the Company had FHLB advances of $69.5 million for both periods. Overnight repurchase agreements decreased $699 thousand as the Company used excess liquidity to pay down high cost borrowed funds.

Securities Portfolio

When comparing March 31, 2024 to December 31, 2023, securities available-for-sale decreased $4.5 million, or 2.2%, due to maturities and normal cash flows from the portfolio. The Company’s strategy for the securities portfolio is primarily intended to manage the portfolio’s susceptibility to interest rate risk and to provide liquidity to fund loan growth. The securities portfolio is also adjusted to achieve other asset/liability objectives, including pledging requirements, and to manage tax exposure when necessary.

The following table sets forth a summary of the securities portfolio in dollar amounts at fair value and as a percentage of the Company’s total securities available-for-sale as of the dates indicated:

Table 3: Securities Portfolio

	March 31,				December 31,
(dollars in thousands)	2024				2023
U.S. Treasury securities	$	3,844	2	%	$	3,857	2	%
Obligations of U.S. Government agencies		39,866	20	%		42,735	21	%
Obligations of state and political subdivisions		50,058	24	%		50,597	24	%
Mortgage-backed securities		79,128	39	%		81,307	39	%
Money market investments		2,827	1	%		2,047	1	%
Corporate bonds and other securities		24,075	12	%		23,735	11	%
		199,798	98	%		204,278	98	%
Restricted securities:
Federal Home Loan Bank stock	$	4,305	2	%		4,242	2	%
Federal Reserve Bank stock		892	-			892	-
Community Bankers’ Bank stock		42	-			42	-
		5,239				5,176
Total Securities	$	205,037	100	%	$	209,454	100	%

31

The following table summarizes the contractual maturity of the securities portfolio and their weighted average yields as of March

31, 2024.

Table 4: Maturity of Securities

(dollars in thousands)	1 year or less			1-5 years			5-10 years			Over 10 years			Total
U.S. Treasury securities	$	-		$	3,844		$	-		$	-		$	3,844
Weighted average yield		-			1.70	%		-			-			1.70	%
Obligations of U.S. Government agencies	$	1,368		$	2,764		$	1,457		$	34,277		$	39,866
Weighted average yield		1.12	%		2.52	%		4.15	%		6.51	%		5.87	%
Obligations of state and political subdivisions	$	-		$	1,444		$	21,725		$	26,889		$	50,058
Weighted average yield		0.00	%		2.73	%		2.27	%		2.34	%		2.32	%
Mortgage-backed securities	$	-		$	10,889		$	-		$	68,239		$	79,128
Weighted average yield		-			2.29	%		0.00	%		3.17	%		3.03	%
Money market investments	$	2,827		$	-		$	-		$	-		$	2,827
Weighted average yield		3.57	%		-			-			-			3.57	%
Corporate bonds and other securities	$	-		$	-		$	24,075		$	-		$	24,075
Weighted average yield		-			-			4.42	%		-			4.43	%
Total Securities	$	4,195		$	18,941		$	47,257		$	129,405		$	199,798
Weighted average yield		2.77	%		2.23	%		3.42	%		3.90	%		3.61	%

The table above is based on maturity; therefore, it does not reflect cash flow from principal payments or prepayments prior to maturity. The weighted average yield is calculated on a fully tax-equivalent basis using a 21% rate on a pro rata basis for each security based on its relative amortized cost.

For more information about the Company’s securities available-for-sale, including information about securities in an unrealized loss position as of March 31, 2024 and December 31, 2023, see Part I, Item 1, “Financial Statements” under the heading “Note 2. Securities” in this Quarterly Report on Form 10-Q.

Loan Portfolio

The following table shows a breakdown of total loans by segment at March 31, 2024 and December 31, 2023.

Table 5: Loan Portfolio

	March 31,		December 31,
(dollars in thousands)	2024		2023
Commercial and industrial	$	57,195	$	64,112
Real estate-construction		109,971		107,179
Real estate-mortgage (1)		287,461		283,853
Real estate-commercial (2)		442,998		441,716
Consumer (3)		167,832		180,155
Other		2,446		3,237
Ending Balance	$	1,067,903	$	1,080,252

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

(2) The real estate-commercial segment included commercial-owner occupied and commercial non-owner occupied.

(3) The consumer segment includes consumer automobile loans.

32

The maturity distribution and rate sensitivity of the Company’s loan portfolio as of March 31, 2024 is presented below:

Table 6: Maturity/Repricing Schedule of Loan Portfolio

	As of March 31, 2024
(dollars in thousands)	Commercial and industrial		Real estate- construction		Real estate- mortgage (1)		Real estate- commercial (2)		Consumer (3)		Other		Total
Variable Rate:
Within 1 year	$	12,199	$	67,506	$	64,735	$	47,696	$	7,510	$	2,027	$	201,673
1 to 5 years		-		328		27,929		26,784		2		127		55,170
5 to 15 years		-		3,989		40,821		-		27		-		44,837
After 15 years		-		-		-		-		-		-		-
Fixed Rate:
Within 1 year	$	1,643	$	5,090	$	6,416	$	31,612	$	1,181	$	-	$	45,942
1 to 5 years		26,939		20,376		43,314		202,766		99,907		-		393,302
5 to 15 years		16,414		12,639		38,391		132,569		50,308		292		250,613
After 15 years		-		43		65,855		1,571		8,897		-		76,366
	$	57,195	$	109,971	$	287,461	$	442,998	$	167,832	$	2,446	$	1,067,903

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

(2) The real estate-commercial segment included commercial-owner occupied and commercial non-owner occupied.

(3) The consumer segment includes consumer automobile loans.

For more information about the Company’s loan portfolio as of March 31, 2024 and December 31, 2023, see Part I, Item 1, “Financial Statements” under the heading “Note 3. Loans and the Allowance for Credit Losses on Loans” in this Quarterly Report on Form 10-Q.

Nonperforming Assets

The following table summarizes information concerning credit ratios and nonperforming assets as of March 31, 2024 and December 31, 2023.

The Company continued to experience low levels of NPAs in the three months ended March 31, 2024, however, the economic environment could impact performance, which could increase NPAs in future periods. Refer to Part I, Item 1, “Financial Statements” under the heading “Note 3. Loans and the Allowance for Credit Losses on Loans” in this Quarterly Report on Form 10-Q for more information.

Table 7: Nonperforming Assets

	March 31,			December 31,
(dollars in thousands)	2024			2023
Total loans	$	1,067,903		$	1,080,252
Nonaccrual loans		194			188
Loans past due 90 days or more and accruing interest		878			1,780
Repossessed assets		1,080			215
Total Nonperforming Assets	$	2,152		$	2,183
ACLL	$	11,948		$	12,206
Nonaccrual loans to total loans		0.02	%		0.02	%
ACLL to total loans		1.12	%		1.13	%
ACLL to nonaccrual loans		6158.76	%		6492.55	%

As shown in the table above, as of March 31, 2024 compared to December 31, 2023, the nonaccrual loan category increased by $6 thousand or 3.2%, the 90 days past due and still accruing category decreased by $902 or 50.7% and the repossessed assets category increased by $865 or 402.3%.

Management believes the Company has excellent credit quality review processes in place to identify problem loans quickly. For a detailed discussion of the Company’s nonperforming assets, refer to Part I, Item 1, “Financial Statements” under the heading “Note 3. Loans and the Allowance for Credit Losses on Loans” in this Quarterly Report on Form 10-Q.

Allowance for Credit Losses

As of March 31, 2024, the ACL was $12.2 million and included an ACLL of $12.0 million and an allowance for unfunded commitments of $239 thousand. The decrease in the ACL during the first three months of 2024 was due to the reduction in the size of the loan portfolio, primarily the consumer automobile segment (within the consumer segment). The consumer automobile segment declined $12.2 million, or 7.6% during the first quarter of 2024. The following table summarizes the ACL as of March 31, 2024:

33

Table 8: Allowance for Credit Losses

	March 31,		December 31,
(dollars in thousands)	2024		2023
Total ACLL	$	11,948	$	12,206
Total reserve for unfunded commitments		239		236
Total ACL	$	12,187	$	12,442

For more information regarding the ACL and ACLL, refer to “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” of the Company’s 2023 Form 10-K and Part I, Item 1, “Financial Statements” under the heading “Note 3. Loans and the Allowance for Credit Losses on Loans” in this Quarterly Report on Form 10-Q.

The ACLL represents an amount that, in management’s judgement, will be adequate to absorb expected credit losses in the loan portfolio; however, if elevated levels of risk are identified, provision for credit losses may increase in future periods.  The following tables present the Company’s loan loss experience for the periods indicated:

Table 9: Allowance for Credit Losses on Loans

For the three months ended March 31, 2024

(dollars in thousands)	Commercial and Industrial			Real Estate Construction			Real Estate - Mortgage (1)			Real Estate - Commercial			Consumer (2)			Other			Unallocated		Total
Allowance for credit losses on loans:
Balance, beginning	$	573		$	982		$	2,904		$	5,742		$	1,827		$	178		$	-	$	12,206
Charge-offs		-			-			-			-			(462	)		(32	)		-		(494	)
Recoveries		4			-			13			11			123			7			-		158
Provision for credit losses		(91	)		33			(72	)		(129	)		294			43			-		78
Ending Balance	$	486		$	1,015		$	2,845		$	5,624		$	1,782		$	196		$	-	$	11,948
Average loans	$	63,092		$	109,761		$	285,125		$	443,149		$	174,014		$	1,753				$	1,076,894
Ratio of net charge-offs (recoveries) to average loans		-0.01	%		0.00	%		0.00	%		0.00	%		0.19	%		1.43	%				0.03	%

For the three months ended March 31, 2023

(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	$	673		$	552		$	2,575		$	4,499		$	2,065		$	156		$	6		$	10,526
Day 1 impact of adoption of CECL		(11	)		19			87			1,048			(365	)		(137	)		-			641
Charge-offs		-			-			-			-			(377	)		(72	)		-			(449	)
Recoveries		8			-			11			-			237			14			-			270
Provision for loan losses		(6	)		82			199			70			81			143			(6	)		563
Ending Balance	$	664		$	653		$	2,872		$	5,617		$	1,641		$	104		$	-		$	11,551
Average loans	$	77,014		$	81,771		$	268,620		$	425,751		$	200,020		$	2,702					$	1,055,878
Ratio of net charge-offs (recoveries) to average loans		-0.01	%		0.00	%		0.00	%		0.00	%		0.07	%		2.15	%					0.02	%

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

(2) The consumer segment included consumer automobile loans.

The following table shows the amount of the ACLL allocated to each category and the ratio of corresponding outstanding loan balances as of March 31, 2024 and December 31, 2023. Although the ACLL is allocated into these categories, the entire ACLL is available to cover credit losses in any category.

34

Table 10: Allocation of the Allowance for Credit Losses on Loans

	March 31,					December 31,
	2024					2023
(dollars in thousands)	Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans
Commercial and industrial	$	486		4.07	%	$	573		5.93	%
Real estate-construction		1,015		8.50	%		982		9.92	%
Real estate-mortgage (1)		2,845		23.81	%		2,904		26.28	%
Real estate-commercial		5,624		47.07	%		5,742		40.89	%
Consumer (2)		1,782		14.91	%		1,827		16.68	%
Other		196		1.64	%		178		0.30	%
Ending Balance	$	11,948		100.00	%	$	12,206		100.00	%

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

(2) The consumer segment included consumer automobile loans.

Deposits

The Company’s predominant source of funds is depository accounts, which are comprised of demand deposits, savings and money market accounts and time deposits. The Company’s deposits are principally provided by individuals and businesses located within the communities served.

As of March 31, 2024, total deposits were $1.2 billion, a decrease of $2.1 million, or 0.2%, compared to December 31, 2023. The following table presents average balances and average rates paid on deposits for the periods presented.

TABLE 11: Deposits

	Three Months ended March 31,
	2024					2023
(Dollars in thousands)	Average Balance		Average Rate			Average Balance		Average Rate
Interest-bearing transaction	$	94,434		0.01	%	$	70,254		0.02	%
Money market		452,198		2.29	%		428,941		0.80	%
Savings		89,035		0.03	%		115,880		0.03	%
Time deposits		238,076		3.66	%		148,563		1.47	%
Total interest bearing		873,743		2.19	%		763,638		0.74	%
Demand		344,098					421,779
Total deposits	$	1,217,841				$	1,185,417

The average rate paid on interest-bearing deposits by the Company for the three months ended March 31, 2024 was 2.19% compared to 0.74% for the three months ended March 31, 2023. Interest bearing, money market, and time deposits had the largest increases from the same period in the prior year, totaling $24.2 million, $23.3 million, and $89.5 million, while savings and demand deposits decreased $26.8 million and $85.8 million as seen in the table above. The increase in money market and time deposits was driven in part by depositors seeking increased yields. The Company remains focused on increasing lower-cost deposits by actively targeting new noninterest-bearing deposits and savings deposits.

As of March 31, 2024 and December 31, 2023, the estimated amounts of total uninsured deposits were approximately $212.3 million and $220.3 million or 17.3% and 17.9% of total deposits, respectively. The following table shows maturities of the estimated amounts of uninsured time deposits as of March 31, 2024. The estimate of uninsured deposits generally represents deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank’s regulatory reporting requirements.

35

Table 12: Maturities of Uninsured Time Deposits

	As of March 31,
(dollars in thousands)	2024
Maturing in:
Within 3 months	$	21,969
4 through 6 months		23,644
7 through 12 months		16,973
Greater than 12 months		9,936
	$	72,522

Capital Resources

Total stockholders’ equity as of March 31, 2024 was $107.6 million, up 0.8% from $106.8 million on December 31, 2023. The increase was primarily related to earnings, partially offset by unrealized losses in the market value of securities available-for-sale, which are recorded as a component of accumulated other comprehensive loss, and cash dividend payments. The unrealized loss in market value of securities available-for-sale was a result of rising market interest rates rather than credit quality issues. The Company does not expect these unrealized losses to affect the earnings or regulatory capital of the Company or its subsidiaries.

The assessment of capital adequacy depends on such factors as asset quality, liquidity, earnings performance, and changing competitive conditions and economic forces. The adequacy of the Company’s and the Bank’s capital is regularly reviewed. The Company targets regulatory capital levels that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses. While the Company will continue to look for opportunities to invest capital in profitable growth, the Company will also consider investing capital in other transactions, such as share repurchases, that facilitate improving shareholder return, as measured by ROE and EPS.

The Bank’s capital position remains strong as evidenced by the regulatory capital measurements. Under the banking regulations, Total Capital is composed of core capital (Tier 1) and supplemental capital (Tier 2). Tier 1 capital consists of common stockholders’ equity less goodwill. Tier 2 capital consists of certain qualifying debt and a qualifying portion of the ACL. In addition, the Bank has made the one-time irrevocable election to continue treating accumulated other comprehensive income (loss) under regulatory standards that were in place prior to the Basel III Capital Rules in order to eliminate volatility of regulatory capital that can result from fluctuations in accumulated other comprehensive income (loss) and the inclusion of accumulated other comprehensive income (loss) in regulatory capital, as would otherwise be required under the Basel III Capital Rule. As a result of this election, changes in accumulated other comprehensive income (loss), including unrealized losses on securities available for sale, do not affect regulatory capital amounts shown in the table below for the Bank, but transactions that would cause the Bank to realize such unrealized losses would affect such regulatory capital amounts.

Pursuant to applicable regulations and regulatory guidance, the Company is treated as a small bank holding company and will not be subject to regulatory capital requirements. For more information, refer to “Regulation and Supervision” included in Item 1, “Business” of the Company’s 2023 Form 10-K.

On September 17, 2019, the FDIC 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 leverage ratio of greater than 9%, 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 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 banks to begin using in their March 31, 2020, Call Report. The Bank did not opt into the CBLR framework.

The following is a summary of the Bank’s capital ratios as of March 31, 2024 and December 31, 2023. As shown below, these ratios were all well above the recommended regulatory minimum levels.

36

Table 13: Regulatory Capital

(dollars in thousands)	2024 Regulatory Minimums			March 31, 2024			2023 Regulatory Minimums			December 31, 2023
Common Equity Tier 1 Capital to Risk-Weighted Assets		4.500	%		11.72	%		4.500	%		11.45	%
Tier 1 Capital to Risk-Weighted Assets		6.000	%		11.72	%		6.000	%		11.45	%
Total Capital to Risk-Weighted Assets		8.000	%		12.73	%		8.000	%		12.46	%
Tier 1 Leverage to Average Assets		4.000	%		9.76	%		4.000	%		9.46	%
Risk-Weighted Assets				$	1,205,523					$	1,222,320

The Basel III Capital Rules established a “capital conservation buffer” of 2.5 percent above the regulatory minimum risk-based capital ratios, which is not included in the table above.  Including the capital conservation buffer, the minimum ratios are a Common Equity Tier 1 capital risk-based ratio of 7.0 percent, a Tier 1 capital risk-based ratio of 8.5 percent, and a Total capital risk-based ratio of 10.5 percent.  The Bank exceeded these ratios as of March 31, 2024 and December 31, 2023.

On July 14, 2021, the Company issued $30.0 million ($29.4 million, net of issuance costs) of 3.5 percent 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 3.5 percent for five years and convert to three-month SOFR plus 286 basis points, resetting quarterly, thereafter.  The Notes were structured to qualify as Tier 2 capital of the Company for regulatory purposes (should the Company be subject to regulatory capital requirements) and are included in the Company’s Tier 2 capital as of March 31, 2024 and December 31, 2023.

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. Additional sources of liquidity available to the Company include cash flows from operations, loan payments and payoffs, deposit growth, maturities, calls and sales of securities, the issuance of brokered certificates of deposits and the capacity to borrow additional funds.

A major source of the 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 and FRB. As of March 31, 2024, the Company had $431.3 million in total FHLB borrowing availability based on loans and securities currently available for pledging and of that amount, the Company’s remaining availability totaled $361.8 million. 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.

Based on the Company’s management of liquid assets, the availability of borrowed funds and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and to meet its customers’ future borrowing needs. The Bank also participates in the IntraFi Cash Sweep, a product which provides the Bank the capability of providing additional deposit insurance to customers through three types of account arrangements. The Company experienced a change in liquidity mix beginning during the fourth quarter of 2022 and continuing throughout 2023 as short-term FHLB borrowings were utilized to fund loan growth. Notwithstanding the foregoing, the Company’s ability to maintain sufficient liquidity may be affected by numerous factors, including economic conditions nationally and in the Company’s markets. The Company is closely monitoring changes in the industry and market conditions that may affect the Company’s liquidity, including the potential impacts on the Company’s liquidity of declines in the fair value of the Company’s securities portfolio as a result of rising market interest rates and developments in the financial services industry that may change the availability of traditional sources of liquidity or market expectations with respect to available sources and amounts of additional liquidity. 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 operations.

The following table sets forth information relating to the Company’s sources of liquidity and the outstanding commitments for use of liquidity as of March 31, 2024. Dividing the total short-term sources of liquidity by the outstanding commitments for use of liquidity derives the liquidity coverage ratio.

37

Table 14: Liquidity Sources and Uses

	March 31, 2024
(dollars in thousands)	Total		In Use			Available
Sources:
Federal funds lines of credit	$	90,000	$	-		$	90,000
Federal Home Loan Bank advances		431,281		(69,450	)		361,831
Federal funds sold & balances at the Federal Reserve		76,408		-			76,408
Securities, available for sale and unpledged at fair value		114,859		-			114,859
Total funding sources	$	712,548	$	(69,450	)	$	643,098
Uses: (1)
Unfunded loan commitments and lending lines of credit						$	87,727
Letters of credit							262
Total potential short-term funding uses						$	87,989
Liquidity coverage ratio							730.9	%

(1) Represents partial draw levels based on loan segment.

As a result of the ability to generate liquidity through liability funding and management of liquid assets, management believes the Company maintains overall liquidity sufficient to satisfy operational requirements and contractual obligations. The Company’s internal sources of liquidity are deposits, loan and investment repayments and securities available-for-sale. The Company’s primary external source of liquidity is advances from the FHLB.

In the ordinary course of business, the Company has entered into contractual obligations and has made other commitments to make future payments. As of March 31, 2024, there have been no material changes outside the ordinary course of business as disclosed in the Company’s contractual obligations disclosed in the Company’s 2023 Form 10-K.

Off-Balance Sheet Arrangements

As of March 31, 2024, there were no material changes in the Company’s off-balance sheet arrangements disclosed in the Company’s 2023 Form 10-K.

Non-GAAP Financial Measures

In reporting the results as of and for the three months ended March 31, 2024, the accounting and reporting policies of the Company conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company’s performance which include financial measures presented on a tax equivalent, tangible, or adjusted basis.

Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods, other financial institutions, and between different sources of interest income. The non-GAAP measures used by management enhance comparability by excluding the effects of balances of intangible assets, including goodwill, that vary significantly between institutions, and tax benefits that are not consistent across different opportunities for investment. These non-GAAP financial measures should not be considered an alternative to GAAP-basis financial statements, and other bank holding companies may define or calculate these or similar measures differently. 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.

38

Table 15: Non-GAAP Financial Measures

	Three Months Ended
(dollar in thousands, except share and per share data)	March 31, 2024			December 31, 2023			March 31, 2023
Fully Taxable Equivalent Net Interest Income
Net interest income (GAAP)	$	11,540		$	11,861		$	12,813
FTE adjustment		37			38			57
Net interest income (FTE) (non-GAAP)	$	11,577		$	11,899		$	12,870
Noninterest income (GAAP)		3,222			3,493			3,421
Total revenue (FTE) (non-GAAP)	$	14,799		$	15,392		$	16,291
Noninterest expense (GAAP)		12,703			12,211			12,168
Average earning assets	$	1,342,081		$	1,365,072		$	1,291,181
Net interest margin		3.45	%		3.45	%		4.02	%
Net interest margin (FTE) (non-GAAP)		3.46	%		3.46	%		4.04	%
Efficiency ratio		86.05	%		79.53	%		74.95	%
Efficiency ratio (FTE) (non-GAAP)		85.83	%		79.34	%		74.69	%
Tangible Book Value Per Share
Total Stockholders Equity (GAAP)	$	107,630		$	106,778		$	102,598
Less goodwill		1,650			1,650			1,650
Less core deposit intangible		176			187			220
Tangible Stockholders Equity (non-GAAP)	$	105,804		$	104,941		$	100,728
Shares issued and outstanding, including nonvested restricted stock		5,040,391			5,040,095			5,000,331
Book value per share	$	21.35		$	21.19		$	20.52
Tangible book value per share	$	20.99		$	20.82		$	20.14

39

Cautionary Statement Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q, including without limitation, statements regarding the Company’s expense reduction initiative, which use language such as “believes,” “expects,” “plans,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends” and similar expressions, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current beliefs of the Company’s management, as well as estimates and assumptions made by, and information available to, management, as of the time such statements are made. These statements are also subject to assumptions with respect to future business strategies and decisions that are subject to change. These statements are inherently uncertain, and there can be no assurance that the underlying beliefs, estimates, or assumptions will prove to be accurate. Actual results, performance, achievements, or trends could differ materially from historical results or those expressed or implied by such statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company or its businesses or operations. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: statements regarding strategic business initiatives and the future financial impact of those initiatives; expected future operations and financial performance; efficiency and expense reduction initiatives, including the estimated effects and estimated future cost savings thereof; future financial and economic conditions, industry conditions, and loan demand; the Company’s strategic focuses; impacts of economic uncertainties; performance of the loan and securities portfolios, asset quality; revenue generation; deposit growth; levels and sources of liquidity and capital resources; future levels of the allowance for loans losses, charge-offs or net recoveries; levels of or changes in interest rates and potential impacts on the Company’s NIM; changes in NIM and items affecting NIM; expected future recovery of investments in debt securities; expected impact of unrealized losses on earnings and regulatory capital of the Company or the Bank; liquidity and capital levels; cybersecurity risks; inflation; the effect of future market and industry trends; and other statements that include projections, predictions, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact.

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 including, but not limited to, changes in or the effects of:

• interest rates and yields, such as increases or volatility in short-term interest rates or yields on U.S. Treasury bonds and increase or volatility in U.S. Treasury bonds and increases or volatility in mortgage interest rates, and the impacts on macroeconomic conditions, customer and client behavior, the Company’s funding costs, and the Company’s loan and securities portfolios;

• inflation and its impacts on economic growth and customer and client behavior;

• adverse developments in the financial services industry, such as the bank failures in 2023, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior;

• the sufficiency of liquidity and regulatory capital;

• general economic and business conditions in the United States generally and particularly in the Company’s service area, including unemployment levels, supply chain disruptions, higher inflation, slowdowns in economic growth and the impacts on customer and client behavior;

• conditions within the financial markets and in the banking industry, as well as the financial condition and capital adequacy of other participants in the banking industry, and the market reactions thereto;

• monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve, the effect of these policies on interest rates and business in our markets and any changes associated with the current administration;

• conditions in the banking industry and the financial condition and capital adequacy of other participants in the banking industry, and market, supervisory and regulatory reactions thereto;

• the quality or composition of the loan or securities portfolios and changes therein;

• effectiveness of expense control initiatives;

• an insufficient ACL or volatility in the ACL resulting from the CECL methodology, either alone or as may be affected by inflation, changing interest rates, or other factors;

• the Company’s liquidity and capital positions;

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

• deposit flows;

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

• the legislative/regulatory 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;

• future levels of government defense spending particularly in the Company’s service areas;

• uncertainty over future federal spending or budget priorities, particularly in connection with the Department of Defense, on the Company’s service areas;

• the impact of changes in the political landscape and related policy changes, including monetary, regulatory and trade policies;

• the U.S. Government’s guarantee of repayment of student or small business loans purchased by the Company;

40

• potential claims, damages and fines related to litigation or government actions;

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

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

• the effects of management’s investment strategy and strategy to manage the NIM;

• the level of net charge-offs on loans;

• performance of the Company’s dealer/indirect lending program;

• the strength of the Company’s counterparties;

• the Company’s ability to compete in the market for financial services and increased competition from both banks and non-banks, including fintech companies;

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

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

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

• reliance on third parties for key services;

• cyber threats, attacks, or events;

• the impact of changes in the political landscape and related policy changes, including monetary, regulatory, and trade policies;

• the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, financial crises, political crises, war, and other geopolitical conflicts, such as the war between Russia and Ukraine or in the Middle East, or public health events, and of governmental and societal responses thereto, on, among other things, the Company’s operations, liquidity, and credit quality;

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

• technological risks and developments;

• the commercial and residential real estate markets;

• the demand in the secondary residential mortgage loan markets;

• expansion of the Company’s product offerings;

• effectiveness of expense control initiatives;

• changes in management; and

• changes in accounting principles, standards, policies, guidelines and interpretations and elections made by the Company thereunder, and the related impact on the Company’s financial statements.

These risks and uncertainties, and the factors discussed in more detail in Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s 2023 Form 10-K should be considered in evaluating the forward-looking statements contained herein. Forward-looking statements are not statements of historical fact.  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 does not intend or assume any obligation to update, revise, or clarify any forward-looking statements that may be made from time to time or on behalf of the Company, whether as a result of new information, future events, or otherwise, except as otherwise required by law. In addition, past results of operations are not necessarily indicative of future results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures. Management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Company’s management, including the 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.

41

Management’s Report on Internal Control over Financial Reporting. Management of the Company is also responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  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. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Changes in Internal Controls. There were no changes in the Company’s internal control over financial reporting during the Company’s first quarter ended March 31, 2024, 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.

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.

Item 1A. Risk Factors.

An investment in the Company’s securities involves risks. In addition to the other information set forth in this Quarterly Report on Form 10-Q, including the information addressed under “Cautionary Statement Regarding Forward-Looking Statements,” investors in the Company’s securities should carefully consider the risk factors discussed in the Company’s 2023 Form 10-K. These factors could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, and capital position and could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report.

There have been no material changes in the risk factors faced by the Company from those disclosed in the Company’s 2023 Form 10-K.

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

Pursuant to the 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 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 months ended March 31, 2024, the Company did not repurchase any shares related to the equity compensation plan awards.

During the three months ended March 31, 2024, the Company did not have an effective share repurchase program that was authorized by the Company’s Board of Directors.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act informed us of the adoption or termination of any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

42

Item 6. Exhibits.

Exhibit No.	Description
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)
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 quarterly report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL, filed herewith: (i) Consolidated Balance Sheets (unaudited for March 31, 2024), (ii) Consolidated Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in 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 March 31, 2024, formatted in Inline XBRL (included with Exhibit 101)

43

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
Date: May 14, 2024	/s/Robert F. Shuford, Jr.
	Robert F. Shuford, Jr.
	Chairman, President & Chief Executive Officer
	(Principal Executive Officer)
Date: May 14, 2024	/s/Paul M. Pickett
	Paul M. Pickett
	Chief Financial Officer & Senior Vice President/Finance
	(Principal Financial & Accounting Officer)

44