Old Point Financial (OPOF) 10-Q 2024 Q3 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 September 30, 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 November 7, 2024 was 5,077,695 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 September 30, 2024 (unaudited) and December 31, 2023	1
	Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2024 and 2023	2
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2024 and 2023	3
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2024 and 2023	4
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 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	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	48
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
	Signatures	51

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
ALCO	Asset-Liability Committee
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
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

	September 30,			December 31,
(dollars in thousands, except per share amounts)	2024			2023
Assets	(unaudited)
Cash and due from banks	$	20,582		$	16,778
Interest-bearing due from banks		155,708			63,539
Federal funds sold		565			489
Cash and cash equivalents		176,855			80,806
Securities available-for-sale, at fair value		193,840			202,231
Restricted securities, at cost		3,845			5,176
Loans held for sale		-			470
Loans, net		1,014,012			1,068,046
Premises and equipment, net		30,411			29,913
Premises and equipment, held for sale		344			344
Bank-owned life insurance		35,909			35,088
Goodwill		1,650			1,650
Core deposit intangible, net		154			187
Repossessed assets		1,701			215
Other assets		19,288			22,256
Total assets	$	1,478,009		$	1,446,382
Liabilities & Stockholders’ Equity
Deposits:
Noninterest-bearing deposits	$	353,118		$	331,992
Savings deposits		665,848			655,694
Time deposits		263,820			242,711
Total deposits		1,282,786			1,230,397
Overnight repurchase agreements		1,777			2,383
Federal Home Loan Bank advances		40,000			69,450
Subordinated notes, net		29,766			29,668
Accrued expenses and other liabilities		8,223			7,706
Total liabilities		1,362,552			1,339,604
Stockholders’ equity:
Common stock, $5 par value, 10,000,000 shares authorized; 5,077,695 and 5,040,095 shares outstanding (includes 66,464 and 53,660 of nonvested restricted stock, respectively)		25,056			24,932
Additional paid-in capital		17,402			17,099
Retained earnings		86,323			82,277
Accumulated other comprehensive loss, net		(13,324	)		(17,530	)
Total stockholders’ equity		115,457			106,778
Total liabilities and stockholders’ equity	$	1,478,009		$	1,446,382

See accompanying notes to consolidated financial statements.

1

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Income

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(unaudited, dollars in thousands, except per share amounts)	2024			2023		2024			2023
Interest and dividend income:
Loans, including fees	$	14,733		$	14,311	$	44,319		$	41,537
Due from banks		1,842			838		3,728			995
Federal funds sold		11			9		32			24
Securities:
Taxable		1,732			1,788		5,291			5,324
Tax-exempt		138			159		416			580
Dividends and interest on all other securities		64			84		235			229
Total interest and dividend income		18,520			17,189		54,021			48,689
Interest expense:
Checking and savings deposits		2,940			2,060		8,236			4,483
Time deposits		2,554			2,456		7,063			4,412
Federal funds purchased, securities sold under agreements to repurchase and other borrowings		-			-		2			39
Federal Home Loan Bank advances		420			952		1,868			2,532
Long-term borrowings		296			295		886			885
Total interest expense		6,210			5,763		18,055			12,351
Net interest income		12,310			11,426		35,966			36,338
Provision for credit losses		282			505		623			1,242
Net interest income after provision for credit losses		12,028			10,921		35,343			35,096
Noninterest income:
Fiduciary and asset management fees		1,126			1,012		3,447			3,282
Service charges on deposit accounts		858			751		2,453			2,297
Other service charges, commissions and fees		1,070			1,119		3,103			3,255
Bank-owned life insurance income		285			263		820			776
Mortgage banking income (loss)		(2	)		144		16			351
Gain (loss) on sale of available-for-sale securities, net		-			30		-			(134	)
Loss on sale of repossessed assets		(25	)		-		(61	)		(69	)
Gain on sale of fixed assets		-			-		-			200
Other operating income		160			163		387			422
Total noninterest income		3,472			3,482		10,165			10,380
Noninterest expense:
Salaries and employee benefits		7,382			7,830		22,408			23,236
Occupancy and equipment		1,242			1,241		3,788			3,691
Data processing		1,304			1,300		4,012			3,743
Customer development		113			159		344			373
Professional services		966			636		2,231			2,065
Employee professional development		191			257		569			780
Other taxes		268			251		805			698
Other operating expenses		928			1,207		3,264			3,610
Total noninterest expense		12,394			12,881		37,421			38,196
Income before income taxes		3,106			1,522		8,087			7,280
Income tax expense		724			160		1,459			1,033
Net income	$	2,382		$	1,362	$	6,628		$	6,247
Basic Earnings per Share:
Weighted average shares outstanding		5,076,957			5,037,558		5,060,440			5,020,269
Net income per share of common stock	$	0.47		$	0.27	$	1.31		$	1.24
Diluted Earnings per Share:
Weighted average shares outstanding		5,076,957			5,037,662		5,060,505			5,020,447
Net income per share of common stock	$	0.47		$	0.27	$	1.31		$	1.24

See accompanying notes to consolidated financial statements.

2

Old Point Financial Corporation

Consolidated Statements of Comprehensive Income (Loss)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(unaudited, dollars in thousands)	2024		2023			2024		2023
Net income	$	2,382	$	1,362		$	6,628	$	6,247
Other comprehensive income (loss), net of tax
Net unrealized gain (loss) on available-for-sale securities		3,974		(3,859	)		4,206		(2,979	)
Reclassification for (gain) loss included in net income		-		(24	)		-		106
Other comprehensive income (loss), net of tax		3,974		(3,883	)		4,206		(2,873	)
Comprehensive income (loss)	$	6,356	$	(2,521	)	$	10,834	$	3,374

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 share and per share data)	Stock		Stock		Capital			Earnings			Loss			Total
Three months ended September 30, 2024
Balance at June 30, 2024		5,009,412	$	25,047	$	17,248		$	84,999		$	(17,298	)	$	109,996
Net income		-		-		-			2,382			-			2,382
Other comprehensive income, net of tax		-		-		-			-			3,974			3,974
Employee Stock Purchase Plan share issuance		1,819		9		24			-			-			33
Impact of adoption of new accounting pronouncement		-		-		-			(347	)		-			(347	)
Share-based compensation expense		-		-		130			-			-			130
Cash dividends ($0.14 per share)		-		-		-			(711	)		-			(711	)
Balance at September 30, 2024		5,011,231	$	25,056	$	17,402		$	86,323		$	(13,324	)	$	115,457
Three months ended September 30, 2023
Balance at June 30, 2023		4,977,276	$	24,886	$	16,777		$	80,636		$	(19,757	)	$	102,542
Net income		-		-		-			1,362			-			1,362
Other comprehensive loss, net of tax		-		-		-			-			(3,883	)		(3,883	)
Employee Stock Purchase Plan share issuance		2,274		12		28			-			-			40
Restricted stock vested		3,923		19		(19	)		-			-			-
Share-based compensation expense		-		-		171			-			-			171
Cash dividends ($0.14 per share)		-		-		-			(706	)		-			(706	)
Balance at September 30, 2023		4,983,473	$	24,917	$	16,957		$	81,292		$	(23,640	)	$	99,526

											Accumulated
	Shares of				Additional						Other
	Common		Common		Paid-in			Retained			Comprehensive
(unaudited dollars in thousands, except per share amounts)	Stock		Stock		Capital			Earnings			Loss			Total
Nine months ended September 30, 2024
Balance at December 31, 2023		4,986,435	$	24,932	$	17,099		$	82,277		$	(17,530	)	$	106,778
Net income		-		-		-			6,628			-			6,628
Other comprehensive income, net of tax		-		-		-			-			4,206			4,206
Employee Stock Purchase Plan share issuance		5,684		28		64			-			-			92
Restricted stock vested		19,112		96		(96	)		-			-			-
Impact of adoption of new accounting pronouncement		-		-		-			(455	)		-			(455	)
Share-based compensation expense		-		-		335			-			-			335
Cash dividends ($0.42 per share)		-		-		-			(2,127	)		-			(2,127	)
Balance at September 30, 2024		5,011,231	$	25,056	$	17,402		$	86,323		$	(13,324	)	$	115,457
Nine months ended September 30, 2023
Balance at December 31, 2022		4,952,094	$	24,761	$	16,593		$	78,147		$	(20,767	)	$	98,734
Net income		-		-		-			6,247			-			6,247
Other comprehensive loss, net of tax		-		-		-			-			(2,873	)		(2,873	)
Impact of adoption of new accounting pronouncement		-		-		-			(991	)		-			(991	)
Employee Stock Purchase Plan share issuance		5,453		27		74			-			-			101
Restricted stock vested		25,926		129		(129	)		-			-			-
Share-based compensation expense		-		-		419			-			-			419
Cash dividends ($0.42 per share)		-		-		-			(2,111	)		-			(2,111	)
Balance at September 30, 2023		4,983,473	$	24,917	$	16,957		$	81,292		$	(23,640	)	$	99,526

See accompanying notes to consolidated financial statements.

4

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
(unaudited, dollars in thousands)	2024			2023
Operating activities:
Net income	$	6,628		$	6,247
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,617			1,631
Amortization of right of use lease assets		403			333
Accretion related to acquisition, net		33			33
Amortization of subordinated debt issuance costs		98			98
Provision for credit losses		623			1,242
Loss on sale of securities, net		-			134
Net amortization of securities		425			564
Decrease in loans held for sale, net		470			129
Net gain on disposal of premises and equipment		-			(200	)
Net loss on write-down/sale of repossessed assets		61			69
Income from bank owned life insurance		(820	)		(776	)
Stock compensation expense		335			419
Increase (decrease) in other assets		930			(2,635	)
Increase in accrued expenses and other liabilities		505			704
Net cash provided by operating activities		11,308			7,992
Investing activities:
Purchases of available-for-sale securities		(2,100	)		(11,733	)
Proceeds from redemption (cash used in purchases) of restricted securities, net		1,331			(681	)
Proceeds from maturities and paydowns of available-for-sale securities		1,170			200
Proceeds from sales of available-for-sale securities		-			19,821
Paydowns on available-for-sale securities		14,220			11,308
Net decrease (increase) in loans held for investment		51,937			(56,267	)
Purchases of premises and equipment		(2,115	)		(885	)
Proceeds from sale of premises and equipment		-			839
Net cash provided by (used in) investing activities		64,443			(37,398	)
Financing activities:
Increase (decrease) in noninterest-bearing deposits		21,126			(70,266	)
Increase in savings deposits		10,154			35,272
Increase in time deposits		21,109			116,583
Decrease in federal funds purchased, repurchase agreements and other borrowings, net		(606	)		(15,042	)
Increase in Federal Home Loan Bank advances		104,336			347,850
Repayment of Federal Home Loan Bank advances		(133,786	)		(324,500	)
Proceeds from Employee Stock Purchase Plan issuance		92			101
Cash dividends paid on common stock		(2,127	)		(2,111	)
Net cash provided by financing activities		20,298			87,887
Net increase in cash and cash equivalents		96,049			58,481
Cash and cash equivalents at beginning of period		80,806			21,066
Cash and cash equivalents at end of period	$	176,855		$	79,547
Supplemental disclosures of cash flow information
Cash payments for:
Interest	$	17,941		$	11,399
Income tax	$	200		$	2,101
Supplemental schedule of noncash transactions
Unrealized gain (loss) on securities available-for-sale	$	5,324		$	(3,636	)
Loans transferred to repossessed assets	$	1,547		$	-
Impact of adoption of new accounting pronouncements	$	455		$	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 September 30, 2024, the Bank had 13 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 Company’s financial position at September 30, 2024 and December 31, 2023, the statements of income, comprehensive income (loss), and changes in stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and the statements of cash flows for the nine months ended September 30, 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.

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 prior year's net income or total equity.

Recent Accounting Pronouncements

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.

6

In November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures about a reportable segment profit or loss and assets currently required by FASB ASU Topic 280 to be made in interim periods, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within 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 impact on its consolidated financial statements.

In November 2024, FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact 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:

	September 30, 2024
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		(Losses)			Value
U.S. Treasury securities	$	4,044	$	-	$	(111	)	$	3,933
Obligations of U.S. Government agencies		33,887		235		(288	)		33,834
Obligations of state and political subdivisions		57,814		16		(6,180	)		51,650
Mortgage-backed securities		85,961		121		(7,688	)		78,394
Corporate bonds and other securities		29,000		-		(2,971	)		26,029
	$	210,706	$	372	$	(17,238	)	$	193,840

	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
Corporate bonds and other securities		27,500		-		(3,765	)		23,735
	$	224,421	$	264	$	(22,454	)	$	202,231

7

The amortized cost and fair value of securities at September 30, 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.

	September 30, 2024
	Amortized			Fair
(dollars in thousands)	Cost			Value
Due in one year or less		$	1,501		$	1,485
Due after one year through five years			19,984			19,053
Due after five through ten years			55,659			49,844
Due after ten years			133,562			123,458
		$	210,706		$	193,840

	December 31, 2023
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	1,570	$	1,541
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
	$	224,421	$	202,231

The following table shows realized gains or losses on the sale of investment securities during the three and nine months ended September 30, 2024 and 2023, respectively.

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
(dollars in thousands)	2024			2023				2024			2023
Realized gains on sales of securities		$	-		$	1,061			$	-		$	1,061
Realized losses on sales of securities			-			(1,031	)			-			(1,195	)
Net realized gain (loss)		$	-		$	30			$	-		$	(134	)

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 September 30, 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:

	September 30, 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	$	-	$	-	$	111	$	3,933	$	111	$	3,933		1
Obligations of U.S. Government agencies		7		2,003		281		17,190		288		19,193		32
Obligations of state and political subdivisions		-		-		6,180		50,646		6,180		50,646		42
Mortgage-backed securities		1		1,101		7,687		73,892		7,688		74,993		40
Corporate bonds and other securities		207		2,293		2,764		23,736		2,971		26,029		25
Total securities available-for-sale	$	215	$	5,397	$	17,023	$	169,397	$	17,238	$	174,794		140

	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 September 30, 2024 and December 31, 2023 were 140 and 150, respectively. The Company concluded no ACL should be recognized as of September 30, 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 September 30, 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:

	September 30,		December 31,
(dollars in thousands)	2024		2023
Mortgage loans on real estate:
Residential 1-4 family	$	183,091	$	188,517
Commercial - owner occupied		133,991		156,466
Commercial - non-owner occupied		304,331		285,250
Multifamily		39,232		29,207
Construction and land development		90,555		107,179
Second mortgages		10,428		10,148
Equity lines of credit		59,901		55,981
Total mortgage loans on real estate		821,529		832,748
Commercial and industrial loans		51,947		64,112
Consumer automobile loans		130,210		160,437
Other consumer loans		18,500		19,718
Other  (1)		3,526		3,237
Total loans, net of deferred fees (2)		1,025,712		1,080,252
Less:  Allowance for credit losses on loans		11,700		12,206
Loans, net of allowance and deferred fees (2)	$	1,014,012	$	1,068,046

(1) Overdrawn accounts are reclassified as loans and included in the Other category in the table above.  Overdrawn deposit accounts totaled $425 thousand and $244 thousand at September 30, 2024 and December 31, 2023, respectively.

(2) Net deferred loan fees totaled $1.0 million on September 30, 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. Any accrued interest receivable on loans placed on nonaccrual status is reversed by an adjustment to interest income. 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 September 30, 2024 and December 31, 2023.

9

Age Analysis of Past Due Loans as of September 30, 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	$	-	$	-	$	-	$	41	$	183,050	$	183,091
Commercial - owner occupied		-		-		374		-		133,617		133,991
Commercial - non-owner occupied		11,751		185		-		-		292,395		304,331
Multifamily		-		-		-		-		39,232		39,232
Construction and land development		-		-		-		-		90,555		90,555
Second mortgages		-		-		19		-		10,409		10,428
Equity lines of credit		117		99		-		44		59,641		59,901
Total mortgage loans on real estate	$	11,868	$	284	$	393	$	85	$	808,899	$	821,529
Commercial and industrial loans		724		749		86		-		50,388		51,947
Consumer automobile loans		2,355		466		336		-		127,053		130,210
Other consumer loans		37		286		94		-		18,083		18,500
Other		28		6		-		-		3,492		3,526
Total	$	15,012	$	1,791	$	909	$	85	$	1,007,915	$	1,025,712

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 September 30, 2024 and December 31, 2023.

	Nonaccrual				Nonaccrual with no ACLL
(dollars in thousands)	September 30, 2024		December 31, 2023		September 30, 2024		December 31, 2023
Mortgage loans on real estate:
Residential 1-4 family	$	41	$	142	$	41	$	-
Commercial - non-owner occupied		-		-		-		-
Second mortgages		-		-		-		-
Equity lines of credit		44		46		-		-
Total mortgage loans on real estate		85		188		41		-
Commercial and industrial loans		-		-		-		-
Consumer automobile loans		-		-		-		-
Other consumer loans		-		-		-		-
Total	$	85	$	188		41		-

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 and nine months ended September 30, 2024 and September 30, 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 nine months ended September 30, 2024 and September 30, 2023.

Allowance for Credit Losses and Recorded Investment in Loans

For the Nine Months Ended September 30, 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		(163	)		-			-			-			(1,198	)		(165	)		-		(1,526	)
Recoveries		8			-			26			12			324			39			-		409
Provision for (recovery of) loan losses		24			(129	)		(29	)		(160	)		729			176			-		611
Ending Balance	$	442		$	853		$	2,901		$	5,594		$	1,682		$	228		$	-	$	11,700

For the Nine Months Ended September 30, 2023

(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	$	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		(159	)		-		-		-		(813	)		(228	)		-			(1,200	)
Recoveries		64			-		28		-		393			41			-			526
Provision for (recovery of) loan losses		78			258		192		244		270			315			(6	)		1,351
Ending Balance	$	645		$	829	$	2,882	$	5,791	$	1,550		$	147		$	-		$	11,844

(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 included consumer automobile loans.

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

	Three Months Ended September 30,					Nine Months Ended September 30,
(dollars in thousands)	2024			2023		2024		2023
Provision for credit losses:
Provision for loans	$	342		$	478	$	611	$	1,351
Provision for (recovery of) unfunded commitments		(60	)		27		12		(109	)
Total	$	282		$	505	$	623	$	1,242

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:

	September 30, 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	$	23,765	$	33,523	$	28,783	$	1,503	$	1,803	$	292	$	886	$	90,555
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total construction and land development	$	23,765	$	33,523	$	28,783	$	1,503	$	1,803	$	292	$	886	$	90,555
Commercial real estate - owner occupied
Pass	$	7,238	$	9,427	$	27,689	$	20,510	$	11,002	$	57,394	$	725	$	133,985
OAEM		-		-		-		-		-		6		-		6
Substandard		-		-		-		-		-		-		-		-
Total commercial real estate - owner occupied	$	7,238	$	9,427	$	27,689	$	20,510	$	11,002	$	57,400	$	725	$	133,991
Commercial real estate - non-owner occupied
Pass	$	3,218	$	33,721	$	66,168	$	102,785	$	39,557	$	45,934	$	424	$	291,807
OAEM		-		-		-		11,751		-		773		-		12,524
Substandard		-		-		-		-		-		-		-		-
Total commercial real estate - non-owner occupied	$	3,218	$	33,721	$	66,168	$	114,536	$	39,557	$	46,707	$	424	$	304,331
Commercial and industrial
Pass	$	4,079	$	13,956	$	14,307	$	3,322	$	1,095	$	5,681	$	9,507	$	51,947
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total commercial and industrial	$	4,079	$	13,956	$	14,307	$	3,322	$	1,095	$	5,681	$	9,507	$	51,947
Multifamily real estate
Pass	$	-	$	7,625	$	1,352	$	2,099	$	586	$	22,664	$	4,906	$	39,232
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total multifamily real estate	$	-	$	7,625	$	1,352	$	2,099	$	586	$	22,664	$	4,906	$	39,232
Residential 1-4 family
Pass	$	7,352	$	34,061	$	39,474	$	33,339	$	25,554	$	56,135	$	57,461	$	253,376
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		44		-		44
Total residential 1-4 family	$	7,352	$	34,061	$	39,474	$	33,339	$	25,554	$	56,179	$	57,461	$	253,420
Consumer - automobile
Pass	$	17,086	$	37,825	$	60,537	$	8,477	$	2,423	$	3,862	$	-	$	130,210
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total consumer - automobile	$	17,086	$	37,825	$	60,537	$	8,477	$	2,423	$	3,862	$	-	$	130,210
Consumer - other
Pass	$	1,005	$	220	$	375	$	257	$	38	$	14,638	$	1,967	$	18,500
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total consumer - other	$	1,005	$	220	$	375	$	257	$	38	$	14,638	$	1,967	$	18,500
Other
Pass	$	2,259	$	-	$	-	$	274	$	-	$	993	$	-	$	3,526
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total other	$	2,259	$	-	$	-	$	274	$	-	$	993	$	-	$	3,526
Total loans
Pass	$	66,002	$	170,358	$	238,685	$	172,566	$	82,058	$	207,593	$	75,876	$	1,013,138
OAEM		-		-		-		11,751		-		779		-		12,530
Substandard		-		-		-		-		-		44		-		44
Total loans	$	66,002	$	170,358	$	238,685	$	184,317	$	82,058	$	208,416	$	75,876	$	1,025,712

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 nine months ended September 30, 2024 and September 30, 2023:

	September 30, 2024
	Current Period Charge-offs by Origination Year
(dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial	$	28	$	18	$	108	$	-	$	-	$	9	$	-	$	163
Consumer - automobile		-		312		655		160		34		28		-		1,189
Consumer - other		-		-		-		-		-		9		-		9
Other (1)		165		-		-		-		-		-		-		165
Total	$	193	$	330	$	763	$	160	$	34	$	46	$	-	$	1,526

(1) Gross charge-offs of other loans for the nine months ended September 30, 2024 included $165 thousand of demand deposit overdrafts that originated in 2024.

	September 30, 2023
	Current Period Charge-offs by Origination Year
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial	$	-	$	140	$	15	$	4	$	-	$	-	$	-	$	159
Consumer - automobile		9		382		267		68		18		51		-		795
Consumer - other		-		-		5		-		3		10		-		18
Other (1)		206		22		-		-		-		-		-		228
Total	$	215	$	544	$	287	$	72	$	21	$	61	$	-	$	1,200

(1) Gross charge-offs of other loans for the nine months ended September 30, 2023 included $206 thousand of demand deposit overdrafts that originated in 2023.

As of September 30, 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 was 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 assets and lease liabilities are included in “Other Assets” and “Other Liabilities,” respectively, in the Consolidated Balance Sheets. There were no new leases executed during the nine months ended September 30, 2024. The following tables present information about the Company’s leases:

(dollars in thousands)	September 30,2024				December 31, 2023
Lease liabilities		$	937			$	1,248
Right-of-use assets		$	745			$	1,148
Weighted average remaining lease term	2.81 years				3.37 years
Weighted average discount rate			3.20	%			3.06	%

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2024		2023		2024		2023
Operating lease cost	$	91	$	131	$	403	$	333
Total lease cost	$	91	$	131	$	403	$	333
Cash paid for amounts included in the measurement of lease liabilities	$	103	$	108	$	320	$	311

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)	September 30, 2024
Three months ending December 31, 2024	$	103
Twelve months ending December 31, 2025		382
Twelve months ending December 31, 2026		278
Twelve months ending December 31, 2027		208
Twelve months ending December 31, 2028		24
Total undiscounted cash flows	$	995
Discount		(58	)
Lease liabilities	$	937

Note 5. Low-Income Housing Tax Credits

The Company was invested in four separate housing equity funds at both September 30, 2024 and December 31, 2023. The general purpose of these funds is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia; develop and implement strategies to maintain projects as low-income housing; deliver Federal Low Income Housing Credits to investors; allocate tax losses and other possible tax benefits to investors; and preserve and protect project assets.

The investments in these funds were recorded as other assets on the consolidated balance sheets and were $754 thousand and $1.1 million at September 30, 2024 and December 31, 2023, respectively. The expected terms of these investments and the related tax benefits run through 2033. There were no additional capital calls expected for the funds at September 30, 2024.

During 2024, the Company adopted ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,” (“ASC 323”). These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The adoption resulted in an adjustment of $455 thousand, which reduced the investment balance and stockholders’ equity.

Note 6. 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 both September 30, 2024 and December 31, 2023, the remaining credit available from these lines totaled $90.0 million. The Company has a secured credit line with the FHLB with remaining credit availability of $384.3 million and $362.1 million as of September 30, 2024 and December 31, 2023, respectively.

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

(dollars in thousands)	September 30, 2024			December 31, 2023
Overnight repurchase agreements	$	1,777		$	2,383
Federal Home Loan Bank advances		-			9,450
Total short-term borrowings	$	1,777		$	11,833
Maximum month-end outstanding balance (year-to-date)	$	41,682		$	84,360
Average outstanding balance during the period	$	44,432		$	53,466
Average interest rate (year-to-date)		4.49	%		4.90	%
Average interest rate at end of period		0.01	%		5.65	%

16

Long-Term Borrowings

The Company had long-term FHLB advances totaling $40.0 million outstanding at September 30, 2024 with scheduled maturities through July 9, 2029 and rates ranging from 3.69% to 4.33%. 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 7. 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. Financial instruments whose contract amounts represent credit risk were outstanding as of September 30, 2024 and December 31, 2023 were as follows:

	September 30,		December 31,
(dollars in thousands)	2024		2023
Commitments to extend credit:
Home equity lines of credit	$	93,266	$	91,885
Commercial real estate, construction and development loans committed but not funded		50,862		74,218
Other lines of credit (principally commercial)		46,273		47,622
Total	$	190,401	$	213,725
Letters of credit	$	2,693	$	802

Note 8. 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 the year ended December 31, 2023 and for the first nine months of 2024.

Total stock purchases under the ESPP amounted to 5,684 shares during the nine months ended September 30, 2024. At September 30, 2024, the Company had 208,669 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 September 30, 2024, only restricted stock had been granted under the Incentive Stock Plan.

17

Restricted stock activity for the nine months ended September 30, 2024 and September 30, 2023 is summarized below:

				Weighted Average
				Grant Date
	Shares			Fair Value
Nonvested, December 31, 2023		53,660		$	22.32
Issued		37,674			14.05
Vested		(19,112	)		19.95
Forfeited		(5,758	)		18.79
Nonvested, September 30, 2024		66,464		$	18.62

				Weighted Average
				Grant Date
	Shares			Fair Value
Nonvested, December 31, 2022		46,989		$	22.49
Issued		35,013			17.20
Vested		(25,926	)		20.25
Forfeited		(1,483	)		17.20
Nonvested, September 30, 2023		54,593		$	20.30

The weighted average period over which nonvested awards are expected to be recognized in compensation expense is 1.66 years.

The remaining unrecognized compensation expense for nonvested restricted stock shares totaled $643 thousand as of September 30, 2024 and $523 thousand as of December 31, 2023.

Stock-based compensation expense was $130 thousand and $171 thousand for the three months ended September 30, 2024 and 2023, respectively, and $335 thousand and $419 thousand for the nine months ended September 30, 2024 and 2023, respectively.

Note 9. Stockholders’ Equity and Earnings per Common Share

Stockholders’ Equity – Accumulated Other Comprehensive Income (Loss)

The following tables present amounts reclassified out of accumulated other comprehensive income (loss), by category, during the three and nine months ended September 30, 2024 and 2023, respectively.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,					Affected Line Item on Consolidated Statement of Income
(dollars in thousands)	2024		2023			2024		2023
Sale of securities
Realized gain (loss) on sale of securities	$	-	$	30		$	-	$	(134	)	Loss on sale of securities, net
Tax effect		-		(6	)		-		28		Income tax expense
	$	-	$	24		$	-	$	(106	)

18

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 September 30, 2024
Balance at beginning of period	$	(17,298	)	$	(17,298	)
Net other comprehensive income		3,974			3,974
Balance at end of period	$	(13,324	)	$	(13,324	)
Three Months Ended September 30, 2023
Balance at beginning of period	$	(19,757	)	$	(19,757	)
Net other comprehensive loss		(3,883	)		(3,883	)
Balance at end of period	$	(23,640	)	$	(23,640	)

(dollars in thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Accumulated Other Comprehensive (Loss) Income
Nine Months Ended September 30, 2024
Balance at beginning of period	$	(17,530	)	$	(17,530	)
Net other comprehensive income		4,206			4,206
Balance at end of period	$	(13,324	)	$	(13,324	)
Nine Months Ended September 30, 2023
Balance at beginning of period	$	(20,767	)	$	(20,767	)
Net other comprehensive loss		(2,873	)		(2,873	)
Balance at end of period	$	(23,640	)	$	(23,640	)

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 September 30, 2024
(dollars in thousands)	Pretax		Tax			Net-of-Tax
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period	$	5,030	$	(1,056	)	$	3,974
Total change in accumulated other comprehensive loss, net	$	5,030	$	(1,056	)	$	3,974

	Three Months Ended September 30, 2023
(dollars in thousands)	Pretax			Tax		Net-of-Tax
Unrealized losses on available-for-sale securities:
Unrealized holding losses arising during the period	$	(4,885	)	$	1,026	$	(3,859	)
Reclassification adjustment for gains recognized in income		(30	)		6		(24	)
		(4,915	)		1,032		(3,883	)
Total change in accumulated other comprehensive loss, net	$	(4,915	)	$	1,032	$	(3,883	)

	Nine Months Ended September 30, 2024
(dollars in thousands)	Pretax		Tax			Net-of-Tax
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period	$	5,324	$	(1,118	)	$	4,206
Total change in accumulated other comprehensive loss, net	$	5,324	$	(1,118	)	$	4,206

	Nine Months Ended September 30, 2023
(dollars in thousands)	Pretax			Tax			Net-of-Tax
Unrealized losses on available-for-sale securities:
Unrealized holding losses arising during the period	$	(3,771	)	$	792		$	(2,979	)
Reclassification adjustment for losses recognized in income		134			(28	)		106
		(3,637	)		764			(2,873	)
Total change in accumulated other comprehensive loss, net	$	(3,637	)	$	764		$	(2,873	)

19

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 and nine months ended September 30, 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.

Note 10. 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.

20

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 September 30, 2024, there were no IRLCs and at December 31, 2023, there were $10 thousand of IRLCs.

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. Loans held for sale 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 September 30, 2024 and $470 thousand at December 31, 2023.

21

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 September 30, 2024 Using
(dollars in thousands)	Balance		Level 1		Level 2		Level 3
Assets:
Available-for-sale securities
U.S. Treasury securities	$	3,933	$	-	$	3,933	$	-
Obligations of  U.S. Government agencies		33,834		-		33,834		-
Obligations of state and political subdivisions		51,650		-		51,650		-
Mortgage-backed securities		78,394		-		78,394		-
Corporate bonds and other securities		26,029		-		26,029		-
Total available-for-sale securities		193,840		-		193,840		-
Derivatives
Interest rate swap on loans		988		-		988		-
Total assets	$	194,828	$	-	$	194,828	$	-
Liabilities:
Derivatives
Interest rate swap on loans	$	988	$	-	$	988	$	-
Total liabilities	$	988	$	-	$	988	$	-

			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		-
Corporate bonds and other securities		23,735		-		23,735		-
Total available-for-sale securities	$	202,231	$	-	$	202,231	$	-
Loans held for sale		470				470
Derivatives
Interest rate locks		10		-		10		-
Interest rate swap on loans		1,249		-		1,249		-
Total assets	$	203,960	$	-	$	203,960	$	-
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 September 30, 2024 and December 31, 2023, the Company had no assets or liabilities recorded at fair value on a nonrecurring basis with the exception of repossessed assets.

Repossessed assets - Certain assets such as repossessed assets are measured at fair value less cost to sell.  We believe that the fair value component in the valuation of repossessed assets follows the provisions of ASC 820.

The measurement of loss associated with repossessed assets at the date of transfer from loans is based on the fair value of the collateral less anticipated selling costs compared to the unpaid loan balance.  Subsequent changes in fair value are recorded in noninterest income on the Consolidated Statements of Income.  The value of repossessed assets is determined utilizing a market valuation approach based on an independent valuation using market data.

Any fair value adjustments are recorded in the period incurred and recognized against current earnings.  The carrying values of all repossessed assets is considered to be Level 2.

22

The following tables summarize the Company’s repossessed assets measured at fair value on a nonrecurring basis as of the dates indicated:

			Carrying Value at September 30, 2024
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
Repossessed assets	$	1,701	$	-	$	1,701	$	-
			Carrying Value at December 31, 2023
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
Repossessed assets	$	215	$	-	$	215	$	-

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.

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 September 30, 2024 Using
(dollars in thousands)	Carrying Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	176,855	$	176,855	$	-	$	-
Securities available-for-sale		193,840		-		193,840		-
Restricted securities		3,845		-		3,845		-
Loans, net		1,014,012		-		-		962,341
Derivatives
Interest rate swap on loans		988		-		988		-
Bank owned life insurance		35,909		-		35,909		-
Accrued interest receivable		4,858		-		4,858		-
Liabilities
Deposits	$	1,282,786	$	-	$	1,281,847	$	-
Overnight repurchase agreements		1,777		-		1,777		-
Federal Home Loan Bank advances		40,000		-		40,000		-
Subordinated notes		29,766		-		26,503		-
Derivatives
Interest rate swap on loans		988		-		988		-
Accrued interest payable		1,988		-		1,988		-

23

			Fair Value Measurements at December 31, 2023 Using
(dollars in thousands)	Carrying Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	80,806	$	80,806	$	-	$	-
Securities available-for-sale		202,231		-		202,231		-
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 11. 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, fees earned on deposit accounts, debit card interchange, and treasury and commercial services. 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.

Information about reportable segments, and reconciliation of such information to the Consolidated Financial Statements as of and for the three and nine months ended September 30, 2024 and 2023 follows:

24

	Three Months Ended September 30, 2024
(dollars in thousands)	Bank		Wealth		Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	18,465	$	55	$	2,820		$	(2,820	)	$	18,520
Income from fiduciary activities		-		1,177		-			(51	)		1,126
Other income		2,108		217		50			(29	)		2,346
Total operating income		20,573		1,449		2,870			(2,900	)		21,992
Expenses
Interest expense		5,915		-		295			-			6,210
Provision for credit losses		282		-		-			-			282
Salaries and employee benefits		6,192		1,031		210			(51	)		7,382
Other expenses		4,613		330		99			(30	)		5,012
Total operating expenses		17,002		1,361		604			(81	)		18,886
Income before taxes		3,571		88		2,266			(2,819	)		3,106
Income tax expense (benefit)		820		20		(116	)		-			724
Net income	$	2,751	$	68	$	2,382		$	(2,819	)	$	2,382
Capital expenditures	$	164	$	-	$	-		$	-		$	164

	Three Months Ended September 30, 2023
(dollars in thousands)	Bank		Wealth			Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	17,154	$	35		$	1,821		$	(1,821	)	$	17,189
Income from fiduciary activities		-		1,012			-			-			1,012
Other income		2,215		270			50			(65	)		2,470
Total operating income		19,369		1,317			1,871			(1,886	)		20,671
Expenses
Interest expense		5,468		-			295			-			5,763
Provision for credit losses		505		-			-			-			505
Salaries and employee benefits		6,589		1,018			223			-			7,830
Other expenses		4,657		347			112			(65	)		5,051
Total operating expenses		17,219		1,365			630			(65	)		19,149
Income (loss) before taxes		2,150		(48	)		1,241			(1,821	)		1,522
Income tax expense (benefit)		290		(9	)		(121	)		-			160
Net income (loss)	$	1,860	$	(39	)	$	1,362		$	(1,821	)	$	1,362
Capital expenditures	$	398	$	-		$	-		$	-		$	398

25

	Nine Months Ended September 30, 2024
(dollars in thousands)	Bank		Wealth		Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	53,875	$	146	$	7,941		$	(7,941	)	$	54,021
Income from fiduciary activities		-		3,573		-			(126	)		3,447
Other income		6,100		664		150			(196	)		6,718
Total operating income		59,975		4,383		8,091			(8,263	)		64,186
Expenses
Interest expense		17,170		-		885			-			18,055
Provision for credit losses		623		-		-			-			623
Salaries and employee benefits		18,992		2,942		600			(126	)		22,408
Other expenses		13,818		1,065		327			(197	)		15,013
Total operating expenses		50,603		4,007		1,812			(323	)		56,099
Income before taxes		9,372		376		6,279			(7,940	)		8,087
Income tax expense (benefit)		1,725		83		(349	)		-			1,459
Net income	$	7,647	$	293	$	6,628		$	(7,940	)	$	6,628
Capital expenditures	$	2,115	$	-	$	-		$	-		$	2,115

	Nine Months Ended September 30, 2023
(dollars in thousands)	Bank		Wealth			Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	48,587	$	102		$	7,622		$	(7,622	)	$	48,689
Income from fiduciary activities		-		3,282			-			-			3,282
Other income		6,420		724			150			(196	)		7,098
Total operating income		55,007		4,108			7,772			(7,818	)		59,069
Expenses
Interest expense		11,466		-			885			-			12,351
Provision for credit losses		1,242		-			-			-			1,242
Salaries and employee benefits		19,419		3,191			626			-			23,236
Other expenses		13,786		992			378			(196	)		14,960
Total operating expenses		45,913		4,183			1,889			(196	)		51,789
Income (loss) before taxes		9,094		(75	)		5,883			(7,622	)		7,280
Income tax expense (benefit)		1,409		(12	)		(364	)		-			1,033
Net income (loss)	$	7,685	$	(63	)	$	6,247		$	(7,622	)	$	6,247
Capital expenditures	$	885	$	-		$	-		$	-		$	885

(dollars in thousands)	Bank		Wealth		Parent		Eliminations			Consolidated
Total assets at September 30,2024	$	1,468,349	$	7,583	$	145,560	$	(143,483	)	$	1,478,009
Total assets at December 31, 2023	$	1,437,603	$	7,235	$	137,004	$	(135,460	)	$	1,446,382

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.

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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 and nine months ended September 30, 2024 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. 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 following table presents selected financial performance highlights for the periods indicated:

Table 1: Financial Performance Highlights

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands, except per share amounts)	2024			2023			2024			2023
Net income (loss)
Bank	$	2,751		$	1,860		$	7,647		$	7,685
Wealth		68			(39	)		293			(63	)
Parent		2,382			1,362			6,628			6,247
Eliminations		(2,819	)		(1,821	)		(7,940	)		(7,622	)
Consolidated net income	$	2,382		$	1,362		$	6,628		$	6,247
Earnings per share - basic and diluted	$	0.47		$	0.27		$	1.31		$	1.24
Annualized return on average equity		8.39	%		5.25	%		8.10	%		8.18	%
Annualized return on average assets		0.64	%		0.37	%		0.61	%		0.59	%

Net income for the three months ended September 30, 2024 was $2.4 million ($0.47 diluted earnings per share) compared to $1.4 million ($0.27 diluted earnings per share) for the three months ended September 30, 2023. For the nine months ended September 30, 2024 and 2023, net income was $6.6 million ($1.31 diluted earnings per share) and $6.2 million ($1.24 diluted earnings per share), respectively.

Key highlights of the three and nine months ended September 30, 2024 are as follows, with comparisons against the three and nine months ended September 30, 2023 unless otherwise stated:

• Total assets were $1.5 billion at September 30, 2024, increasing $31.6 million or 2.2% from December 31, 2023. Net loans held for investment were $1.0 billion at September 30, 2024, decreasing $54.0 million, or 5.1%, from December 31, 2023.

• Total deposits increased $52.4 million, or 4.3%, from December 31, 2023.

• Return on average equity (ROE) (annualized) was at 8.39% for the third quarter of 2024, compared to 5.25% for the third quarter of 2023. Return on average assets (ROA) (annualized) was 0.64% for the third quarter of 2024, compared to 0.37% for the third quarter of 2023.

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• Book value per share and tangible book value per share (non-GAAP) at September 30, 2024 increased 15.10% and 15.45%, respectively from September 30, 2023.

• Net income improved $1.0 million, or 74.9%, to $2.4 million for the third quarter of 2024 from $1.4 million for the third quarter of 2023. For the nine months ended September 30, 2024, net income improved $381 thousand, or 6.1%, to $6.6 million compared to $6.2 million for the same period in 2023.

• Net interest margin (NIM) was 3.56% for the third quarter of 2024 compared to 3.33% for the third quarter of 2023. NIM on a fully tax-equivalent basis (FTE) (non-GAAP) was 3.57% for the third quarter of 2024 compared to 3.35% for the third quarter of 2023. For the nine months ended September 30, 2024, NIM was 3.54% and NIM on an FTE was 3.55% compared to 3.67% and 3.68% for the same period in 2023.

• Net interest income increased $884 thousand, or 7.7%, to $12.3 million for the third quarter of 2024 compared to the third quarter of 2023. For the nine months ended September 30, 2024, net interest income decreased $372 thousand, or 1.0% to $36.0 million compared to $36.3 million for the same period in 2023.

• Provision for credit losses of $282 thousand was recognized for the third quarter of 2024, compared to $505 thousand for the third quarter of 2023. For the nine months ended September 30, 2024, provision for credit losses was $623 thousand compared to $1.2 million for the same period in 2023.

• Non-performing assets decreased by $20 thousand to $2.7 million or 0.18% of total assets at September 30, 2024 from $2.7 million or 0.19% of total assets at September 30, 2023.

• Liquidity as of September 30, 2024, defined as cash and cash equivalents, unpledged securities, and available secured borrowing capacity, totaled $497.7 million, representing 33.7% of total assets compared to $342.5 million, representing 23.7% of total assets as of December 31, 2023.

• Expenses incurred related to our cost saving initiatives were finalized in the third quarter. For the nine months ended September 30, 2024, the Company incurred $997 thousand of costs in an effort to reduce noninterest expenses.

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 $115.5 million as of September 30, 2024, compared to $106.8 million at December 31, 2023. Total equity increased $8.7 million at September 30, 2024 compared to December 31, 2023, due primarily to net income and lower unrealized losses in the market value of securities available-for-sale, which are recorded as a component of accumulated other comprehensive loss, partially offset by cash dividend payments. The unrealized loss in market value of securities available-for-sale was a result of increases in market interest rates since the securities were acquired, 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 third quarter of 2024, the Company declared dividends of $0.14 per share, consistent with the third quarter of 2023. For both the nine months ended September 30, 2024 and 2023, dividends declared were $0.42 per share. The dividend represents a payout ratio of 32.1% of EPS for the first nine 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 14. Regulatory Capital” below for additional information.

At September 30, 2024, the book value per share of the Company’s common stock was $22.74, and tangible book value per share (non-GAAP) was $22.38, compared to $19.75 and $19.39, respectively, at September 30, 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.

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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.

Net interest income for the third quarter of 2024 was $12.3 million, an increase of $884 thousand, or 7.7%, from the third quarter of 2023. The increase from the prior year quarter was due primarily to higher average earning asset balances at higher average yields partially offset by higher average rates on interest-bearing liabilities. For the nine months ended September 30, 2024 and 2023, net interest income was $36.0 million and $36.3 million, respectively. The decrease from the prior-year comparative period was due to higher average-interest bearing liabilities at higher average rates, partially offset by higher average earning assets at higher average earning yields.

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Net interest income, on a fully tax-equivalent basis (non-GAAP), was $12.3 million for the third quarter of 2024, an increase of $879 thousand from the 2023 comparative quarter. For the nine months ended September 30, 2024 and 2023, net interest income, on a fully tax-equivalent basis (non-GAAP), was $36.1 million and $36.5 million, respectively. NIM for the third quarter of 2024 was 3.56%, an increase from 3.33% for the prior year quarter. For the nine months ended September 30, 2024 and 2023, NIM was 3.54% and 3.67%, respectively. On a fully tax-equivalent basis (non-GAAP), NIM was 3.57% and 3.55%, for the three and nine months ended September 30, 2024, respectively, compared to 3.35% and 3.68% for the respective prior year comparative periods. For more information on these FTE financial measures, please see “Non-GAAP Financial Measures” below.

Average earning asset balances for the third quarter of 2024 increased $12.1 million compared to the third quarter of 2023 with yields on average earning assets increasing 34 basis points due to deployment of liquidity into higher earning assets and the effects of the rising interest rate environment. During the first nine months of 2024, average earning assets increased $27.4 million over the 2023 comparative period.

Average loans decreased $49.0 million, or 4.5%, and $18.4 million, or 1.7%, for the third quarter and first nine months of 2024, respectively, compared to the same periods of 2023. The decrease in average loans outstanding in 2024 compared to 2023 was due primarily to reduction in size of the commercial and industrial, commercial - owner occupied, and consumer automobile segments of the loan portfolio. Average loan yields were higher for the third quarter and first nine months of 2024 by 41 basis points and 42 basis points, respectively, compared to the same periods of 2023 due primarily to the effects of rising interest rates.

Average securities available-for-sale decreased $12.1 million and $20.2 million for the third quarter and first nine months of 2024, respectively, 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 increased 7 basis points and 20 basis points for the third quarter and first nine months of 2024, respectively, compared to the same periods 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 $74.0 million and $65.8 million for the third quarter and first nine months of 2024, compared to the respective periods in 2023 due primarily to deployment of liquidity into higher yielding assets. Due to changes in interest rates, the average yield on interest-bearing deposits in other banks decreased 1 basis point for the third quarter and increased 21 basis points for the first nine months of 2024 compared to the same periods in 2023. The FRB interest rate on excess cash reserve balances was 4.90% at September 30, 2024.

Average interest-bearing liabilities decreased $8.8 million for the third quarter of 2024 compared to the same period of 2023, with costs increasing 21 basis points. The higher interest cost of liabilities was primarily due to higher interest rates on money market and time deposits, partially offset by decreases in short term average FHLB advances during the period. Average interest-bearing liabilities increased $45.1 million for the nine months ended September 30, 2024 compared to the same period of 2023, with costs increasing 69 basis points. The higher interest cost of liabilities was primarily driven by higher average balances and interest rates on money market and a higher average balance on interest-bearing demand deposits, partially offset by decreases in short-term average FHLB advances during the period. Average money market and interest-bearing demand deposits increased $39.8 million for the third quarter while average money market, time, and interest-bearing demand deposits increased $81.1 million for the first nine months of 2024, respectively, compared to the same periods in 2023. Average noninterest-bearing demand deposits increased $12.5 million for the third quarter of 2024 and decreased $24.1 million for the first nine months of 2024, compared to the same periods of 2023. The average cost of interest-bearing deposits increased 38 basis points for the third quarter of 2024 and 87 basis points for the first nine months of 2024, compared to the same periods 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. The extent to which changing interest rates will ultimately affect the Company’s NIM is uncertain.

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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.

Table 2: Average Balance Sheets, Net Interest Income and Rates

	For the quarters ended September 30,
	2024								2023
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
(dollars in thousands)	Balance			Expense		Rate**			Balance			Expense		Rate**
Assets
Loans*	$	1,037,230		$	14,733		5.64	%	$	1,086,180		$	14,311		5.23	%
Investment securities:
Taxable		168,494			1,732		4.08			176,445			1,788		4.02
Tax-exempt*		25,958			175		2.67			30,128			201		2.64
Total investment securities		194,452			1,907		3.89			206,573			1,989		3.82
Interest-bearing due from banks		135,443			1,842		5.40			61,446			838		5.41
Federal funds sold		876			11		4.98			714			9		5.16
Other investments		3,843			64		6.61			4,808			84		6.84
Total earning assets		1,371,844		$	18,557		5.37			1,359,721		$	17,231		5.03
Allowance for credit losses		(11,809	)							(11,912	)
Other non-earning assets		105,195								105,130
Total assets	$	1,465,230							$	1,452,939
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Interest-bearing transaction accounts	$	109,789		$	3		0.01		$	91,139		$	4		0.01
Money market deposit accounts		451,343			2,931		2.58			430,236			2,048		1.89
Savings accounts		81,550			6		0.03			98,758			8		0.03
Time deposits		261,056			2,554		3.88			263,167			2,456		3.70
Total time and savings deposits		903,738			5,494		2.41			883,300			4,516		2.03
Federal funds purchased, repurchase
agreements and other borrowings		2,074			-		0.00			1,972			-		0.05
Federal Home Loan Bank advances		39,960			420		4.17			69,450			952		5.36
Long term borrowings		29,745			296		3.95			29,619			295		3.90
Total interest-bearing liabilities		975,517			6,210		2.53			984,341			5,763		2.32
Demand deposits		369,266								356,752
Other liabilities		7,791								8,996
Stockholders' equity		112,656								102,850
Total liabilities and stockholders' equity	$	1,465,230							$	1,452,939
Net interest margin				$	12,347		3.57	%				$	11,468		3.35	%

*Computed on a fully tax-equivalent basis using a 21% rate, adjusting interest income by $37 thousand and $42 thousand for the quarters ended September 30, 2024 and 2023, respectively.

**Annualized

31

	For the nine months ended September 30,
	2024								2023
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
(dollars in thousands)	Balance			Expense		Rate**			Balance			Expense		Rate**
Assets
Loans*	$	1,058,591		$	44,319		5.58	%	$	1,077,038		$	41,539		5.16	%
Investment securities:
Taxable		171,127			5,291		4.12			181,969			5,324		3.91
Tax-exempt*		26,036			526		2.69			35,365			734		2.77
Total investment securities		197,163			5,817		3.93			217,334			6,058		3.73
Interest-bearing due from banks		91,201			3,728		5.45			25,385			995		5.24
Federal funds sold		826			32		5.16			670			24		4.79
Other investments		4,514			235		6.94			4,420			229		6.91
Total earning assets		1,352,295		$	54,131		5.33			1,324,847		$	48,845		4.93
Allowance for credit losses		(12,034	)							(11,663	)
Other nonearning assets		105,955								105,462
Total assets	$	1,446,216							$	1,418,646
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Interest-bearing transaction accounts	$	99,734		$	10		0.01		$	80,672		$	9		0.02
Money market deposit accounts		449,972			8,207		2.43			432,224			4,450		1.38
Savings accounts		85,214			19		0.03			106,537			24		0.03
Time deposits		248,912			7,063		3.78			204,647			4,412		2.88
Total time and savings deposits		883,832			15,299		2.31			824,080			8,895		1.44
Federal funds purchased, repurchase
agreements and other borrowings		2,188			2		0.12			4,941			39		1.07
Federal Home Loan Bank advances		54,507			1,868		4.57			66,505			2,532		5.09
Long term borrowings		29,713			886		3.97			29,585			885		4.00
Total interest-bearing liabilities		970,240			18,055		2.48			925,111			12,351		1.79
Demand deposits		358,788								382,908
Other liabilities		8,125								8,492
Stockholders' equity		109,063								102,135
Total liabilities and stockholders' equity	$	1,446,216							$	1,418,646
Net interest margin				$	36,076		3.55	%				$	36,494		3.68	%

*Computed on a fully tax-equivalent (non-GAAP) basis using a 21% rate, adjusting interest income by $110 thousand and $156 thousand for the nine months ended September 30, 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 shown separately in the table, but are allocated to the rate and volume variances in proportion to the absolute dollar amounts of each.

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Table 3: Volume and Rate Analysis*

	For the three months ended September 30, 2024 from 2023
	Increase (Decrease)
	Due to Changes in:
(dollars in thousands)	Volume			Rate			Total
Earning Assets
Loans	$	(645	)	$	1,067		$	422
Investment securities:
Taxable		(81	)		25			(56	)
Tax-exempt*		(28	)		2			(26	)
Total investment securities		(109	)		27			(82	)
Federal funds sold		2			-			2
Other investments**		992			(8	)		984
Total earning assets		240			1,086			1,326
Interest-Bearing Liabilities
Interest-bearing transaction accounts		1			(2	)		(1	)
Money market deposit accounts		100			783			883
Savings accounts		(1	)		(1	)		(2	)
Time deposits		(20	)		118			98
Total time and savings deposits		80			898			978
Federal funds purchased, repurchase
agreements and other borrowings		-			0			0
Federal Home Loan Bank advances		(404	)		(128	)		(532	)
Long term borrowings		1			-			1
Total interest-bearing liabilities		(323	)		770			447
Change in net interest income	$	563		$	316		$	879

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

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

33

		Nine months ended September 30, 2024 from 2023
		Increase (Decrease)
		Due to Changes in:
(dollars in thousands)		Volume			Rate			Total
Earning Assets
Loans		$	(711	)	$	3,491		$	2,780
Investment securities:
Taxable			(317	)		284			(33	)
Tax-exempt*			(194	)		(14	)		(208	)
Total investment securities			(511	)		270			(241	)
Federal funds sold			6			2			8
Other investments**			2,585			154			2,739
Total earning assets			1,369			3,917			5,286
Interest-Bearing Liabilities
Interest-bearing transaction accounts			2			(1	)		1
Money market deposit accounts	��		183			3,574			3,757
Savings accounts			(5	)		-			(5	)
Time deposits			954			1,697			2,651
Total time and savings deposits			1,134			5,270			6,404
Federal funds purchased, repurchase agreements and other borrowings			(22	)		(15	)		(37	)
Federal Home Loan Bank advances			(457	)		(207	)		(664	)
Long term borrowings			4			(3	)		1
Total interest-bearing liabilities			659			5,045			5,704
Change in net interest income		$	710		$	(1,128	)	$	(418	)

* Computed on a fully tax-equivalent basis 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 September 30, 2024, the Company recognized a provision for credit losses of $282 thousand compared to $505 thousand for the three months ended September 30, 2023.  The provision for credit losses for the third quarter of 2024 included a provision for loans of $342 thousand and a $60 thousand recovery for unfunded commitments. The provision for credit losses was $623 thousand for the first nine months of 2024, compared to $1.2 million for the first nine months of 2023. Charged-off loans totaled $1.5 million and $1.2 million in the first nine months of 2024 and 2023, respectively. Recoveries amounted to $409 thousand and $526 thousand for the nine months ended September 30, 2024 and 2023, respectively. The Company’s annualized net loans charged off to average loans were 0.18% for the third quarter of 2024 compared to 0.09% for the third quarter of 2023. The decreased provision for credit losses for the three and nine months ended September 30, 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 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.

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Noninterest Income

Total noninterest income was $3.5 million for the third quarter of 2024, decreasing $10 thousand compared to the third quarter of 2023. The decrease over the prior year quarter was primarily driven by decreases in mortgage banking income, partially offset by increases in fiduciary and asset management fees. Noninterest income for the nine months ended September 30, 2024 decreased $215 thousand to $10.2 million compared to the nine months ended September 30, 2023 primarily driven by decreases in mortgage banking income and no gain on sales of fixed assets, partially offset by increases in fiduciary and asset management fees and service charges on deposit accounts. The decrease in mortgage banking income in the third quarter and first nine months of 2024 compared to the same periods in 2023 was due to declines in the volume of mortgage originations attributable to the Company’s strategic shift in mortgage lending and changes in mortgage market conditions impacting the industry as a whole.

Noninterest Expense

Noninterest expense totaled $12.4 million for the third quarter of 2024 compared to $12.9 million for the third quarter of 2023. The decrease over the prior year quarter was primarily driven by decreases in salaries and employee benefit expense and other operating expenses, partially offset by increases in professional services. The decrease in salaries and employee benefits in the third quarter of 2024 compared to the third quarter of 2023 was primarily driven by lower average headcount due to the previously reported cost saving initiatives. The noninterest expense reduction initiatives reduced the employee headcount beginning late in the first quarter of 2024 and continuing through the third quarter by approximately 12%, partially offset by expenses related to severance. The increase in professional services included the settlement of two outstanding legal matters. For the nine months ended September 30, 2024, noninterest expense decreased $775 thousand over the nine months ended September 30, 2023, primarily due to decreases in salary and employee benefits as discussed above.

Income Tax Expense

The Company’s income tax expense increased $564 thousand and $426 thousand for the three and nine months ended September 30, 2024 compared to the same periods in 2023 primarily due to changes in the levels of pre-tax income, the mix of effective tax-exempt income, and the adoption of ASU 2023-02. The effective federal income tax rate for the three and nine months ended September 30, 2024 was 23.3% and 18.0% compared to 10.5% and 14.2% for the same periods in 2023. The increase in the effective federal income tax rate for the three and nine months ended September 30, 2024 compared to the same periods in 2023, was driven primarily by the adoption of ASU 2023-02.

Discussion and Analysis of Financial Condition

As of September 30, 2024, the Company had total assets of $1.5 billion, an increase of $31.6 million compared to assets at December 31, 2023.

Net loans held for investment decreased $54.0 million or 5.1%, from December 31, 2023 to $1.0 billion at September 30, 2024, driven by the following: decreases in consumer loans of $31.4 million, construction loans of $16.6 million, commercial loans of $12.2 million, and commercial real estate loans of $3.4 million, partially offset by increases in residential real estate loans of $8.8 million. Cash and cash equivalents increased $96.0 million from December 31, 2023 to September 30, 2024. Securities available-for-sale, at fair value, decreased $8.4 million from December 31, 2023 to $193.8 million at September 30, 2024 driven primarily by maturities, principal pay downs, and fluctuations in fair market values.

Total deposits of $1.3 billion as of September 30, 2024 increased $52.4 million, or 4.3% from December 31, 2023. Time deposits increased $21.1 million, or 8.7%, noninterest-bearing deposits increased $21.1 million, or 6.4%, and savings deposits increased $10.2 million, or 1.5%. The increased deposit balances were primarily driven by increases from large commercial customers.

The Company utilizes FHLB advances as a primary source of liquidity as needed. As of September 30, 2024 and December 31, 2023, the Company had FHLB advances of $40.0 million and $69.5 million, respectively. Overnight repurchase agreements decreased $606 thousand as the Company used excess liquidity to pay down high cost borrowed funds.

Securities Portfolio

When comparing September 30, 2024 to December 31, 2023, securities available-for-sale decreased $8.4 million, or 4.2%, driven primarily by maturities, principal pay downs and fluctuations in fair market values. 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.

35

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 4: Securities Portfolio

	September 30,				December 31,
(dollars in thousands)	2024				2023
U.S. Treasury securities	$	3,933	2	%	$	3,857	2	%
Obligations of U.S. Government agencies		33,834	18	%		42,735	21	%
Obligations of state and political subdivisions		51,650	26	%		50,597	24	%
Mortgage-backed securities		78,394	40	%		81,307	39	%
Corporate bonds and other securities		26,029	13	%		23,735	11	%
		193,840	99	%		202,231	98	%
Restricted securities:
Federal Home Loan Bank stock		2,907	1	%		4,242	2	%
Federal Reserve Bank stock		892	-			892	-
Community Bankers' Bank stock		46	-			42	-
		3,845				5,176
Total Securities	$	197,685	100	%	$	207,407	100	%

The following table summarizes the contractual maturity of the securities portfolio and their weighted average yields as of September 30, 2024.

Table 5: Maturity of Securities

(dollars in thousands)	1 year or less			1-5 years			5-10 years			Over 10 years			Total
U.S. Treasury securities	$	-		$	3,933		$	-		$	-		$	3,933
Weighted average yield		-			1.70	%		-			-			1.70	%
Obligations of U.S. Government agencies	$	987		$	2,889		$	1,037		$	28,921		$	33,834
Weighted average yield		1.41	%		2.84	%		3.08	%		6.53	%		5.96	%
Obligations of state and political subdivisions	$	498		$	969		$	22,778		$	27,405		$	51,650
Weighted average yield		3.35	%		2.38	%		2.27	%		2.34	%		2.32	%
Mortgage-backed securities	$	-		$	11,262		$	-		$	67,132		$	78,394
Weighted average yield		-			2.28	%		0.00	%		3.18	%		3.03	%
Corporate bonds and other securities	$	-		$	-		$	26,029		$	-		$	26,029
Weighted average yield		-			-			4.68	%		-			4.43	%
Total Securities	$	1,485		$	19,053		$	49,844		$	123,458		$	193,840
Weighted average yield		2.06	%		2.25	%		3.55	%		3.78	%		3.56	%

The table above is based on contractual maturities; 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 September 30, 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.

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Loan Portfolio

The following table shows a breakdown of total loans by segment at September 30, 2024 and December 31, 2023.

Table 6: Loan Portfolio

	September 30,		December 31,
(dollars in thousands)	2024		2023
Commercial and industrial	$	51,947	$	64,112
Real estate-construction		90,555		107,179
Real estate-mortgage (1)		292,652		283,853
Real estate-commercial (2)		438,322		441,716
Consumer (3)		148,710		180,155
Other		3,526		3,237
Ending Balance	$	1,025,712	$	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 included consumer automobile loans.

The maturity distribution and rate sensitivity of the Company's loan portfolio as of September 30, 2024 is presented below:

Table 7: Maturity/Repricing Schedule of Loan Portfolio

	As of September 30, 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	$	12,242	$	50,566	$	71,079	$	66,740	$	6,501	$	2,793	$	209,921
1 to 5 years		-		881		32,264		17,581		-		321		51,047
5 to 15 years		-		5,716		35,755		422		27		-		41,920
After 15 years		-		-		-		-		-		-		-
Fixed Rate:
Within 1 year	$	1,064	$	7,690	$	5,756	$	35,451	$	975	$	-	$	50,936
1 to 5 years		28,997		16,835		47,420		187,008		95,564		50		375,874
5 to 15 years		9,644		8,825		35,112		125,908		37,047		362		216,898
After 15 years		-		42		65,266		5,212		8,596		-		79,116
	$	51,947	$	90,555	$	292,652	$	438,322	$	148,710	$	3,526	$	1,025,712

(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 included consumer automobile loans.

For more information about the Company’s loan portfolio as of September 30, 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 September 30, 2024 and December 31, 2023.

The Company continued to experience low levels of NPAs in the nine months ended September 30, 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.

37

Table 8: Nonperforming Assets

	September 30,			December 31,
(dollars in thousands)	2024			2023
Total loans	$	1,025,712		$	1,080,252
Nonaccrual loans		85			188
Loans past due 90 days or more and accruing interest		909			1,780
Repossessed assets		1,701			215
Total Nonperforming Assets	$	2,695		$	2,183
ACLL	$	11,700		$	12,206
Nonaccrual loans to total loans		0.01	%		0.02	%
ACLL to total loans		1.14	%		1.13	%
ACLL to nonaccrual loans		13764.71	%		6492.55	%
Annualized year-to-date net charge-offs to average loans		0.14	%		0.16	%

As shown in the table above, as of September 30, 2024 compared to December 31, 2023, the nonaccrual loan category decreased by $103 thousand or 54.8%, the 90 days past due and still accruing category decreased by $871 thousand or 48.9%, and the repossessed assets category increased by $1.5 million or 691.2%.

Management believes the Company has strong 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 September 30, 2024, the ACL was $11.9 million and included an ACLL of $11.7 million and an allowance for unfunded commitments of $248 thousand. The decrease in the ACL during the first nine months of 2024 was due to the reduction in the size of the loan portfolio, primarily due to declines in commercial and industrial of $12.2 million, real estate construction of $16.8 million, and  consumer of $31.4 million. The following table summarizes the ACL as of September 30, 2024 and December 31, 2023:

Table 9: Allowance for Credit Losses

	September 30,		December 31,
(dollars in thousands)	2024		2023
Total ACLL	$	11,700	$	12,206
Total reserve for unfunded commitments		248		236
Total ACL	$	11,948	$	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.

38

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 10: Allowance for Credit Losses on Loans

For the three months ended September 30, 2024
(dollars in thousands)	Commercial and Industrial			Real Estate Construction			Real Estate - Mortgage (1)			Real Estate - Commercial (3)			Consumer (2)			Other			Unallocated			Total
Allowance for credit losses on loans:
Balance, beginning	$	479		$	853		$	2,982		$	5,695		$	1,710		$	109		$	-		$	11,828
Charge-offs		(46	)		-			-			-			(442	)		(61	)		-			(549	)
Recoveries		2			-			6			1			57			13			-			79
Provision for credit losses		7			-			(87	)		(102	)		357			167			-			342
Ending Balance	$	442		$	853		$	2,901		$	5,594		$	1,682		$	228		$	-		$	11,700
Average loans	$	51,677		$	85,814		$	296,286		$	449,384		$	150,932		$	3,137		$	-		$	1,037,230
Ratio of net charge-offs (recoveries) to average loans		0.09	%		0.00	%		0.00	%		0.00	%		0.26	%		1.53	%		0.00	%		0.05	%

For the three months ended September 30, 2023
(dollars in thousands)	Commercial and Industrial			Real Estate Construction			Real Estate - Mortgage(1)			Real Estate - Commercial(3)			Consumer (2)			Other			Unallocated			Total
Allowance for credit losses on loans:
Balance, beginning	$	666		$	707		$	2,880		$	5,709		$	1,590		$	99		$	-		$	11,651
Charge-offs		(108	)		-			-			-			(279	)		(59	)		-			(446	)
Recoveries		52			-			8			-			81			20			-			161
Provision for loan losses		35			122			(6	)		82			158			87			-			478
Ending Balance	$	645		$	829		$	2,882		$	5,791		$	1,550		$	147		$	-		$	11,844
Average loans		75,848			88,266			280,221			441,878			197,421			2,546			-			1,086,180
Ratio of net charge-offs (recoveries) to average loans		0.07	%		0.00	%		0.00	%		0.00	%		0.10	%		1.53	%		0.00	%		0.03	%

(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.

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

Table 10: Allowance for Credit Losses on Loans

For the nine months ended September 30, 2024
(dollars in thousands)	Commercial and Industrial			Real Estate Construction			Real Estate - Mortgage(1)			Real Estate - Commercial(3)			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		(163	)		-			-			-			(1,198	)		(165	)		-			(1,526	)
Recoveries		8			-			26			12			324			39			-			409
Provision for credit losses		24			(129	)		(29	)		(160	)		729			176			-			611
Ending Balance	$	442		$	853		$	2,901		$	5,594		$	1,682		$	228		$	-		$	11,700
Average loans	$	57,504		$	101,104		$	291,253		$	442,286		$	163,702		$	2,742		$	-		$	1,058,591
Ratio of net charge-offs (recoveries) to average loans		0.27	%		0.00	%		-0.01	%		0.00	%		0.53	%		4.60	%		0.00	%		0.11	%

For the nine months ended September 30, 2023
(dollars in thousands)	Commercial and Industrial			Real Estate Construction			Real Estate - Mortgage(1)			Real Estate - Commercial(3)			Consumer(2)			Other			Unallocated			Total
Allowance for credit losses on loans:
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		(159	)		-			-			-			(813	)		(228	)		-			(1,200	)
Recoveries		64			-			28			-			393			41			-			526
Provision for loan losses		78			258			192			244			270			315			(6	)		1,351
Ending Balance	$	645		$	829		$	2,882		$	5,791		$	1,550		$	147		$	-		$	11,844
Average loans	$	75,770		$	88,728		$	274,034		$	436,135		$	200,071		$	2,300		$	-		$	1,077,038
Ratio of net charge-off (recoveries) to average loans		0.13	%		0.00	%		-0.01	%		0.00	%		0.21	%		8.13	%		0.00	%		0.06	%

(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.

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

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The following table shows the amount of the ACLL allocated to each category and the ratio of corresponding outstanding loan balances as of September 30, 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.

Table 11: Allocation of the Allowance for Credit Losses on Loans

	September 30,					December 31,
	2024					2023
(dollars in thousands)	Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans
Commercial and industrial	$	442		5.06	%	$	573		5.93	%
Real estate-construction		853		8.83	%		982		9.92	%
Real estate-mortgage (1)		2,901		28.53	%		2,904		26.28	%
Real estate-commercial (3)		5,594		42.73	%		5,742		40.89	%
Consumer (2)		1,682		14.50	%		1,827		16.68	%
Other		228		0.34	%		178		0.30	%
Ending Balance	$	11,700		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.

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

The Company’s real estate-commercial portfolio consists of loans secured by a mortgage lien on real property and, if owner occupied, carries risks associated with the successful operation of a business or, if non-owner occupied, carries risks associated with the profitability and cash flow from rent receipts. The borrower’s cash flows may be affected significantly by general economic conditions, a downturn in the local economy or, if non-owner occupied, a downturn in occupancy rates or market rental rates in the market where the property is located. Included in the Company’s real estate-commercial loan segment are loans secured by office buildings, which had an aggregate principal balance of $52.2 million at September 30, 2024 (the “Office Portfolio”). Due to the evolving office space market conditions, we have additional monitoring processes for the Office Portfolio, which can include periodic credit risk assessments of borrowers, guarantors, and significant lessees, as well as periodic reviews of the local office rental markets. Based on analyses of the Office Portfolio, as of September 30, 2024, the Company has identified two loans secured by office buildings with respect to which the Company has begun enhanced credit administration efforts to support the Company’s objective of maintaining a portfolio of quality credits and quickly identifying potential weaknesses as discussed further below.

The total principal balance of loans 30-59 days past due and still accruing interest increased to $15.0 million at September 30, 2024 from $6.1 million at December 31, 2023. This is primarily related to two loans secured by office buildings with respect to which the Company has begun enhanced credit administration efforts to support the Company’s objective of maintaining a portfolio of quality credits and quickly identifying potential weaknesses, and the Company classified as OAEM at September 30, 2024. Each office building securing each such loan is now administered by a court appointed receivership. The receivers have control over all respective rental income and have made debt service payments for each loan for three consecutive months. The Company believes the net cash flow from each office building is adequate to repay each loan secured by that collateral. For further discussion, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations “Table 6: Loan Portfolio”.

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.

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As of September 30, 2024, total deposits were $1.3 billion, an increase of $52.4 million, or 4.3%, compared to December 31, 2023. The following table presents average balances and average rates paid on deposits for the periods presented.

Table 12: Deposits

	Nine months ended September 30,
	2024					2023
	Average		Average			Average		Average
(Dollars in thousands)	Balance		Rate			Balance		Rate
Interest-bearing transaction	$	99,734		0.01	%	$	80,672		0.02	%
Money market		449,972		2.43	%		432,224		1.38	%
Savings		85,214		0.03	%		106,537		0.03	%
Time deposits		248,912		3.78	%		204,647		2.88	%
Total interest bearing		883,832		2.31	%		824,080		1.44	%
Demand		358,788					382,908
Total deposits	$	1,242,620				$	1,206,988

The average rate paid on interest-bearing deposits by the Company for the nine months ended September 30, 2024 was 2.31% compared to 1.44% for the nine months ended September 30, 2023. Average balances of interest bearing, money market, and time deposits increased from the same period in the prior year, totaling $19.1 million, $17.7 million, and $44.3 million, respectively, while average balances of savings and demand deposits decreased $21.3 million and $24.1 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 September 30, 2024 and December 31, 2023, the estimated amounts of total uninsured deposits were approximately $229.8 million and $220.3 million, respectively, or 17.9% of total deposits for both periods. The following table shows maturities of the estimated amounts of uninsured time deposits as of September 30, 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.

Table 13: Maturities of Uninsured Time Deposits

	As of September 30,
(dollars in thousands)		2024
Maturing in:
Within 3 months		$	36,950
4 through 6 months			29,305
7 through 12 months			6,161
Greater than 12 months			12,645
		$	85,061

Capital Resources

Total stockholders' equity as of September 30, 2024 was $115.5 million, up 8.1% from $106.8 million on December 31, 2023. The increase was primarily related to higher net income and lower unrealized losses in the market value of securities available-for-sale, which are recorded as a component of accumulated other comprehensive loss, partially offset by cash dividend payments. The unrealized losses on securities available-for-sale were a result of increases in market interest rates since the securities were acquired, 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.

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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 September 30, 2024 and December 31, 2023. As shown below, these ratios were all well above the recommended regulatory minimum levels.

Table 14: Regulatory Capital

	2024						2023
	Regulatory						Regulatory
(dollars in thousands)	Minimums			September 30, 2024			Minimums			December 31, 2023
Common Equity Tier 1 Capital to Risk-Weighted Assets		4.500	%		12.76	%		4.500	%		11.45	%
Tier 1 Capital to Risk-Weighted Assets		6.000	%		12.76	%		6.000	%		11.45	%
Total Capital to Risk-Weighted Assets		8.000	%		13.80	%		8.000	%		12.46	%
Tier 1 Leverage to Average Assets		4.000	%		9.99	%		4.000	%		9.46	%
Risk-Weighted Assets				$	1,154,807					$	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 September 30, 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 September 30, 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 September 30, 2024, the Company had $424.3 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 $384.3 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.

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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’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 September 30, 2024. Dividing the total short-term sources of liquidity by the outstanding commitments for use of liquidity derives the liquidity coverage ratio.

Table 15: Liquidity Sources and Uses

	September 30,
	2024
(dollars in thousands)	Total		In Use			Available
Sources:
Federal funds lines of credit	$	90,000	$	-		$	90,000
Federal Home Loan Bank advances		424,250		(40,000	)		384,250
Federal funds sold & balances at the Federal Reserve		155,960		-			155,960
Securities, available for sale and unpledged at fair value		108,457		-			108,457
Total funding sources	$	778,667	$	(40,000	)	$	738,667
Uses: (1)
Unfunded loan commitments and lending lines of credit						$	78,332
Letters of credit							808
Total potential short-term funding uses						$	79,140
Liquidity coverage ratio							933.4	%

(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 September 30, 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 September 30, 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 and nine months ended September 30, 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.

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Management believes that these non-GAAP measures provide 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 in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company’s non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. 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.

Table 16: Non-GAAP Financial Measures

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands, except share and per share data)	2024			2023			2024			2023
Fully Taxable Equivalent Net Interest Income
Net interest income (GAAP)	$	12,310		$	11,426		$	35,966		$	36,338
FTE adjustment		37			42			110			156
Net interest income (FTE) (non-GAAP)	$	12,347		$	11,468		$	36,076		$	36,494
Noninterest income (GAAP)		3,472			3,482			10,165			10,380
Total revenue (FTE) (non-GAAP)	$	15,819		$	14,950		$	46,241		$	46,874
Noninterest expense (GAAP)		12,394			12,881			37,421			38,196
Average earning assets	$	1,371,844		$	1,359,721		$	1,352,295		$	1,324,847
Net interest margin		3.56	%		3.33	%		3.54	%		3.67	%
Net interest margin (FTE) (non-GAAP)		3.57	%		3.35	%		3.55	%		3.68	%
Efficiency ratio		78.53	%		86.40	%		81.12	%		81.76	%
Efficiency ratio (FTE) (non-GAAP)		78.35	%		86.16	%		80.93	%		81.49	%
Tangible Book Value Per Share
Total Stockholders Equity (GAAP)	$	115,457		$	99,526
Less goodwill		1,650			1,650
Less core deposit intangible		154			198
Tangible Stockholders Equity (non-GAAP)	$	113,653		$	97,678
Shares issued and outstanding, including nonvested restricted stock		5,077,695			5,038,066
Book value per share	$	22.74		$	19.75
Tangible book value per share	$	22.38		$	19.39

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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 initiatives, credit management initiatives, and strategic shift in mortgage lending, 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 currently 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, and the estimated timing of recognizing the benefits of such initiatives; 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 and future levels of rates paid on deposits; levels and sources of liquidity and capital resources; future levels of the allowance for credit 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 changes or volatility in short-term interest rates or yields on U.S. Treasury bonds and changes or volatility in U.S. Treasury bonds and changes 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 higher inflation, slowdowns in economic growth, unemployment levels, supply chain disruptions, 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, supervisory and regulatory 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;

• 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;

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

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• 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;

• the 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 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.

Market Risk Management

Effectively managing market risk is essential to achieving the Company's financial objectives. Market risk reflects the risk of economic loss resulting from changes in interest rates and market prices. The Company is generally not subject to currency exchange risk or commodity price risk. The Company's primary market risk exposure is interest rate risk; however, market risk also includes liquidity risk. Both are discussed in the following sections.

Interest Rate Risk Management

Interest rate risk and its impact on net interest income is a primary market risk exposure. The Company manages its exposure to fluctuations in interest rates through policies approved by the ALCO and Board of Directors, both of which receive and review periodic reports of the Company's interest rate risk position.

The Company uses computer simulation analysis to measure the sensitivity of projected earnings to changes in interest rates. Simulation takes into account current balance sheet volumes and the scheduled repricing dates, instrument level optionality, and maturities of assets and liabilities. It incorporates numerous assumptions including growth, changes in the mix of assets and liabilities, prepayments, and average rates earned and paid. Based on this information, management uses the model to project net interest income under multiple interest rate scenarios.

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A balance sheet is considered asset sensitive when its earning assets (loans and securities) reprice faster or to a greater extent than its liabilities (deposits and borrowings). An asset sensitive balance sheet will produce relatively more net interest income when interest rates rise and less net interest income when they decline. Based on the Company's simulation analysis, management believes the Company's interest sensitivity position at September 30, 2024 is slightly asset sensitive. Management makes no predictions on the direction or magnitude of future rates and seeks to maintain a relatively neutral interest rate risk profile to minimize the exposure to higher or lower market rates.

Earnings Simulation

The following table shows the estimated impact of changes in interest rates on net interest income as of September 30, 2024 (dollars in thousands), assuming instantaneous and parallel changes in interest rates and while maintaining a static balance sheet. Net interest income for the following twelve months is projected to decrease marginally when interest rates are shocked higher and lower from current rates.

	Change in Net Interest Income
	September 30, 2024						December 31, 2023
Change in Yield Curve	Dollars			%			Dollars			%
+300 basis points		1,100			2.25	%		(4,380	)		-9.15	%
+200 basis points		(20	)		-0.04	%		(3,540	)		-7.39	%
+100 basis points		(450	)		-0.92	%		(2,110	)		-4.41	%
Most likely rate scenario
-100 basis points		(520	)		-1.06	%		(1,060	)		-2.21	%
-200 basis points		(1,200	)		-2.45	%		(1,340	)		-2.80	%
-300 basis points		(2,730	)		-5.58	%		(1,580	)		-3.30	%

Management cannot predict future interest rates or their exact effect on net interest income. Computations of future effects of hypothetical interest rate changes are based on numerous assumptions and should not be relied upon as indicative of actual results. Certain limitations are inherent in such computations. Assets and liabilities may react differently than projected to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag changes in market interest rates. Interest rate shifts may not be parallel.

Any changes in interest rates can cause substantial changes in the amount of prepayments of loans and mortgage-backed securities, which may in turn affect the Company's interest rate sensitivity position. Additionally, credit risk may rise if an interest rate increase adversely affects the ability of borrowers to service their debt. Decrease in yields due to the current rate environment have been projected in the model simulation.

Economic Value Simulation

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses instantaneous rate shocks to the balance sheet.

The following table reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances at the quarterly period ended September 30, 2024 (dollars in thousands):

	Change in Economic Value of Equity
	September 30, 2024						December 31, 2023
Change in Yield Curve	Dollars			%			Dollars			%
+300 basis points		32,400			13.97	%		3,200			1.34	%
+200 basis points		24,900			10.73	%		5,500			2.31	%
+100 basis points		14,400			6.21	%		5,200			2.18	%
Most likely rate scenario
-100 basis points		(19,300	)		-8.32	%		(12,100	)		-5.08	%
-200 basis points		(47,400	)		-20.43	%		(32,900	)		-13.81	%
-300 basis points		(87,400	)		-37.67	%		(66,100	)		-27.74	%

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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.

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 third quarter ended September 30, 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.

The nature of the business of the Company ordinarily results in a certain amount of litigation. The Company is involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Based on information presently available, and based on consultation with legal counsel, Management believes that the outcomes of these proceedings will not have a material adverse effect on the consolidated financial position or consolidated results of operations 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 nine months ended September 30, 2024, the Company did not repurchase any shares related to the equity compensation plan awards.

During the nine months ended September 30, 2024, the Company did not have an effective share repurchase program that was authorized by the Company’s Board of Directors.

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

During the three months ended September 30, 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).

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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)
10.1	Change of Control Severance Agreement, dated as of May 23, 2024, by and between The Old Point National Bank of Phoebus and Cathy W. Liles (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 12, 2024)
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 September 30, 2024, formatted in Inline XBRL, filed herewith: (i) Consolidated Balance Sheets (unaudited for September 30, 2024), (ii) Consolidated Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (Loss) (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 September 30, 2024, formatted in Inline XBRL (included with Exhibit 101)

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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: November 12, 2024	/s/Robert F. Shuford, Jr.
	Robert F. Shuford, Jr.
	Chairman, President & Chief Executive Officer
	(Principal Executive Officer)
Date: November 12, 2024	/s/Cathy W. Liles
	Cathy W. Liles
	Chief Financial Officer & Senior Vice President/Finance
	(Principal Financial & Accounting Officer)

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