Old Point Financial - 10-Q quarterly report FY2025 Q1

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2025

☐	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 NASDAQStock Market LLC

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

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

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

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

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

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

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

The number of shares outstanding of the registrant’s common stock, ($5.00 par value per share) as of May 9, 2025 was 5,105,029 shares.

OLD POINT FINANCIAL CORPORATION

FORM 10-Q

INDEX

ITEM		PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Balance Sheets as of March 31, 2025 (unaudited) and December 31, 2024	1

	Consolidated Statements of Income (unaudited) for the three months ended March 31, 2025 and 2024	2

	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2025 and 2024	3

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2025 and 2024	4

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2025 and 2024	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	47

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	52

	Signatures	53

Index

GLOSSARY OF ACRONYMS AND DEFINED TERMS

2024 Form 10-K	Annual Report on Form 10-K for the year ended December 31, 2024
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.

Index

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements.

Old Point Financial Corporation and Subsidiaries

ConsolidatedBalance Sheets

	March 31,			December 31,
(dollars in thousands, except per share amounts)	2025			2024
Assets	(unaudited)

Cash and due from banks	$	15,609		$	17,098
Interest-bearing due from banks		119,835			122,238
Federal funds sold		451			708
Cash and cash equivalents		135,895			140,044
Securities available-for-sale, at fair value		220,918			218,083
Restricted securities, at cost		3,922			3,918
Loans held for sale		111			-
Loans, net		1,001,009			998,713
Premises and equipment, net		28,870			29,198
Premises and equipment, held for sale		344			344
Bank-owned life insurance		36,464			36,182
Goodwill		1,650			1,650
Core deposit intangible, net		132			143
Repossessed assets		2,183			1,972
Other assets		19,490			20,323
Total assets	$	1,450,988		$	1,450,570

Liabilities & Stockholders’ Equity

Deposits:
Noninterest-bearing deposits	$	370,695		$	355,041
Savings deposits		689,345			659,445
Time deposits		197,438			240,428
Total deposits		1,257,478			1,254,914
Federal funds purchased, overnight repurchase agreements and other short-term borrowings		3,328			3,967
Federal Home Loan Bank advances		40,000			40,000
Subordinated notes, net		26,081			29,799
Accrued expenses and other liabilities		6,884			7,920
Total liabilities		1,333,771			1,336,600

Stockholders’ equity:
Common stock, $5 par value, 10,000,000 shares authorized; 5,105,030 and 5,078,318 shares outstanding (includes 91,616 and 65,920 of nonvested restricted stock, respectively)		25,067			25,062
Additional paid-in capital		17,683			17,548
Retained earnings		89,935			88,492
Accumulated other comprehensive loss, net		(15,468	)		(17,132	)
Total stockholders’ equity		117,217			113,970
Total liabilities and stockholders’ equity	$	1,450,988		$	1,450,570

See accompanying notes to consolidated financial statements.

Index

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Income

	Three Months Ended
	March 31,
(unaudited, dollars in thousands, except per share amounts)	2025			2024
Interest and dividend income:
Loans, including fees	$	13,987		$	14,544
Interest-bearing deposits in other banks		1,136			799
Federal funds sold		8			9
Securities:
Taxable		1,975			1,798
Tax-exempt		137			139
Dividends and interest on all other securities		60			94
Total interest and dividend income		17,303			17,383

Interest expense:
Checking and savings deposits		2,791			2,597
Time deposits		1,801			2,172
Federal funds purchased, securities sold under agreements to repurchase and other borrowings		38			1
Federal Home Loan Bank advances		401			778
Long-term borrowings		264			295
Total interest expense		5,295			5,843
Net interest income		12,008			11,540
Provision for credit losses		717			80
Net interest income after provision for credit losses		11,291			11,460

Noninterest income:
Fiduciary and asset management fees		1,332			1,192
Service charges on deposit accounts		770			758
Other service charges, commissions and fees		943			883
Bank-owned life insurance income		282			265
Loss on sale of available-for-sale securities, net		(176	)		-
(Loss) gain on sale of repossessed assets		(84	)		22
Gain on redemption and retirement of subordinated notes		656			-
Other operating income		124			102
Total noninterest income		3,847			3,222

Noninterest expense:
Salaries and employee benefits		7,343			7,831
Occupancy and equipment		1,181			1,173
Data processing		1,333			1,315
Customer development		134			55
Professional services		674			585
Employee professional development		183			211
Merger-related costs		261			-
Other taxes		284			261
Other operating expenses		1,054			1,272
Total noninterest expense		12,447			12,703
Income before income taxes		2,691			1,979
Income tax expense		533			262
Net income	$	2,158		$	1,717

Basic Earnings per Share:
Weighted average shares outstanding		5,086,759			5,039,819
Net income per share of common stock	$	0.42		$	0.34

Diluted Earnings per Share:
Weighted average shares outstanding		5,086,759			5,039,819
Net income per share of common stock	$	0.42		$	0.34

See accompanying notes to consolidated financial statements.

Index

Old Point Financial Corporation

Consolidated Statements ofComprehensive Income

	Three Months Ended
	March 31,
(unaudited, dollars in thousands)	2025			2024

Net income	$	2,158		$	1,717
Other comprehensive income (loss), net of tax
Net unrealized gain (loss) on available-for-sale securities		1,803			(268	)
Reclassification for loss included in net income		(139	)		-
Other comprehensive income (loss), net of tax		1,664			(268	)
Comprehensive income	$	3,822		$	1,449

See accompanying notes to consolidated financial statements.

Index

Old Point Financial Corporation and Subsidiaries

Consolidated Statements of Changes inStockholders’ Equity

											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
Three months ended March 31, 2025
Balance at December 31, 2024		5,012,398	$	25,062	$	17,548		$	88,492		$	(17,132	)	$	113,970
Net income		-		-		-			2,158			-			2,158
Other comprehensive income, net of tax		-		-		-			-			1,664			1,664
Employee Stock Purchase Plan share issuance		1,016		5		25			-			-			30
Share-based compensation expense		-		-		110			-			-			110
Cash dividends ($0.14 per share)		-		-		-			(715	)		-			(715	)
Balance at March 31, 2025		5,013,414	$	25,067	$	17,683		$	89,935		$	(15,468	)	$	117,217

Three months ended March 31, 2024
Balance at December 31, 2023		4,986,435	$	24,932	$	17,099		$	82,277		$	(17,530	)	$	106,778
Net income		-		-		-			1,717			-			1,717
Other comprehensive loss, net of tax		-		-		-			-			(268	)		(268	)
Employee Stock Purchase Plan share issuance		2,026		10		23			-			-			33
Restricted stock vested		761		4		(4	)		-			-			-
Share-based compensation expense		-		-		75			-			-			75
Cash dividends ($0.14 per share)		-		-		-			(705	)		-			(705	)
Balance at March 31, 2024		4,989,222	$	24,946	$	17,193		$	83,289		$	(17,798	)	$	107,630

See accompanying notes to consolidated financial statements.

Index

Old Point Financial Corporation and Subsidiaries

Consolidated Statements ofCash Flows

	Three Months Ended March 31,
(unaudited, dollars in thousands)	2025			2024
Operating activities:
Net income	$	2,158		$	1,717
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		494			534
Amortization of right of use lease assets		95			91
Accretion related to acquisition, net		11			11
Amortization of subordinated debt issuance costs		32			33
Gain on redemption and retirement of subordinated notes		(656	)		-
Provision for credit losses		717			80
Loss on sale of securities, net		176			-
Net amortization of securities		69			154
(Increase) decrease in loans held for sale, net		(111	)		470
Net loss (gain) on write-down/sale of repossessed assets		84			(22	)
Income from bank owned life insurance		(282	)		(265	)
Stock compensation expense		110			75
Decrease (increase) in other assets		296			(147	)
(Decrease) increase in accrued expenses and other liabilities		(1,028	)		1,047
Net cash provided by operating activities		2,165			3,778

Investing activities:
Purchases of available-for-sale securities		(5,886	)		(1,230	)
Cash used in purchases of restricted securities, net		(4	)		(63	)
Proceeds from maturities of available-for-sale securities		400			570
Proceeds from sales of available-for-sale securities		1,394			450
Paydowns on available-for-sale securities		3,118			4,197
Net (increase) decrease in loans held for investment		(3,316	)		11,148
Purchases of premises and equipment		(166	)		(799	)
Net cash (used in) provided by investing activities		(4,460	)		14,273

Financing activities:
Increase in noninterest-bearing deposits		15,654			23,148
Increase (decrease) in savings deposits		29,900			(22,998	)
Decrease in time deposits		(42,990	)		(2,278	)
Decrease in federal funds purchased, repurchase agreements and other borrowings, net		(639	)		(699	)
Increase in Federal Home Loan Bank advances		-			34,200
Repayment of Federal Home Loan Bank advances		-			(34,200	)
Repayment and retirement of subordinated debt		(3,094	)		-
Proceeds from Employee Stock Purchase Plan issuance		30			33
Cash dividends paid on common stock		(715	)		(705	)
Net cash used in financing activities		(1,854	)		(3,499	)

Net (decrease) increase in cash and cash equivalents		(4,149	)		14,552
Cash and cash equivalents at beginning of period		140,044			78,759
Cash and cash equivalents at end of period	$	135,895		$	93,311

Supplemental disclosures of cash flow information
Cash payments for:
Interest	$	5,925		$	6,007

Supplemental schedule of noncash transactions
Unrealized gain (loss) on securities available-for-sale	$	2,106		$	(339	)
Loans transferred to repossessed assets	$	295		$	865

See accompanying notes to consolidated financial statements.

Index

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

The Company

Headquartered in Hampton, Virginia, Old Point Financial Corporation (NASDAQ: OPOF) (the Company) is a holding company that conducts substantially all of its operations through two wholly-owned subsidiaries, The Old Point National Bank of Phoebus (the Bank) and Old Point Trust & Financial Services, N.A. (Wealth). The Bank serves individual and commercial customers, the majority of which are in the Hampton Roads region of Virginia. As of March 31, 2025, 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 March 31, 2025 and December 31, 2024, the statements of income, comprehensive income, and changes in stockholders’ equity for the three months ended March 31, 2025 and 2024, and the statements of cash flows for the three months ended March 31, 2025 and 2024. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s 2024 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 Significant Accounting Pronouncements

In November 2024, the 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. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. 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 effect on its consolidated financial statements.

Other accounting standards that have been adopted by the Company or issued by the FASB or other standard-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.

Index

Note 2. Securities

The amortized cost and fair value, with gross unrealized gains and losses, of securities available-for-sale as of the dates indicated were as follows:

	March 31, 2025
				Gross			Gross
	Amortized			Unrealized			Unrealized				Fair
(dollars in thousands)	Cost			Gains			(Losses)				Value
U.S. Treasury securities		$	4,029		$	-		$	(89	)		$	3,940
Obligations of U.S. Government agencies			40,807			239			(332	)			40,714
Obligations of state and political subdivisions			56,036			-			(7,833	)			48,203
Mortgage-backed securities			107,728			5			(9,113	)			98,620
Corporate bonds and other securities			31,898			24			(2,481	)			29,441
		$	240,498		$	268		$	(19,848	)		$	220,918

	December 31, 2024
				Gross			Gross
	Amortized			Unrealized			Unrealized				Fair
(dollars in thousands)	Cost			Gains			(Losses)				Value
U.S. Treasury securities		$	4,037		$	-		$	(120	)		$	3,917
Obligations of U.S. Government agencies			41,388			245			(342	)			41,291
Obligations of state and political subdivisions			57,710			-			(8,075	)			49,635
Mortgage-backed securities			105,492			2			(10,656	)			94,838
Corporate bonds and other securities			31,142			22			(2,762	)			28,402
		$	239,769		$	269		$	(21,955	)		$	218,083

The amortized cost and fair value of securities at March 31, 2025 and December 31, 2024, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

	March 31, 2025
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	5,634	$	5,530
Due after one year through five years		17,164		16,185
Due after five through ten years		62,499		56,625
Due after ten years		155,201		142,578
	$	240,498	$	220,918

	December 31, 2024
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	2,008	$	1,982
Due after one year through five years		20,931		19,608
Due after five through ten years		58,428		51,576
Due after ten years		158,402		144,917
	$	239,769	$	218,083

Index

The following table shows realized gains or losses on the sale of investment securities during the three months ended March 31, 2025 and 2024, respectively.

	Three Months Ended
	March 31,
(dollars in thousands)	2025				2024
Realized gains on sales of securities		$	-			$	-
Realized losses on sales of securities			(176	)			-
Net realized loss		$	(176	)		$	-

The following tables show the gross unrealized losses and fair value of the Company’s investments with unrealized losses for which an ACL has not been recorded as of March 31, 2025 and December 31, 2024, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates indicated:

	March 31, 2025
	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		$	-		$	-		$	89		$	3,940		$	89		$	3,940		1
Obligations of U.S. Government agencies			115			13,254			217			11,299			332			24,553		32
Obligations of state and political subdivisions			63			925			7,770			47,278			7,833			48,203		42
Mortgage-backed securities			276			24,331			8,837			70,716			9,113			95,047		46
Corporate bonds and other securities			182			2,965			2,299			24,201			2,481			27,166		26
Total securities available-for-sale		$	636		$	41,475		$	19,212		$	157,434		$	19,848		$	198,909		147

	December 31, 2024
	Less than 12 months						12 months or more						Total
	Gross						Gross						Gross						Number
	Unrealized			Fair			Unrealized			Fair			Unrealized			Fair			of
(dollars in thousands)	Losses			Value			Losses			Value			Losses			Value			Securities
U.S. Treasury securities		$	-		$	-		$	120		$	3,917		$	120		$	3,917		1
Obligations of U.S. Government agencies			69			11,147			273			13,155			342			24,302		32
Obligations of state and political subdivisions			14			975			8,062			48,660			8,076			49,635		43
Mortgage-backed securities			621			24,568			10,035			69,827			10,656			94,395		46
Corporate bonds and other securities			209			2,934			2,553			23,947			2,762			26,881		26
Total securities available-for-sale		$	913		$	39,624		$	21,043		$	159,506		$	21,956		$	199,130		148

The number of investments in an unrealized loss position as of March 31, 2025 and December 31, 2024 were 147 and 148, respectively. The Company concluded noACL should be recognized as of March 31, 2025 and December 31, 2024 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.

Restricted Stock

The restricted stock category is comprised of stock in FHLB, FRB, and CBB. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and the securities lack a market. Therefore, FHLB, FRB, and CBB stock are carried at cost and evaluated for impairment. When evaluating these stocks for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Restricted stock is viewed as a long-term investment and management believes that the Company has the ability and the intent to hold this stock until its value is recovered. The Company did not consider its investment in restricted stock to be impaired at March 31, 2025 and no impairment has been recognized.

Index

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

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

	March 31,		December 31,
(dollars in thousands)	2025		2024
Mortgage loans on real estate:
Residential 1-4 family	$	177,389	$	179,704
Commercial - owner occupied		132,252		127,933
Commercial - non-owner occupied		306,159		310,952
Multifamily		38,789		39,467
Construction and land development		87,767		85,926
Second mortgages		11,047		10,749
Equity lines of credit		58,846		56,851
Total mortgage loans on real estate		812,249		811,582
Commercial and industrial loans		50,567		53,906
Consumer automobile loans		130,101		124,689
Other consumer loans		16,818		17,449
Other ⁽¹⁾		3,095		2,534
Total loans, net of deferred fees ⁽²⁾		1,012,830		1,010,160
Less: Allowance for credit losses on loans		11,821		11,447
Loans, net of allowance and deferred fees ⁽²⁾	$	1,001,009	$	998,713

(1)	Overdrawn accounts are reclassified as loans and included in the Other category in the table above. Overdrawn deposit accounts totaled $289 thousand and $286thousand at March 31, 2025 and December 31, 2024, respectively.

(2)	Net deferred loan fees totaled $730thousand and $868 thousand at March 31, 2025 and December 31, 2024, respectively.

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 March 31, 2025 and December 31, 2024.

Index

Age Analysis of Past Due Loans as of March 31, 2025

(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	$	51	$	-	$	-	$	37	$	177,301	$	177,389
Commercial - owner occupied		55		-		-		-		132,197		132,252
Commercial - non-owner occupied		169		-		-		-		305,990		306,159
Multifamily		-		-		-		-		38,789		38,789
Construction and land development		-		-		1,241		-		86,526		87,767
Second mortgages		242		-		-		-		10,805		11,047
Equity lines of credit		94		114		-		43		58,595		58,846
Total mortgage loans on real estate	$	611	$	114	$	1,241	$	80	$	810,203	$	812,249
Commercial and industrial loans		212		64		287		-		50,004		50,567
Consumer automobile loans		1,466		314		262		-		128,059		130,101
Other consumer loans		460		59		94		-		16,205		16,818
Other		289		-		-		-		2,806		3,095
Total	$	3,038	$	551	$	1,884	$	80	$	1,007,277	$	1,012,830

(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.

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

(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due and still Accruing		Nonaccrual ⁽²⁾		Total Current Loans ⁽¹⁾		Total Loans
Mortgage loans on real estate:
Residential 1-4 family	$	125	$	-	$	-	$	39	$	179,540	$	179,704
Commercial - owner occupied		-		-		-		-		127,933		127,933
Commercial - non-owner occupied		-		-		-		-		310,952		310,952
Multifamily		-		-		-		-		39,467		39,467
Construction and land development		-		-		-		-		85,926		85,926
Second mortgages		176		13		-		-		10,560		10,749
Equity lines of credit		253		64		50		43		56,441		56,851
Total mortgage loans on real estate	$	554	$	77	$	50	$	82	$	810,819	$	811,582
Commercial and industrial loans		919		181		259		-		52,547		53,906
Consumer automobile loans		2,682		898		238		-		120,871		124,689
Other consumer loans		407		225		94		-		16,723		17,449
Other		286		-		-		-		2,248		2,534
Total	$	4,848	$	1,381	$	641	$	82	$	1,003,208	$	1,010,160

(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.

Index

The following table shows the Company’s amortized cost basis of loans on nonaccrual status and loans past due 90 days and accruing as of March 31, 2025 and December 31, 2024, by class of loan.

	Nonaccrual				Nonaccrual with no ACLL				90 Days and still Accruing
(dollars in thousands)	March 31, 2025		December 31, 2024		March 31, 2025		December 31, 2024		March 31, 2025		December 31, 2024
Mortgage loans on real estate:
Residential 1-4 family	$	37	$	39	$	37	$	39	$	-	$	-
Commercial - owner occupied		-		-		-		-		-		-
Construction and land development		-		-		-		-		1,241		-
Equity lines of credit		43		43		43		-		-		50
Total mortgage loans on real estate		80		82		80		39		1,241		50
Commercial and industrial loans		-		-		-		-		287		259
Consumer automobile loans		-		-		-		-		262		238
Other consumer loans		-		-		-		-		94		94
Total	$	80	$	82	$	80	$	39	$	1,884	$	641

The Company’s loan portfolio may include certain loans modified, where economic concessions have been granted to borrowers who are experiencing financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reduction in the interest rate below current market rates for borrowers with similar risk profiles, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The Company closely monitors the performance of modified loans to understand the effectiveness of modification efforts. Upon the determination that all or a portion of a modified loan is uncollectible, that amount is charged against the ACL. The Company did not grant any such modifications during the three months ended March 31, 2025 and 2024.

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.

Index

The following tables present the activity in the ACLL by portfolio class for the three months ended March 31, 2025 and March 31, 2024.

Allowance for Credit Losses

For the Three Months Ended March 31, 2025

(dollars in thousands)	Commercial and Industrial			Real Estate Construction and Land Development		Real Estate - Mortgage ⁽¹⁾			Real Estate - Commercial ⁽²⁾		Consumer ⁽³⁾			Other			Total
Allowance for credit losses on loans:
Balance, beginning	$	480		$	814	$	2,874		$	5,493	$	1,641		$	145		$	11,447
Charge-offs		(133	)		-		(19	)		-		(225	)		(46	)		(423	)
Recoveries		2			-		4			-		42			24			72
Provision (recovery) for loan losses		114			12		(10	)		406		257			(54	)		725
Ending Balance	$	463		$	826	$	2,849		$	5,899	$	1,715		$	69		$	11,821

For the Three Months Ended March 31, 2024

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

(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 March 31,
(dollars in thousands)	2025			2024
Provision for credit losses:
Provision for loans	$	725		$	78
(Recovery of) provison for unfunded commitments		(8	)		2
Total	$	717		$	80

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.

Index

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

	March 31, 2025
	Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)	2025		2024		2023		2022		2021		Prior		Revolving Loans		Total
Construction and land development
Pass	$	8,203	$	30,637	$	24,644	$	20,694	$	1,329	$	1,019	$	-	$	86,526
OAEM		-		-		-		-		117		1,124		-		1,241
Substandard		-		-		-		-		-		-		-		-
Total construction and land development	$	8,203	$	30,637	$	24,644	$	20,694	$	1,446	$	2,143	$	-	$	87,767

Commercial real estate - owner occupied
Pass	$	9,625	$	12,068	$	8,369	$	21,586	$	15,650	$	63,890	$	1,064	$	132,252
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total commercial real estate - owner occupied	$	9,625	$	12,068	$	8,369	$	21,586	$	15,650	$	63,890	$	1,064	$	132,252

Commercial real estate - non-owner occupied
Pass	$	5,789	$	9,796	$	37,862	$	70,766	$	93,214	$	76,729	$	442	$	294,598
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		11,561		-		-		11,561
Total commercial real estate - non-owner occupied	$	5,789	$	9,796	$	37,862	$	70,766	$	104,775	$	76,729	$	442	$	306,159

Commercial and industrial
Pass	$	2,612	$	10,337	$	10,811	$	8,971	$	2,562	$	3,715	$	11,129	$	50,137
OAEM		-		-		-		-		-		114		-		114
Substandard		-		-		143		170		3		-		-		316
Total commercial and industrial	$	2,612	$	10,337	$	10,954	$	9,141	$	2,565	$	3,829	$	11,129	$	50,567

Multifamily real estate
Pass	$	-	$	-	$	6,932	$	1,334	$	2,063	$	22,889	$	5,571	$	38,789
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total multifamily real estate	$	-	$	-	$	6,932	$	1,334	$	2,063	$	22,889	$	5,571	$	38,789

Residential 1-4 family
Pass	$	2,384	$	15,060	$	29,714	$	36,054	$	32,387	$	74,960	$	56,593	$	247,152
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		49		-		81		-		130
Total residential 1-4 family	$	2,384	$	15,060	$	29,714	$	36,103	$	32,387	$	75,041	$	56,593	$	247,282

Consumer - automobile
Pass	$	19,682	$	23,073	$	28,804	$	47,123	$	6,171	$	4,875	$	-	$	129,728
OAEM		-		-		-		-		-		-		-		-
Substandard		-		145		82		51		49		46		-		373
Total consumer - automobile	$	19,682	$	23,218	$	28,886	$	47,174	$	6,220	$	4,921	$	-	$	130,101

Consumer - other
Pass	$	179	$	978	$	164	$	311	$	213	$	13,411	$	1,408	$	16,664
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		154		-		154
Total consumer - other	$	179	$	978	$	164	$	311	$	213	$	13,565	$	1,408	$	16,818

Other
Pass	$	1,901	$	162	$	-	$	-	$	274	$	758	$	-	$	3,095
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total other	$	1,901	$	162	$	-	$	-	$	274	$	758	$	-	$	3,095

Total loans
Pass	$	50,375	$	102,111	$	147,300	$	206,839	$	153,863	$	262,246	$	76,207	$	998,941
OAEM		-		-		-		-		117		1,238		-		1,355
Substandard		-		145		225		270		11,613		281		-		12,534
Total loans	$	50,375	$	102,256	$	147,525	$	207,109	$	165,593	$	263,765	$	76,207	$	1,012,830

Index

	December 31, 2024
	Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
Construction and land development
Pass	$	34,692	$	24,752	$	22,882	$	1,476	$	1,749	$	375	$	-	$	85,926
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total construction and land development	$	34,692	$	24,752	$	22,882	$	1,476	$	1,749	$	375	$	-	$	85,926

Commercial real estate - owner occupied
Pass	$	12,111	$	8,432	$	21,984	$	18,533	$	10,860	$	54,917	$	1,096	$	127,933
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total commercial real estate - owner occupied	$	12,111	$	8,432	$	21,984	$	18,533	$	10,860	$	54,917	$	1,096	$	127,933

Commercial real estate - non-owner occupied
Pass	$	9,845	$	41,205	$	71,545	$	94,393	$	39,153	$	42,184	$	215	$	298,540
OAEM		-		-		-		-		-		767		-		767
Substandard		-		-		-		11,645		-		-		-		11,645
Total commercial real estate - non-owner occupied	$	9,845	$	41,205	$	71,545	$	106,038	$	39,153	$	42,951	$	215	$	310,952

Commercial and industrial
Pass	$	5,578	$	12,391	$	11,198	$	3,058	$	919	$	3,455	$	17,307	$	53,906
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total commercial and industrial	$	5,578	$	12,391	$	11,198	$	3,058	$	919	$	3,455	$	17,307	$	53,906

Multifamily real estate
Pass	$	-	$	6,966	$	1,343	$	2,081	$	580	$	22,495	$	6,002	$	39,467
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total multifamily real estate	$	-	$	6,966	$	1,343	$	2,081	$	580	$	22,495	$	6,002	$	39,467

Residential 1-4 family
Pass	$	12,100	$	32,787	$	37,879	$	32,992	$	23,912	$	53,012	$	54,540	$	247,222
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		82		-		82
Total residential 1-4 family	$	12,100	$	32,787	$	37,879	$	32,992	$	23,912	$	53,094	$	54,540	$	247,304

Consumer - automobile
Pass	$	24,763	$	33,695	$	53,434	$	7,397	$	1,939	$	3,461	$	-	$	124,689
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total consumer - automobile	$	24,763	$	33,695	$	53,434	$	7,397	$	1,939	$	3,461	$	-	$	124,689

Consumer - other
Pass	$	1,041	$	182	$	345	$	236	$	14	$	14,037	$	1,594	$	17,449
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total consumer - other	$	1,041	$	182	$	345	$	236	$	14	$	14,037	$	1,594	$	17,449

Other
Pass	$	1,490	$	-	$	-	$	274	$	-	$	770	$	-	$	2,534
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total other	$	1,490	$	-	$	-	$	274	$	-	$	770	$	-	$	2,534

Total loans
Pass	$	101,620	$	160,410	$	220,610	$	160,440	$	79,126	$	194,706	$	80,754	$	997,666
OAEM		-		-		-		-		-		767		-		767
Substandard		-		-		-		11,645		-		82		-		11,727
Total loans	$	101,620	$	160,410	$	220,610	$	172,085	$	79,126	$	195,555	$	80,754	$	1,010,160

Index

The following tables detail the current period gross charge-offs of loans by year of origination for the three months ended March 31, 2025 and March 31, 2024:

	March 31, 2025
	Current Period Charge-offs by Origination Year
(dollars in thousands)	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial	$	-	$	-	$	48	$	85	$	-	$	-	$	-	$	133
Residential 1-4 Family		-		-		-		-		-		19		-		19
Consumer - automobile		-		34		125		37		20		9		-		225
Other ⁽¹⁾		46		-		-		-		-		-		-		46
Total	$	46	$	34	$	173	$	122	$	20	$	28	$	-	$	423

(1)	Gross charge-offs of other loans for the three months ended March 31, 2025 included $46 thousand of demand deposit overdrafts that originated in 2025.

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

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

As of March 31, 2025 and December 31, 2024, 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 three months ended March 31, 2025. The following tables present information about the Company’s leases:

(dollars in thousands)	March 31, 2025				December 31, 2024
Lease liabilities		$	746		$	840
Right-of-use assets		$	712		$	793
Weighted average remaining lease term	2.45 years				2.63years
Weighted average discount rate			3.35	%		3.27	%

	Three Months Ended March 31,
(dollars in thousands)	2025		2024
Operating lease cost	$	100	$	106
Total lease cost	$	100	$	106

Cash paid for amounts included in the measurement of lease liabilities	$	105	$	108

Index

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

	As of
(dollars in thousands)	March 31, 2025
Nine months ending December 31, 2025	$	277
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	$	787
Discount		(41	)
Lease liabilities	$	746

Note 5. Low-Income Housing Tax Credits

The Company was invested in four separate housing equity funds at both March 31, 2025 and December 31, 2024. 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 $629 thousand and $686 thousand at March 31, 2025 and December 31, 2024, 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 March 31, 2025.

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.” 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 balances anddeferred taxes, as well as stockholders’ equity by the same amount.

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), advances from the FHLB, and a revolving unsecured line of credit agreement.

The Company maintains federal funds lines with several correspondent banks to address short-term borrowing needs. As of both March 31, 2025 and December 31, 2024, the remaining credit available from these lines totaled $115.0million. The Company has a collateral dependent line of credit with the FHLB with remaining credit availability of $433.2 million and $400.5 million as of March 31, 2025 and December 31, 2024, respectively.

On December 23, 2024, the Company entered into a revolving unsecured line of credit agreement with another financial institution for $3.3 million. This line bears interest at the prime lending rate and matures on December 23, 2025. As of both March 31, 2025 and December 31, 2024, the remaining credit available from this line was $1.3 million.

Index

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

(dollars in thousands)	March 31, 2025			December 31, 2024
Overnight repurchase agreements	$	1,323		$	1,962
Federal Home Loan Bank advances		-			-
Other short-term borrowings		2,005			2,005
Total short-term borrowings	$	3,328		$	3,967

Maximum month-end outstanding balance (year-to-date)	$	43,451		$	81,413
Average outstanding balance during the period	$	41,885		$	33,766
Average interest rate (year-to-date)		3.88	%		4.43	%
Average interest rate at end of period		0.02	%		0.03	%

Long-Term Borrowings

The Company had two long-term FHLB advances totaling $40.0 million outstanding at March 31, 2025 and December 31, 2024, with scheduled maturities on July 9, 2027 and July 9, 2029 and rates at 3.69% and 4.33%.

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. In the first quarter of 2025, $3.7 million of the Notes were repurchased and retired, resulting in a realized gain of $656 thousand.

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 March 31, 2025 and December 31, 2024 were as follows:

	March 31,		December 31,
(dollars in thousands)	2025		2024
Commitments to extend credit:
Home equity lines of credit	$	94,875	$	95,346
Commercial real estate, construction and development loans committed but not funded		40,092		44,223
Other lines of credit (principally commercial)		44,942		47,504
Total	$	179,909	$	187,073

Letters of credit	$	2,710	$	2,763

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, 2024 and for the first three months of 2025.

Index

Total stock purchases under the ESPP amounted to 1,016 shares during the three months ended March 31, 2025. At March 31, 2025, the Company had 206,486 remaining shares reserved for issuance under the ESPP.

Incentive Stock Plan

The Incentive Stock Plan permits the issuance of up to 300,000 shares of common stock for awards to key employees and non-employee directors of the Company and its subsidiaries in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards and performance units. As of March 31, 2025, only restricted stock had been granted under the Incentive Stock Plan.

Restricted stock activity for the three months ended March 31, 2025 and March 31, 2024 is summarized below:

			Weighted Average
			Grant Date
	Shares		Fair Value
Nonvested, January 1, 2025		65,920	$	17.03
Issued		25,696		30.67
Vested		-		-
Forfeited		-		-
Nonvested, March 31, 2025		91,616	$	20.86

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

The weighted average period over which nonvested awards are expected to be recognized in compensation expense is 1.65 years.

The remaining unrecognized compensation expense for nonvested restricted stock shares totaled $1.2 million as of March 31, 2025 and $508 thousand as of December 31, 2024.

Stock-based compensation expense was $110 thousand and $75 thousand for the three months ended March 31, 2025 and 2024, respectively.

Note 9. Stockholders’ Equity and Earnings per Common Share

Stockholders’ Equity – Accumulated Other Comprehensive Income (Loss)

The following table presents amounts reclassified out of accumulated other comprehensive income (loss), by category, during the three months ended March 31, 2025 and 2024, respectively.

	Three Months Ended
	March 31,					Affected Line Item on Consolidated Statement of Income
(dollars in thousands)	2025			2024		Affected Line Item on Consolidated Statement of Income
Sale of securities
Realized loss on sale of securities	$	(176	)	$	-	Loss on sale of securities, net
Tax effect		37			-	Income tax benefit
	$	(139	)	$	-

Index

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

(dollars in thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Accumulated Other Comprehensive (Loss) Income
Three Months Ended March 31, 2025
Balance at beginning of period	$	(17,132	)	$	(17,132	)
Net other comprehensive income		1,664			1,664
Balance at end of period	$	(15,468	)	$	(15,468	)

Three Months Ended March 31, 2024
Balance at beginning of period	$	(17,530	)	$	(17,530	)
Net other comprehensive loss		(268	)		(268	)
Balance at end of period	$	(17,798	)	$	(17,798	)

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

	Three Months Ended March 31, 2025
(dollars in thousands)	Pretax			Tax			Net-of-Tax
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period	$	2,282		$	(479	)	$	1,803
Reclassification adjustment for net losses recognized in income		(176	)		37			(139	)
		2,106			(442	)		1,664

Total change in accumulated other comprehensive loss, net	$	2,106		$	(442	)	$	1,664

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

Total change in accumulated other comprehensive loss, net	$	(339	)	$	71	$	(268	)

Earnings Per Common Share

Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of potentially dilutive common shares attributable to the ESPP. The Company had no antidilutive shares outstanding in the three months ended March 31, 2025 and 2024, 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 uses fair value measurements 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.

Index

In estimating the fair value of assets and liabilities, the Company relies mainly on twomodels. 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 time deposits in accordance with guidance.

In accordance with ASC 820, “ Fair Value Measurements and Disclosures,” the Company groups its financial assets and financial liabilities generally measured at fair value into three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

•

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

•

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

•

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

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

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

The Company recognizes IRLCs at fair value. Fair value of IRLCs is based on either (i) the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis or (ii) the observable price for individual loans traded in the secondary market for loans that will be delivered on a mandatory basis. All of the Company’s IRLCs are classified as Level 2. At March 31, 2025 and 2024, there were no 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.

Index

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

			Fair Value Measurements at March 31, 2025 Using
(dollars in thousands)	Balance		Level 1		Level 2		Level 3
Assets:
Available-for-sale securities
U.S. Treasury securities	$	3,940	$	-	$	3,940	$	-
Obligations of U.S. Government agencies		40,714		-		40,714		-
Obligations of state and political subdivisions		48,203		-		48,203		-
Mortgage-backed securities		98,620		-		98,620		-
Corporate bonds and other securities		29,441		-		29,441		-
Total available-for-sale securities		220,918		-		220,918		-
Derivatives
Interest rate swap on loans		1,236		-		1,236		-
Total assets	$	222,154	$	-	$	222,154	$	-

Liabilities:
Derivatives
Interest rate swap on loans		1,236		-		1,236		-
Total liabilities	$	1,236	$	-	$	1,236	$	-

			Fair Value Measurements at December 31, 2024 Using
(dollars in thousands)	Balance		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury securities	$	3,917	$	-	$	3,917	$	-
Obligations of U.S. Government agencies		41,291		-		41,291		-
Obligations of state and political subdivisions		49,635		-		49,635		-
Mortgage-backed securities		94,838		-		94,838		-
Corporate bonds and other securities		28,402		-		28,402		-
Total available-for-sale securities	$	218,083	$	-	$	218,083	$	-
Derivatives
Interest rate swap on loans		1,603		-		1,603		-
Total assets	$	219,686	$	-	$	219,686	$	-

Liabilities:
Derivatives
Interest rate swap on loans		1,603		-		1,603		-
Total liabilities	$	1,603	$	-	$	1,603	$	-

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

Collateral dependent loans with an ACL

A loan is considered collateral dependent when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The ACL is measured by estimating the fair value of the loan’s underlying collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable, with the vast majority of the collateral in real estate.

Index

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

Collateral dependent loans may be secured by collateral other than real estate. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). If a loan is not collateral-dependent, its impairment may be measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate. Because the loan is discounted at its effective rate of interest, rather than at a market rate, the loan is not considered to be held at fair value and is not included in the tables below. Collateral-dependent loans allocated to the allowance for credit losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as part of the provision for credit losses on the Consolidated Statements of Income. As of March 31, 2025 and December 31, 2024, there were no collateral dependent loans measured at fair value.

Other Real Estate Owned (OREO)

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated costs to sell at the date of foreclosure. Initial fair value is based upon appraisals the Company obtains from independent licensed appraisers. Subsequent to foreclosure, management periodically performs valuations of the foreclosed assets based on updated appraisals, general market conditions, recent sales of similar properties, length of time the properties have been held, and the ability and intent with regard to continued ownership of the properties. The Company may incur additional write-downs of foreclosed assets to fair value less estimated costs to sell if valuations indicate a further deterioration in market conditions. As such, the Company records OREO as a nonrecurring fair value measurement classified as Level 3.

The Company had no OREO as of March 31, 2025 or December 31, 2024.

Loans Held for Sale

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

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 3.

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 March 31, 2025
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
Repossessed assets	$	2,183	$	-	$	-	$	2,183

			Carrying Value at December 31, 2024
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
Repossessed assets	$	1,972	$	-	$	-	$	1,972

Index

The following tables display quantitative information about Level 3 Fair Value Measurements as of the dates indicated:

				Quantitative Information About Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value at March 31, 2025			Valuation Techniques	Unobservable Input	Range (Weighted Average)
Repossessed assets
Repossessed assets		$	2,183	Market comparables	Selling costs		10.00% - 20.00% (15.00	%)

				Quantitative Information About Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value at December 31, 2024			Valuation Techniques	Unobservable Input	Range (Weighted Average)
Repossessed assets
Repossessed assets		$	1,972	Market comparables	Selling costs		10.00% - 20.00% (15.00	%)

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 present the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2025 and December 31, 2024. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between origination of the instrument and its expected realization. For non-marketable equity securities such as FHLB and FRB stock, the carrying amount is a reasonable estimate of fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution. For financial liabilities such as interest-bearing demand and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

			Fair Value Measurements at March 31, 2025 Using
(dollars in thousands)	Carrying Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	135,895	$	135,895	$	-	$	-
Securities available-for-sale		220,918		-		220,918		-
Restricted securities		3,922		-		3,922		-
Loans, net		1,012,830		-		-		972,803
Interest rate swap on loans		1,236		-		1,236		-
Bank owned life insurance		36,464		-		36,464		-
Accrued interest receivable		4,755		-		4,755		-

Liabilities
Deposits	$	1,257,478	$	-	$	1,257,715	$	-
Short-term borrowings		3,328		-		3,328		-
Federal Home Loan Bank advances		40,000		-		39,449		-
Subordinated notes, net		26,081		-		23,560		-
Interest rate swap on loans		1,236		-		1,236		-
Accrued interest payable		1,423		-		1,423		-

Index

			Fair Value Measurements at December 31, 2024 Using
(dollars in thousands)	Carrying Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	140,044	$	140,044	$	-	$	-
Securities available-for-sale		218,083		-		218,083		-
Restricted securities		3,918		-		3,918		-
Loans, net		1,010,160		-		-		968,452
Interest rate swap on loans		1,603		-		1,603		-
Bank owned life insurance		36,182		-		36,182		-
Accrued interest receivable		4,670		-		4,670		-

Liabilities
Deposits	$	1,254,914	$	-	$	1,253,926	$	-
Short-term borrowings		3,967		-		3,967		-
Federal Home Loan Bank advances		40,000		-		39,418		-
Subordinated notes, net		29,799		-		26,622		-
Interest rate swap on loans		1,603		-		1,603		-
Accrued interest payable		2,085		-		2,085		-

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.

The Company’s segment structure reflects the financial information and reports used by our chief operating decision maker to make decisions regarding the business, including resource allocations and performance. Our Chief Executive Officer is the CODM. We evaluate performance and allocate resources based on the operating income of each operating segment. The CODM uses segment operating income in the annual budget process. The operating income of each operating segment includes the revenues of the segment less expenses that are directly related to those revenues.

Index

Information about reportable segments, and reconciliation of such information to the Consolidated Financial Statements as of and for the three months ended March 31, 2025 and 2024 follows:

	Three Months Ended March 31, 2025
(dollars in thousands)	Bank		Wealth		Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	17,256	$	47	$	1,250		$	(1,250	)	$	17,303
Income from fiduciary activities		-		1,373		-			(41	)		1,332
Other income		2,282		248		50			(65	)		2,515
Total operating income		19,538		1,668		1,300			(1,356	)		21,150

Expenses
Interest expense		4,993		-		302			-			5,295
Provision for credit losses		717		-		-			-			717
Salaries and employee benefits		6,087		1,055		242			(41	)		7,343
Data processing		1,193		127		15			(2	)		1,333
Customer development		124		10		-			-			134
Occupancy and equipment		1,130		51		-			-			1,181
Other expenses		1,999		135		386			(64	)		2,456
Total operating expenses		16,243		1,378		945			(107	)		18,459

Income before taxes		3,295		290		355			(1,249	)		2,691

Income tax expense (benefit)		483		62		(12	)		-			533

Net income	$	2,812	$	228	$	367		$	(1,249	)	$	2,158

Capital expenditures	$	166	$	-	$	-		$	-		$	166

Total assets	$	1,444,233	$	6,798	$	145,447		$	(145,490	)	$	1,450,988

Index

	Three Months Ended March 31, 2024
(dollars in thousands)	Bank		Wealth		Parent			Eliminations			Consolidated
Revenues
Interest and dividend income	$	17,341	$	42	$	800		$	(800	)	$	17,383
Income from fiduciary activities		-		1,217		-			(25	)		1,192
Other income		1,834		211		50			(65	)		2,030
Total operating income		19,175		1,470		850			(890	)		20,605

Expenses
Interest expense		5,548		-		295			-			5,843
Provision for credit losses		80		-		-			-			80
Salaries and employee benefits		6,641		1,024		191			(25	)		7,831
Data processing		1,138		165		14			(2	)		1,315
Customer development		46		8		-			1			55
Occupancy and equipment		1,122		53		-			(2	)		1,173
Other expenses		2,179		172		40			(62	)		2,329
Total operating expenses		16,754		1,422		540			(90	)		18,626

Income before taxes		2,421		48		310			(800	)		1,979

Income tax expense (benefit)		353		12		(103	)		-			262

Net income	$	2,068	$	36	$	413		$	(800	)	$	1,717

Capital expenditures	$	799	$	-	$	-		$	-		$	799

Total assets	$	1,436,417	$	7,250	$	137,600		$	(135,778	)	$	1,445,489

The accounting policies of the segments are the same as those described in the summary of significant accounting policies reported in the Company’s 2024 Form 10-K. The Company evaluates performance based on profit or loss from operations before income taxes, not including nonrecurring gains or losses.

Note 12. Subsequent Events

Proposed Merger with TowneBank

On April 2, 2025, the Company and the Bank entered into an Agreement and Plan of Merger (together with the related plan of merger, the “Merger Agreement”) with TowneBank, a Virginia banking corporation. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, (i) the Company will merge with and into TowneBank (the “Company Merger”), and (ii) immediately thereafter and contemporaneously therewith, the Bank will merge with and into TowneBank (such merger, together with the Company Merger, the “Merger”), with TowneBank continuing as the surviving corporation in the Merger (the “Surviving Corporation”). The boards of directors of each of Old Point, Old Point Bank and TowneBank unanimously approved the Merger Agreement.

At the effective time of the Merger, each share of Company common stock issued and outstanding immediately prior to the effective time, other than certain shares held by the Company, will be converted into the right to receive, at the election of the holder of such share of Company common stock, and subject to proration in accordance with the Merger Agreement: (i) $41.00 per share in cash (the “cash consideration”); or (ii) 1.14 shares of TowneBank common stock (the “stock consideration”). The shareholder election will be subject to a proration mechanism, such that the total number of shares of Company common stock (including shares subject to Company restricted stock awards) entitled to receive the stock consideration will be equal to no less than 50% and no more than 60% of the aggregate number of shares of Company common stock issued and outstanding immediately prior to the effective time (including shares subject to Company restricted stock awards), and all other shares of Company common stock issued and outstanding immediately prior to the effective time will be entitled to receive the cash consideration.

Index

The completion of the Merger is subject to customary closing conditions, including (i) approval of the Merger Agreement and an amendment to the Company’s articles of incorporation to allow the Company to merge with and into TowneBank by the Company’s shareholders, (ii) authorization for listing on Nasdaq of the shares of TowneBank common stock to be issued in the Merger, subject to official notice of issuance, (iii) the receipt of specified governmental consents and approvals, including from the FDIC, the Office of the Comptroller of the Currency (the “OCC”) and the Bureau of Financial Institutions (the “BFI”) of the Virginia State Corporation Commission, and termination or expiration of all applicable waiting periods in respect thereof, and, in the case of TowneBank’s obligation to effect the Merger, without the imposition of a materially burdensome regulatory condition, and (iv) the absence of any order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (a) the accuracy of the representations and warranties of the other party, subject to certain materiality and material adverse effect qualifications, (b) performance in all material respects by the other party of its obligations under the Merger Agreement and (c) receipt by such party of an opinion from counsel to the effect that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).

Index

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 2024 Form 10-K. In addition to current and historical information, the following discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to the Company’s future business, financial condition, or results of operations. For a description of certain factors that may have a significant impact on the Company’s future business, financial condition, or results of operations, see “Cautionary Statement Regarding Forward-Looking Statements” at the end of this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Results of operations for the three months ended March 31, 2025 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 March 31,
(dollars in thousands, except per share amounts)	2025			2024

Net income
Bank	$	2,812		$	2,068
Wealth		228			36
Parent		367			413
Eliminations		(1,249	)		(800	)
Consolidated net income	$	2,158		$	1,717

Earnings per share - basic and diluted	$	0.42		$	0.34

Return on average equity		7.50	%		6.44	%
Return on average assets		0.61	%		0.48	%

Net income for the three months ended March 31, 2025 was $2.2 million ($0.42 diluted earnings per share) compared to $1.7 million ($0.34 diluted earnings per share) for the three months ended March 31, 2024.

Index

Key highlights of the three months ended March 31, 2025 are as follows:

•

Total assets were $1.5 billion at March 31, 2025, increasing $418 thousand or 0.03% from December 31, 2024. Net loans held for investment were $1.0 billion at March 31, 2025, increasing $2.3 million, or 0.2%, from December 31, 2024.

•

Total deposits increased $2.6 million, or 0.2%, from December 31, 2024.

•

Return on average equity (ROE) (annualized) was 7.50% and adjusted ROE (non-GAAP) was 6.90% for the first quarter of 2025, compared to ROE of 9.96% for the fourth quarter of 2024, and 6.44% for the first quarter of 2024. Return on average assets (ROA) (annualized) was 0.61% and adjusted ROA (non-GAAP) was 0.56% for the first quarter of 2025, compared to ROA of 0.77% for the fourth quarter of 2024, and 0.48% for the first quarter of 2024.

•

Book value per share and tangible book value per share (non-GAAP) at March 31, 2025 increased 2.32% and 2.35%, from December 31, 2024 and increased 7.54% and 7.72%, respectively from March 31, 2024.

•

Net income decreased $722 thousand, or 25.1%, to $2.2 million for the first quarter of 2025 from $2.9 million for the fourth quarter of 2024 and increased $441 thousand, or 25.7% from $1.7 million for the first quarter of 2024.

•

Net interest margin (NIM) was 3.63% for the first quarter of 2025 compared to 3.52% for the fourth quarter of 2024 and 3.45% for the first quarter of 2024. NIM on a fully tax-equivalent basis (FTE) (non-GAAP) was 3.64% for the first quarter of 2025 compared to 3.53% for the fourth quarter of 2024 and 3.46% for the first quarter of 2024.

•

Net interest income decreased $244 thousand, or 2.0%, to $12.0 million for the first quarter of 2025 from $12.3 million for the fourth quarter of 2024 and increased $468 thousand, or 4.1%, compared to the first quarter of 2024.

•

Provision for credit losses of $717 thousand was recognized for the first quarter of 2025, compared to $90 thousand for the fourth quarter of 2024 and $80 thousand for the first quarter of 2024.

•

Non-performing assets were $4.2 million as of March 31, 2025, increasing $1.5 million or 53.9% from $2.7 million at December 31, 2024. Non-performing assets as a percentage of total assets were 0.29% at March 31, 2025, compared to 0.19% at December 31, 2024. Non-performing assets at March 31, 2025 increased by $2.0 million from $2.2 million, or 0.15% of total assets at March 31, 2024.

•

Liquidity as of March 31, 2025, defined as cash and cash equivalents, unpledged securities, and available secured borrowing capacity, totaled $456.5 million, representing 31.5% of total assets compared to $460.0 million, representing 31.7% of total assets as of December 31, 2024.

For more information about financial measures that are not calculated in accordance with GAAP, including a reconciliation to the most directly comparable financial measures calculated in accordance with U.S. GAAP, please see “Non-GAAP Financial Measures” below.

Proposed Merger with TowneBank

Index

The completion of the Merger is subject to customary closing conditions, including (i) approval of the Merger Agreement and an amendment to the Company’s articles of incorporation to allow the Company to merge with and into TowneBank by the Company’s shareholders, (ii) authorization for listing on Nasdaq of the shares of TowneBank common stock to be issued in the Merger, subject to official notice of issuance, (iii) the receipt of specified governmental consents and approvals, including from the FDIC, the OCC and the BFI, and termination or expiration of all applicable waiting periods in respect thereof, and, in the case of TowneBank’s obligation to effect the Merger, without the imposition of a materially burdensome regulatory condition, and (iv) the absence of any order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (a) the accuracy of the representations and warranties of the other party, subject to certain materiality and material adverse effect qualifications, (b) performance in all material respects by the other party of its obligations under the Merger Agreement and (c) receipt by such party of an opinion from counsel to the effect that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.

Capital Management and Dividends

Total equity was $117.2 million as of March 31, 2025, compared to $114.0 million at December 31, 2024. Total equity increased $3.2 million at March 31, 2025 compared to December 31, 2024, due primarily to net income and a $1.7 million improvement of unrealized losses in the market value of securities available-for-sale, net of tax, 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 first quarter of 2025, the Company declared dividends of $0.14 per share, consistent with the fourth quarter of 2024. The dividend represents a payout ratio of 33.0% of EPS for the first three months of 2025. The Board of Directors of the Company has established 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, and the Merger Agreement contains customary terms that limit any future increases to the Company’s quarterly dividend without prior approval by TowneBank. 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 March 31, 2025, the book value per share of the Company’s common stock was $22.96, and tangible book value per share (non-GAAP) was $22.61, compared to $21.35 and $20.99, respectively, at March 31, 2024. Refer to “Non-GAAP Financial Measures,” below, for information about non-GAAP financial measures, including a reconciliation to the most directly comparable financial measures calculated in accordance with U.S. GAAP.

Critical Accounting Estimates

The accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. Those accounting policies with the greatest uncertainty and that require management’s most difficult, subjective, or complex judgments affecting the application of these policies, and the greatest likelihood that materially different amounts would be reported under different conditions, or using different assumptions, are described below.

For further information on the Company’s critical accounting estimates, refer to “Note 1. Description of Business and Summary of Significant Accounting Policies” and under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in its 2024 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.

Index

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 2024 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 first quarter of 2025 was $12.0 million, a decrease of $244 thousand, or 2.0%, from the prior quarter and an increase of $468 thousand, or 4.1% from the first quarter of 2024. The increase from the prior year quarter was due primarily to higher average balances of, and lower average rates on, interest-bearing liabilities.

Net interest income, on a fully tax-equivalent basis (non-GAAP), was $12.0 million for the first quarter of 2025, an increase of $467 thousand from the 2024 comparative quarter. NIM for the first quarter of 2025 was 3.63%, an increase from 3.45% for the prior year quarter. On a fully tax-equivalent basis (non-GAAP), NIM was 3.64% for the three months ended March 31, 2025, compared to 3.46% for the prior year comparative period. For more information about these FTE financial measures, please see “Non-GAAP Financial Measures” below.

Average earning asset balances for the first quarter of 2025 decreased $1.4 million compared to the first quarter of 2024 with yields on average earning assets increasing 4 basis points, the result of a higher interest rate environment.

Average loans decreased $64.0 million, or 5.9%, for the first quarter of 2025, compared to the same period of 2024. Average yields on loans were 18 basis points higher in the first quarter of 2025 compared to the same period of 2024, the result of a higher interest rate environment.

Average securities available-for-sale increased $18.2 million for the first quarter of 2025, respectively, compared to the same period in 2024, due primarily to purchases of available-for-sale securities and fluctuations in fair market value. The average yield on the investment securities portfolio, on a taxable-equivalent basis, increased 4 basis points for the first quarter of 2025, compared to the same periods in 2024, primarily the result of a higher interest rate environment 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 $45.5 million for the first quarter of 2025, compared to the same period in 2024 due primarily to reserving cash to fund future growth in higher yielding loans and securities. Due to changes in interest rates, the average yield on interest-bearing deposits in other banks decreased 107 basis points for the first quarter of 2025 compared to the same period in 2024. The FRB interest rate on excess cash reserve balances was 4.40% at March 31, 2025.

Index

Average interest-bearing liabilities decreased $22.3 million for the first quarter of 2025 compared to the same period of 2024, with costs decreasing 15 basis points. The lower interest cost of liabilities was primarily due to lower interest rates on money market and time deposits, as well as decreases in short term average FHLB advances during the period. Average money market deposits increased $52.6 million for the first quarter while average interest-bearing demand deposits, time, and savings deposits decreased $43.5 million for the first quarter of 2025, compared to the same period in 2024. Average noninterest-bearing demand deposits increased $8.2 million for the first quarter of 2025, compared to the same period of 2024. The average cost of interest-bearing deposits decreased 8 basis points for the first quarter of 2025, compared to the same periods in 2024, due primarily to lower interest rates on money market and time deposits. 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.

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 March 31,
	2025								2024
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
(dollars in thousands)	Balance			Expense		Rate**			Balance			Expense		Rate**
Assets
Loans	$	1,012,941		$	13,987		5.60	%	$	1,076,894		$	14,544		5.42	%
Investment securities:
Taxable		193,795			1,975		4.13	%		175,241			1,798		4.12	%
Tax-exempt*		25,799			173		2.72	%		26,115			176		2.70	%
Total investment securities		219,594			2,148		3.97	%		201,356			1,974		3.93	%
Interest-bearing deposits in other banks		103,402			1,136		4.46	%		57,921			799		5.53	%
Federal funds sold		797			8		4.07	%		709			9		5.09	%
Other investments		3,918			60		6.21	%		5,201			94		7.27	%
Total earning assets		1,340,652		$	17,339		5.25	%		1,342,081		$	17,420		5.21	%
Allowance for credit losses		(11,463	)							(12,393	)
Other non-earning assets		100,833								105,193
Total assets	$	1,430,022							$	1,434,881

Liabilities and Stockholders’ Equity
Interest-bearing deposits:
Interest-bearing transaction accounts	$	83,896	$	2	0.01	%	$	94,434	$	3	0.01	%
Money market deposit accounts		504,756		2,783	2.24	%		452,198		2,587	2.29	%
Savings accounts		77,273		6	0.03	%		89,035		7	0.03	%
Time deposits		216,856		1,801	3.37	%		238,076		2,172	3.66	%
Total interest-bearing deposits		882,781		4,592	2.11	%		873,743		4,769	2.19	%
Federal funds purchased, repurchase agreements and other borrowings		3,890		38	3.96	%		2,484		1	0.16	%
Federal Home Loan Bank advances		40,000		401	4.07	%		69,716		778	4.48	%
Long term borrowings		26,644		264	4.02	%		29,680		295	3.99	%
Total interest-bearing liabilities		953,315		5,295	2.25	%		975,623		5,843	2.40	%
Demand deposits		352,312						344,098
Other liabilities		7,717						8,209
Stockholders’ equity		116,678						106,951
Total liabilities and stockholders’ equity	$	1,430,022					$	1,434,881
Net interest margin			$	12,044	3.64	%			$	11,577	3.46	%

*	Computed on a fully tax-equivalent basis using a 21% rate, adjusting interest income by $36 thousand and $37 thousand for March 31, 2025 and 2024, 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.

Index

Table 3: Volume and Rate Analysis*

	For the three months ended March 31, 2025 from 2024
	Increase (Decrease)
	Due to Changes in:
(dollars in thousands)	Volume			Rate			Total
Earning Assets
Loans*	$	(864	)	$	307		$	(557	)
Investment securities:
Taxable		190			(13	)		177
Tax-exempt*		(2	)		(1	)		(3	)
Total investment securities		188			(14	)		174

Federal funds sold		1			(2	)		(1	)
Other investments**		604			(301	)		303
Total earning assets		(71	)		(10	)		(81	)

Interest-Bearing Liabilities
Interest-bearing transaction accounts		-			(1	)		(1	)
Money market deposit accounts		301			(105	)		196
Savings accounts		(1	)		-			(1	)
Time deposits		(194	)		(177	)		(371	)
Total time and savings deposits		106			(283	)		(177	)
Federal funds purchased, repurchase agreements and other borrowings		1			36			37
Federal Home Loan Bank advances		(332	)		(45	)		(377	)
Long term borrowings		(30	)		(1	)		(31	)
Total interest-bearing liabilities		(255	)		(293	)		(548	)

Change in net interest income	$	184		$	283		$	467

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

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

The Company believes NIM may be affected in future periods by several factors that are difficult to predict, including (1) changes in interest rates, which may depend on the severity of adverse economic conditions, inflationary pressures, the timing and extent of any economic recovery, which are inherently uncertain; (2) possible changes in the composition of earning assets which may result from decreased loan demand as a result of the current economic environment; and (3) possible changes in the composition of interest-bearing liabilities, which may result from decreased deposit balances or increased competition for deposits, or from changes in the availability of certain types of wholesale funding.

Provision for Credit Losses

For the three months ended March 31, 2025, the Company recognized a provision for credit losses of $717 thousand compared to $80 thousand for the three months ended March 31, 2024. The provision for credit losses for the first quarter of 2025 included a provision for loans of $725 thousand and a $8 thousand recovery for unfunded commitments. Charged-off loans totaled $423 thousand and $494 thousand in the first three months of 2025 and 2024, respectively. Recoveries amounted to $72 thousand and $158 thousand for the three months ended March 31, 2025 and 2024, respectively. The Company’s annualized net loans charged off to average loans were 0.14% for the first quarter of 2025 compared to 0.12% for the first quarter of 2024. The increased provision for credit losses for the three months ended March 31, 2025 compared to the same period in 2024 was primarily driven by an increase in the specific reserve for one commercial real estate relationship, net charge-offs affecting historical loss rates, and the continued uncertainty in the economic outlook in certain portfolios.

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.

Index

Noninterest Income

Total noninterest income was $3.8 million for the first quarter of 2025, increasing $625 thousand compared to the first quarter of 2024. The increase over the prior year quarter was primarily driven by the gain on redemption and retirement of subordinated notes and an increase in fiduciary and asset management fees, partially offset by losses on the sales of available-for-sale securities and losses on sales of repossessed assets.

Noninterest Expense

Noninterest expense totaled $12.4 million for the first quarter of 2025 compared to $12.7 million for the first quarter of 2024. 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 merger-related costs. The decrease in salaries and employee benefits in the first quarter of 2025 compared to the first quarter of 2024 was primarily driven by the noninterest expense reduction initiatives in 2024, which reduced the employee headcount by approximately 12%.

Income Tax Expense

The Company’s income tax expense increased $271 thousand for the three months ended March 31, 2025 compared to the same period in 2024 primarily due to changes in the levels of pre-tax income, the mix of effective tax-exempt income, and increases in non-deductible expenses. The effective federal income tax rate for the three months ended March 31, 2025 was 19.8% compared to 13.2% for the same period in 2024. The increase in the effective federal income tax rate for the three months ended March 31, 2025 compared to the same period in 2024, was driven primarily by non-deductible merger-related expenses.

Discussion and Analysis of Financial Condition

As of March 31, 2025, the Company had total assets of $1.5 billion, an increase of $418 thousand compared to assets at December 31, 2024.

Net loans held for investment increased $2.3 million or 0.2%, from December 31, 2024 to $1.0 billion at March 31, 2025, primarily driven by the following: increases in consumer automobile loans of $5.4 million, commercial – owner occupied loans of $4.3 million, equity lines of credit of $2.0 million, and construction and land development loans of $1.8 million, partially offset by decreases in commercial and industrial loans of $3.3 million and commercial – non-owner occupied loans of $4.8 million. Cash and cash equivalents decreased $4.1 million from December 31, 2024 to March 31, 2025. Securities available-for-sale, at fair value, increased $2.8 million from December 31, 2024 to $220.9 million at March 31, 2025, driven primarily by purchases of available-for-sale securities and fluctuations in fair market value.

Total deposits of $1.3 billion as of March 31, 2025 increased $2.6 million, or 0.2% from December 31, 2024. Noninterest-bearing deposits increased $15.7 million, or 4.4%, savings deposits increased $29.9 million, or 4.5%, and time deposits decreased $43.0 million, or 17.9%. The increase in total deposits was primarily driven by increases from large commercial and municipal customers.

The Company utilizes FHLB advances as a primary source of liquidity as needed. As of March 31, 2025 and December 31, 2024, the Company had FHLB advances of $40.0 million. Overnight repurchase agreements, other borrowings, and subordinated notes decreased $4.4 million to $69.4 million at March 31, 2025 from $73.8 million at December 31, 2024. This was primarily driven by a decrease in subordinated notes of $3.7 million or 12.5% as of March 31, 2025 from December 31, 2024, due to the repurchase and retirement in the first quarter, of a subordinated note issued by the Company, resulting in a realized gain of $656 thousand.

Securities Portfolio

When comparing March 31, 2025 to December 31, 2024, securities available-for-sale increased $2.8 million, or 1.3%, driven primarily by purchases of available-for-sale securities and fluctuations in fair market value. The Company’s strategy for the securities portfolio is primarily intended to manage the portfolio’s susceptibility to interest rate risk and to provide liquidity to fund loan growth. The securities portfolio is also adjusted to achieve other asset/liability objectives, including pledging requirements, and to manage tax exposure when necessary.

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

Index

Table 4: Securities Portfolio

	March 31,				December 31,
(dollars in thousands)	2025				2024
U.S. Treasury securities	$	3,940	2	%	$	3,917	2	%
Obligations of U.S. Government agencies		40,714	19	%		41,291	19	%
Obligations of state and political subdivisions		48,203	21	%		49,635	22	%
Mortgage-backed securities		98,620	44	%		94,838	43	%
Corporate bonds and other securities		29,441	13	%		28,402	13	%
	$	220,918	99	%	$	218,083	99	%
Restricted securities:
Federal Home Loan Bank stock	$	2,910	1	%	$	2,906	1	%
Federal Reserve Bank stock		966	-			966	-
Community Bankers’ Bank stock		46	-			46	-
	$	3,922			$	3,918
Total Securities	$	224,840	100	%	$	222,001	100	%

The following table summarizes the contractual maturity of the securities portfolio and their weighted average yields as of March 31, 2025.

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	$	3,940		$	-		$	-		$	-		$	3,940
Weighted average yield		1.70	%		-			-			-			1.70	%

Obligations of U.S. Government agencies	$	590		$	3,146		$	1,549		$	35,429		$	40,714
Weighted average yield		1.01	%		3.18	%		3.89	%		5.62	%		5.64	%

Obligations of state and political subdivisions	$	1,000		$	975		$	22,252		$	23,976		$	48,203
Weighted average yield		3.43	%		1.47	%		2.33	%		2.29	%		2.31	%

Mortgage-backed securities	$	-		$	11,081		$	4,366		$	83,173		$	98,620
Weighted average yield		-			2.29	%		0.12	%		3.44	%		3.37	%

Corporate bonds and other securities	$	-		$	983		$	28,458		$	-		$	29,441
Weighted average yield		-			8.64	%		4.69	%		-			4.75	%

Total Securities	$	5,530		$	16,185		$	56,625		$	142,578		$	220,918
Weighted average yield		1.94	%		2.80	%		3.39	%		3.98	%		3.74	%

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 March 31, 2025 and December 31, 2024, see Part I, Item 1, “Financial Statements” under the heading “Note 2. Securities” in this Quarterly Report on Form 10-Q.

Loan Portfolio

The following table shows a breakdown of total loans by segment at March 31, 2025 and December 31, 2024.

Index

Table 6: Loan Portfolio

	March 31,		December 31,
(dollars in thousands)	2025		2024
Commercial and industrial	$	50,567	$	53,906
Real estate-construction		87,767		85,926
Real estate-mortgage (1)		286,071		286,771
Real estate-commercial (2)		438,411		438,885
Consumer (3)		146,919		142,138
Other		3,095		2,534
Ending Balance	$	1,012,830	$	1,010,160

(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 March 31, 2025 is presented below:

Table 7: Maturity Schedule of Loan Portfolio

	As of March 31, 2025
(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	$	12,030	$	45,576	$	72,163	$	71,598	$	6,166	$	2,341	$	209,874
1 to 5 years		385		601		30,026		17,833		-		318		49,163
5 to 15 years		-		9,043		34,770		-		-		-		43,813
After 15 years		-		-		-		-		-		-		-
Fixed Rate:
Within 1 year	$	2,494	$	13,248	$	14,731	$	27,648	$	951	$	-	$	59,072
1 to 5 years		27,786		10,660		34,270		210,415		93,858		79		377,068
5 to 15 years		7,872		8,598		33,992		105,797		40,538		357		197,154
After 15 years		-		41		66,119		5,120		5,406		-		76,686
	$	50,567	$	87,767	$	286,071	$	438,411	$	146,919	$	3,095	$	1,012,830

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

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

(3)	The consumer segment includes consumer automobile loans.

For more information about the Company’s loan portfolio as of March 31, 2025 and December 31, 2024, see Part I, Item 1, “Financial Statements” under the heading “Note 3. Loans and the Allowance for Credit Losses on Loans” in this Quarterly Report on Form 10-Q.

Nonperforming Assets

The following table summarizes information concerning credit ratios and nonperforming assets as of March 31, 2025 and December 31, 2024.

Non-performing assets (NPAs) totaled $4.2 million as of March 31, 2025, compared to $2.7 million as of December 31, 2024. NPAs as a percentage of total assets were 0.29% at March 31, 2025, compared to 0.19% at December 31, 2024. 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.

Index

Table 8: Nonperforming Assets

	March 31,			December 31,
(dollars in thousands)	2025			2024
Total loans	$	1,012,830		$	1,010,160
Nonaccrual loans		80			82
Loans past due 90 days or more and accruing interest		1,884			641
Repossessed assets		2,183			1,972
Total Nonperforming Assets	$	4,147		$	2,695
ACLL	$	11,821		$	11,447
Nonaccrual loans to total loans		0.01	%		0.01	%
ACLL to total loans		1.17	%		1.13	%
ACLL to nonaccrual loans		14776.25	%		13959.76	%
Annualized year-to-date net charge-offs to average loans		0.13	%		0.15	%

As shown in the table above, as of March 31, 2025 compared to December 31, 2024, non-accrual loans were $80 thousand at March 31, 2025, a decrease from $82 thousand at December 31, 2024. Loans past due 90 days or more and still accruing interest increased $1.2 million to $1.9 million at March 31, 2025 from $641 thousand at December 31, 2024, primarily due to a $1.2 million real estate – construction relationship moving to this category in the first quarter of 2025. Repossessed assets were $2.2 million at March 31, 2025 compared to $2.0 million at December 31, 2024. The increase in repossessed assets from the prior period was driven by the recovery efforts of certain loans that were previously past due. 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 March 31, 2025, the ACL was $12.0 million and included an ACLL of $11.8 million and an allowance for unfunded commitments of $176 thousand. The increase in the ACL during the first quarter of 2025 compared to the fourth quarter of 2024 was driven by an increase in the specific reserve for one commercial real estate relationship, net charge-offs affecting historical loss rates, and the continued uncertainty in the economic outlook in certain portfolios. The following table summarizes the ACL as of March 31, 2025 and December 31, 2024:

Table 9: Allowance for Credit Losses

	March 31,		December 31,
(dollars in thousands)	2025		2024
Total ACLL	$	11,821	$	11,447
Total reserve for unfunded commitments		176		184
Total ACL	$	11,997	$	11,631

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 2024 Form 10-K and Part I, Item 1, “Financial Statements” under the heading “Note 3. Loans and the Allowance for Credit Losses on Loans” in this Quarterly Report on Form 10-Q.

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

Index

Table 10: Allowance for Credit Losses on Loans

For the three months ended March 31, 2025

(dollars in thousands)	Commercial and Industrial			Real Estate Construction			Real Estate - Mortgage (1)			Real Estate - Commercial (3)			Consumer (2)			Other			Total
Allowance for credit losses on loans:
Balance, beginning	$	480		$	814		$	2,874		$	5,493		$	1,641		$	145		$	11,447
Charge-offs		(133	)		-			(19	)		-			(225	)		(46	)		(423	)
Recoveries		2			-			4			-			42			24			72
Provision for (recovery of) credit losses		114			12			(10	)		406			257			(54	)		725
Ending Balance	$	463		$	826		$	2,849		$	5,899		$	1,715		$	69		$	11,821

Average loans		54,166			86,147			286,353			438,956			144,463			2,856			1,012,941
Ratio of net charge-offs to average loans		0.24	%		0.00	%		0.01	%		0.00	%		0.13	%		0.77	%		0.03	%

For the three months ended March 31, 2024

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

Average loans		63,092			109,761			285,125			443,149			174,014			1,753			1,076,894
Ratio of net charge-offs to average loans		-0.01	%		0.00	%		0.00	%		0.00	%		0.19	%		1.43	%		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 includes consumer automobile loans.

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

The following table shows the amount of the ACLL allocated to each category and the ratio of corresponding outstanding loan balances as of March 31, 2025 and December 31, 2024. 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

	March 31,					December 31,
	2025					2024
(dollars in thousands)	Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans
Commercial and industrial	$	463		4.99	%	$	480		5.34	%
Real estate-construction		826		8.67	%		814		8.51	%
Real estate-mortgage (1)		2,849		28.24	%		2,874		28.39	%
Real estate-commercial (3)		5,899		43.29	%		5,493		43.45	%
Consumer (2)		1,715		14.51	%		1,641		14.07	%
Other		69		0.30	%		145		0.24	%
Ending Balance	$	11,821		100.00	%	$	11,447		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.

Index

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 $50.6 million at March 31, 2025 (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 March 31, 2025, 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.

As previously reported, the Company has begun enhanced credit administration efforts related to two loans secured by office buildings in order to support the Company’s objective of maintaining a portfolio of quality credits and quickly identifying potential weaknesses, These credits were classified as Substandard at March 31, 2025 and December 31, 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.

As of March 31, 2025, total deposits were $1.3 billion, an increase of $2.6 million, or 0.2%, compared to December 31, 2024. The following table presents average balances and average rates paid on deposits for the periods presented.

Table 12: Deposits

	Three Months ended March 31,
	2025					2024
	Average		Average			Average		Average
(Dollars in thousands)	Balance		Rate			Balance		Rate
Interest-bearing transaction	$	83,896		0.01	%	$	94,434		0.01	%
Money market		504,756		2.24	%		452,198		2.29	%
Savings		77,273		0.03	%		89,035		0.03	%
Time deposits		216,856		3.37	%		238,076		3.66	%
Total interest-bearing		882,781		2.11	%		873,743		2.19	%
Demand		352,312					344,098
Total deposits	$	1,235,093				$	1,217,841

The average rate paid on interest-bearing deposits by the Company for the three months ended March 31, 2025 was 2.11% compared to 2.19% for the three months ended March 31, 2024. Average balances of money market and noninterest-bearing demand deposits increased $52.6 million and $8.2 million, respectively, from the same period in the prior year, while average balances of interest-bearing demand, savings, and time deposits decreased $10.5 million, $11.8 million, and $21.2 million, respectively, as seen in the table above. The decrease in interest-bearing demand, savings, and time deposits was driven in part by depositors seeking increased yields. The Company remains focused on increasing lower-cost deposits by actively targeting new noninterest-bearing deposits and savings deposits.

As of March 31, 2025 and December 31, 2024, the estimated amounts of total uninsured deposits were approximately $235.4 million and $229.8 million, respectively, or 19.1% and 18.3% of total deposits, respectively. The following table shows maturities of the estimated amounts of uninsured time deposits as of March 31, 2025. 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.

Index

Table 13: Maturities of Uninsured Time Deposits

	As of March 31,
(dollars in thousands)	2025
Maturing in:
Within 3 months	$	11,870
4 through 6 months		21,038
7 through 12 months		26,853
Greater than 12 months		11,414
	$	71,175

Capital Resources

Total stockholders’ equity as of March 31, 2025 was $117.2 million, up 2.8% from $114.0 million on December 31, 2024. The increase was primarily driven by net income and a $1.7 million improvement of unrealized losses on securities available-for-sale driven by fluctuations in market interest rates, net of tax, 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 ensure an adequate level of capital to support anticipated asset growth and to absorb potential losses. While the Company will continue to look for opportunities to invest capital in profitable growth, the Company will also consider investing capital in other transactions, such as share repurchases, that facilitate improving shareholder return, as measured by ROE and EPS.

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

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

of the Company’s 2024 Form 10-K.

The following is a summary of the Bank’s capital ratios as of March 31, 2025 and December 31, 2024. As shown below, these ratios were all well above the recommended regulatory minimum levels.

Table 14: Regulatory Capital

(dollars in thousands)	2025 Regulatory Minimums			March 31, 2025			2024 Regulatory Minimums			December 31, 2024
Common Equity Tier 1 Capital to Risk-Weighted Assets		4.500	%		13.04	%		4.500	%		12.97	%
Tier 1 Capital to Risk-Weighted Assets		6.000	%		13.04	%		6.000	%		12.97	%
Total Capital to Risk-Weighted Assets		8.000	%		14.08	%		8.000	%		13.98	%
Tier 1 Leverage to Average Assets		4.000	%		10.45	%		4.000	%		10.06	%
Risk-Weighted Assets				$	1,151,451					$	1,149,515

The Basel III Capital Rules established a “capital conservation buffer” of 2.5 percent above the regulatory minimum risk-based capital ratios, which is not included in the table above. Including the capital conservation buffer, the minimum ratios are a Common Equity Tier 1 capital risk-based ratio of 7.0 percent, a Tier 1 capital risk-based ratio of 8.5 percent, and a Total capital risk-based ratio of 10.5 percent. The Bank exceeded these ratios as of March 31, 2025 and December 31, 2024.

Index

On July 14, 2021, the Company issued $30.0 million ($29.4 million, net of issuance costs) of 3.5 percent fixed-to-floating rate subordinated notes due 2031 (the Notes) in a private placement transaction. The Notes initially bear interest at a fixed rate of 3.5 percent for five years and convert to three-month SOFR plus 286 basis points, resetting quarterly, thereafter. The Notes were structured to qualify as Tier 2 capital of the Company for regulatory purposes (should the Company be subject to regulatory capital requirements) and are included in the Company’s Tier 2 capital as of March 31, 2025 and December 31, 2024. In the first quarter of 2025, $3.7 million of subordinated notes were repurchased and retired, resulting in a realized gain of $656 thousand.

Liquidity

Liquidity is the ability of the Company to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, investments in securities and loans maturing within one year. Additional sources of liquidity available to the Company include cash flows from operations, loan payments and payoffs, deposit growth, maturities, calls and sales of securities, the issuance of brokered certificates of deposits and the capacity to borrow additional funds.

A major source of the Company’s liquidity is its large, stable deposit base. In addition, secondary liquidity sources are available through the use of borrowed funds if the need should arise, including secured advances from the FHLB and FRB. As of March 31, 2025, the Company had $440.5 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 $400.5 million. The Company believes that the availability at the FHLB is sufficient to meet future cash-flow needs. The Company also had $115.0 million available short-term, unsecured borrowed funds in the form of federal funds lines of credit with correspondent banks to address any short-term borrowing needs as of March 31, 2025. In addition, the Company also had an outstanding line of credit amount of $3.3 million as of March 31, 2025. The remaining availability of the line as of March 31, 2025 was $1.2 million.

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 March 31, 2025. 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

	March 31,
	2025
(dollars in thousands)	Total		In Use		Available
Sources:
Federal funds lines of credit	$	115,000	$	-	$	115,000
Federal Home Loan Bank advances		440,505		40,000		400,505
Federal funds sold & balances at the Federal Reserve		119,574		-		119,574
Short-term borrowings		3,250		2,005		1,245
Securities, available for sale and unpledged at fair value		136,875		-		136,875
Total funding sources					$	773,199

Uses: ⁽¹⁾
Unfunded loan commitments and lending lines of credit					$	81,937
Letters of credit						830
Total potential short-term funding uses					$	82,767
Liquidity coverage ratio						934.2	%

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

Index

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

In the ordinary course of business, the Company has entered into contractual obligations and has made other commitments to make future payments. As of March 31, 2025, 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 2024 Form 10-K.

Off-Balance Sheet Arrangements

As of March 31, 2025, there were no material changes in the Company’s off-balance sheet arrangements disclosed in the Company’s 2024 Form 10-K.

Non-GAAP Financial Measures

In reporting the results as of and for the three months ended March 31, 2025, the accounting and reporting policies of the Company conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company’s performance which include financial measures presented on a tax equivalent, tangible, or adjusted basis.

Management believes that 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 items or events that may obscure trends in the Company’s underlying performance. 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.

Index

Table 16: Non-GAAP Financial Measures

	Three Months Ended
(dollar in thousands, except share and per share data)	Mar. 31, 2025			Dec. 31, 2024			Mar. 31, 2024
Fully Taxable Equivalent (FTE) Net Interest Income
Net interest income (GAAP)	$	12,008		$	12,252		$	11,540
FTE adjustment		36			37			37
Net interest income (FTE) (non-GAAP)	$	12,044		$	12,289		$	11,577
Noninterest income (GAAP)		3,847			3,244			3,222
Total revenue (FTE) (non-GAAP)	$	15,891		$	15,533		$	14,799
Noninterest expense (GAAP)		12,447			12,088			12,703

Average earning assets	$	1,340,652		$	1,386,102		$	1,342,081
Net interest margin		3.63	%		3.52	%		3.45	%
Net interest margin (FTE) (non-GAAP)		3.64	%		3.53	%		3.46	%

Efficiency ratio		78.51	%		78.01	%		86.05	%
Efficiency ratio (FTE) (non-GAAP)		78.32	%		77.82	%		85.83	%

Tangible Book Value Per Share
Total Stockholders’ Equity (GAAP)	$	117,217		$	113,970		$	107,630
Less goodwill		1,650			1,650			1,650
Less core deposit intangible, net		132			143			176
Tangible Stockholders’ Equity (non-GAAP)	$	115,435		$	112,177		$	105,804
Shares issued and outstanding		5,105,030			5,078,318			5,040,391

Book value per share	$	22.96		$	22.44		$	21.35
Tangible book value per share (non-GAAP)	$	22.61		$	22.09		$	20.99

Adjusted Operating Earnings (non-GAAP)
Net income (GAAP)	$	2,158		$	2,880		$	1,717
Plus loss on sale of available-for-sale securities, net of tax		139			-			-
Less gain on redemption and retirement of subordinated notes, net of tax		(518	)		-			-
Plus merger-related costs, net of tax		206			-			-
Adjusted Operating Earnings (non-GAAP)	$	1,985		$	2,880		$	1,717

Weighted average diluted shares		5,086,759			5,077,995			5,039,876
Diluted EPS (GAAP)	$	0.42		$	0.57		$	0.34
Diluted EPS (non-GAAP)	$	0.39		$	0.57		$	0.34
Average assets	$	1,430,022		$	1,478,544		$	1,434,881
Average equity	$	116,678		$	115,007		$	106,951
Return on average assets (GAAP)		0.61	%		0.77	%		0.48	%
Adjusted return on average assets (non-GAAP)		0.56	%		0.77	%		0.48	%
Return on average equity (GAAP)		7.50	%		9.96	%		6.44	%
Adjusted return on average equity (non-GAAP)		6.90	%		9.96	%		6.44	%
Efficiency ratio (GAAP)		78.51	%		78.01	%		86.05	%
Adjusted efficiency ratio (non-GAAP)		79.62	%		77.82	%		85.83	%

Index

Cautionary Statement Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q, including without limitation, statements regarding the Company’s profitability, liquidity, allowance for credit losses, interest rate sensitivity, market risk and strategy, 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: the proposed Merger with TowneBank, 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:

•

the Merger may not close in a timely manner or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the Merger), which may adversely affect the Company’s business and the price of the Company’s common stock;

•

the outcome of any legal proceeding that may be instituted against the Company related to the Agreement or the Merger;

•

the occurrence of any event, change or other circumstance that could give rise to the right of one or both of the parties to terminate the Agreement;

•

the announcement or pendency of the Merger could adversely affect the Company’s business relationships, results of operations, employees and business generally;

•

the proposed Merger may disrupt current plans and operations of the Company and cause difficulties in the Company’s employee retention;

•

the proposed Merger may divert management’s attention from the Company’s ongoing business operations;

•

the amount of unexpected costs, fees, expenses and other charges related to the Merger;

•

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;

•

U.S. and global trade policies and tensions, including changes in, or the imposition of, tariffs and/or trade barriers and the economic impacts, volatility and uncertainty resulting therefrom, and geopolitical instability;

•

adverse developments in the financial services industry, such as bank failures, 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;

•

economic and business conditions in the United States generally and particularly in the Company’s service area, including 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;

•

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

Index

•

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;

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the legislative/regulatory climate, regulatory initiatives with respect to financial institutions, products and services;

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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;

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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;

•

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;

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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 2024 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.

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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.

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 March 31, 2025 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 March 31, 2025 (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
	March 31, 2025						December 31, 2024
Change in Yield Curve	Dollars			%			Dollars			%
+300 basis points	$	1,330			2.46	%	$	930			-2.41	%
+200 basis points	$	170			0.31	%	$	(40	)		-4.20	%
+100 basis points	$	(370	)		-0.69	%	$	(430	)		-4.93	%
Most likely rate scenario
-100 basis points	$	(360	)		-0.67	%	$	(390	)		-4.85	%
-200 basis points	$	(1,490	)		-2.76	%	$	(1,520	)		-6.95	%
-300 basis points	$	(3,580	)		-6.63	%	$	(3,570	)		-10.74	%

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 March 31, 2025 (dollars in thousands):

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	Change in Economic Value of Equity
	March 31, 2025						December 31, 2024
Change in Yield Curve	Dollars			%			Dollars			%
+300 basis points	$	29,200			11.34	%	$	24,600			5.40	%
+200 basis points	$	22,600			8.78	%	$	19,300			3.34	%
+100 basis points	$	13,200			5.13	%	$	11,500			0.31	%
Most likely rate scenario
-100 basis points	$	(17,400	)		-6.76	%	$	(15,400	)		-10.14	%
-200 basis points	$	(43,600	)		-16.93	%	$	(38,400	)		-19.07	%
-300 basis points	$	(81,100	)		-31.50	%	$	(72,400	)		-32.27	%

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 first quarter ended March 31, 2025, 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 2024 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.

Except as described below, there have been no material changes in the risk factors faced by the Company from those disclosed in the Company’s 2024 Form 10-K.

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Risks Relating to the Consummation of the Merger and the Surviving Corporation Following the Merger

Because the market price of TowneBank common stock may fluctuate, holders of the Company’s common stock cannot be certain of the market value of the stock consideration in the Company Merger.

At the effective time of the Company Merger, each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the Company Merger (other than certain shares held by the Company) will be converted into the right to elect to receive either (i) $41.00 per share in cash (the “cash consideration”) or (ii) 1.14 shares (the “exchange ratio” and such shares, the “stock consideration”) of TowneBank common stock, subject to proration and allocation procedures set forth in the Merger Agreement to ensure that the total number of shares of Company common stock (including shares subject to Company restricted stock awards) entitled to receive the stock consideration will be equal to no less than 50% and no more than 60% of the aggregate number of shares of Company common stock issued and outstanding immediately prior to the effective time (including shares subject to Company restricted stock awards), and all other shares of Company common stock issued and outstanding immediately prior to the effective time (including shares subject to Company restricted stock awards) will be entitled to receive cash consideration. The cash consideration and stock consideration, in each case without interest, together are referred to as the “merger consideration.” The exchange ratio is fixed and will not be adjusted for changes in the market price of either TowneBank common stock or Company common stock. Changes in the price of TowneBank common stock between now and the time of the Company Merger will affect the value of stock consideration that will be received by holders of the Company’s common stock in the Company Merger. Neither TowneBank nor the Company is permitted to terminate the Merger Agreement as a result of any increase or decrease in the market price of TowneBank common stock or Company common stock.

Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the Company’s and TowneBank’s businesses, operations and prospects and regulatory considerations, many of which factors are beyond the Company’s or TowneBank’s control.

The market price of TowneBank's common stock after the Merger may be affected by factors different from those affecting the shares of TowneBank common stock or Company common stock currently.

As a result of the Company Merger, holders of the Company’s common stock who receive stock consideration will become holders of TowneBank common stock. TowneBank’s business differs from that of the Company. Accordingly, the results of operations and financial condition of TowneBank and the market price of TowneBank’s common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations and financial condition of each of TowneBank and the Company.

The Company’s shareholders may receive a form of merger consideration different from what they elect.

While each Company shareholder may elect to receive the cash consideration or the stock consideration with respect to each share of Company common stock held, the Merger Agreement provides that the shareholder election will be subject to a proration mechanism, such that the total number of shares of Company common stock (including shares subject to Company restricted stock awards) entitled to receive the stock consideration will be equal to no less than 50% and no more than 60% of the aggregate number of shares of Company common stock issued and outstanding immediately prior to the effective time (including shares subject to Company restricted stock awards), and all other shares of Company common stock issued and outstanding immediately prior to the effective time will be entitled to receive the cash consideration. Therefore, if the aggregate number of shares with respect to which a valid cash consideration or stock consideration election has been made is higher or lower than these limits, shareholders who elected the form of consideration that has been oversubscribed or undersubscribed or who did not make an election will receive a mixture of both cash and stock consideration in accordance with the proration procedures set forth in the Merger Agreement. If you are a Company shareholder and you do not make an election to receive cash or TowneBank common stock in the Company Merger, your elections are not received by the exchange agent by the election deadline or your forms of election are improperly completed and/or are not signed, you will be deemed not to have made an “election” and your shares will be considered “non-election shares,” and you may be paid in only cash, only TowneBank common stock or a mix of cash and shares of TowneBank common stock depending on, and after giving effect to, the number of valid cash consideration elections and stock consideration elections that have been made by other Old Point shareholders. As a result, your ability to receive the cash consideration, the stock consideration, or a combination thereof in accordance with your election may depend on the elections of other holders of the Company’s common stock.

If you are a Company shareholder and you submit your Company common stock certificates to make an election, you will not be able to sell those shares, unless you revoke your election prior to the election deadline.

If you are a registered Company shareholder and want to make a valid cash consideration or stock consideration election, you will have to deliver your stock certificates (or follow the procedures for guaranteed delivery), and a promptly completed and signed form of election to the exchange agent prior to the election deadline. You will not be able to sell any shares of Company common stock that you have delivered as part of your election unless you revoke your election before the election deadline by providing written notice to the exchange agent. Unless otherwise agreed to in advance by TowneBank and the Company, the election deadline will be 5:00 p.m. local time (in the city in which the principal office of the exchange agent is located), on the date that TowneBank and the Company agree is as near as practicable to two (2) business days prior to the expected closing date of the Merger. TowneBank and the Company will cooperate to issue a press release announcing the date of the election deadline at least five (5) business days prior to, and no more than fifteen (15) business days prior to, the election deadline. If you do not revoke your election, you will not be able to liquidate your investment in Company common stock for any reason until you receive the merger consideration. In the time between the election deadline and the closing of the Merger, the trading price of Company or TowneBank common stock may decrease, and you might otherwise want to sell your shares of Company common stock to gain access to cash, make other investments, or reduce the potential for a decrease in the value of your investment. The date that you will receive your merger consideration depends on the completion date of the Merger, which is uncertain. The completion date of the Merger might be later than expected due to unforeseen events, such as delays in obtaining regulatory approvals.

Combining the Company into TowneBank may be more difficult, costly or time-consuming than expected and the Surviving Corporation may fail to realize the anticipated benefits of the Merger.

The success of the Merger will depend, in part, on the ability to realize the anticipated synergies, operating efficiencies and cost savings from combining the business operations of the Company into TowneBank. To realize the anticipated benefits and cost savings from the Merger, the Company’s business must be integrated into TowneBank in a manner that permits those benefits and cost savings to be realized, without adversely affecting current revenues and future growth. If TowneBank and the Company are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the Merger could be less than anticipated, the costs associated with effecting the Merger may be more than anticipated and integration may result in additional and unforeseen expenses.

An inability to realize the full extent of the anticipated benefits of the Merger and the other transactions contemplated by the Merger Agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results and financial condition of TowneBank as the Surviving Corporation, which may adversely affect the value of the common stock of TowneBank after the completion of the Merger.

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TowneBank and the Company have operated and, until the completion of the Merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key personnel, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. Integration efforts between the two companies may also divert management attention and resources. These integration matters could have an adverse effect on each of TowneBank and the Company during this transition period and on the Surviving Corporation for an undetermined period after completion of the Merger. Other factors such as the strength of the economy and competitive factors in the areas where TowneBank and the Company do business may also affect the ability of the Surviving Corporation to realize the anticipated benefits of the Merger.

The Surviving Corporation may be unable to retain TowneBank and/or Company personnel successfully after the Merger is completed.

The success of the Merger will depend in part on the Surviving Corporation’s ability to retain the talents and dedication of key personnel currently employed by TowneBank and the Company. It is possible that these personnel may decide not to remain with TowneBank or the Company, as applicable, while the Merger is pending or with the Surviving Corporation after the Merger is consummated. If TowneBank, the Company or the Surviving Corporation are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, the Surviving Corporation could face disruptions in its operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, if key personnel terminate their employment, the Surviving Corporation’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating the Company into TowneBank’s operations, and diverted to hiring suitable replacements, all of which may cause the Surviving Corporation’s business to suffer. In addition, TowneBank, the Company, or the Surviving Corporation may not be able to locate or retain suitable replacements for any key employees who leave.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the Surviving Corporation following the Merger.

Before the Merger may be completed, various approvals, consents, waivers and/or non-objections must be obtained from the FDIC, the BFI, and certain other regulatory authorities in the United States. In determining whether to grant these approvals or waivers, such regulatory authorities consider a variety of factors, including the regulatory standing of each company. These approvals and waivers could be delayed or not obtained at all, including due to: an adverse development in either company’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.

The approvals and waivers that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the Surviving Company’s business or require changes to the terms of the transactions contemplated by the Merger Agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the Merger Agreement, imposing additional material costs on or materially limiting the revenues of the Surviving Corporation following the Merger or otherwise reduce the anticipated benefits of the Merger if the Merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Merger. Additionally, the completion of the Merger is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the Merger Agreement.

In addition, despite the companies’ commitments to use their reasonable best efforts to comply with conditions imposed by regulators, under the terms of the Merger Agreement, TowneBank will not be required, and the Company will not be permitted without the prior written consent of TowneBank, to take actions or agree to conditions that would reasonably be expected to have a material adverse effect on the Surviving Corporation and its subsidiaries, taken as a whole, after giving effect to the Merger (measured on a scale relative to TowneBank and its subsidiaries, taken as a whole, without giving effect to the Merger (except in the case of any such actions, conditions or restrictions caused by or arising solely out of the separate business or operations of the Company or its subsidiaries prior to the closing, in which case the standard shall be measured on a scale relative to the Company and its subsidiaries, taken as a whole, without giving effect to the Merger)).

The Merger may distract management of the Company from its other responsibilities.

The Merger could cause the management of the Company to focus its time and energies on matters related to the Merger that otherwise would be directed to its business and operations. Any such distraction on the part of the Company’s management, if significant, could affect its ability to service existing business and develop new business and may adversely affect the business and earnings of the Company before the Merger, or the business and earnings of the Surviving Corporation after the Merger.

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The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.

The Merger Agreement is subject to a number of conditions that must be fulfilled in order to complete the Merger. Those conditions include: (i) the approval of the proposal to approve the Merger Agreement and the Company Merger (the “merger proposal”) and an amendment to the Company’s Articles of Incorporation that is necessary to facilitate the Company Merger (the “articles amendment proposal”) by the required vote of the holders of the Company’s common stock; (ii) authorization for listing on Nasdaq, subject to official notice of issuance, of the shares of TowneBank common stock that will be issuable pursuant to the Merger Agreement; (iii) the specified governmental consents and approvals, including from the FDIC, and the BFI, having been received and remaining in full force and effect, and the termination or expiration of all statutory waiting periods in respect thereof and, in the case of TowneBank’s obligation to effect the Merger, that no such required regulatory approval has resulted in the imposition of any materially burdensome regulatory condition; (iv) no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger being in effect, and no law, statute, rule, regulation, order, injunction or decree having been enacted, entered, promulgated or enforced by any governmental entity which prohibits or makes illegal the consummation of the Merger; (v) subject to certain exceptions, the accuracy of the representations and warranties of the Company and Bank, on the one hand, and TowneBank, on the other hand, contained in the Merger Agreement, generally as of the date on which the Merger Agreement was entered into and as of the closing date, subject to the materiality standards provided in the Merger Agreement (and the receipt by each party of a certificate dated as of the closing date and signed on behalf of the other party by its chief executive officer or chief financial officer to such effect); (vi) the performance by the Company and Bank, on the one hand, and TowneBank, on the other hand, in all material respects of the obligations, covenants and agreements required to be performed by it under the Merger Agreement at or prior to the closing date (and the receipt by each part of a certificate dated as of the closing date and signed on behalf of the other party by its chief executive officer or chief financial officer to such effect); and (vii) receipt by TowneBank and the Company of opinions of legal counsel to the effect that on the basis of facts, representations and assumptions set forth or referred to in such opinion, the Company Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. If the Merger Agreement is terminated in certain circumstances, a termination fee of $8.2 million will be payable by the Company.

These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the Merger may not be completed. In addition, the companies can mutually decide to terminate the Merger Agreement at any time, before or after shareholder approval, or TowneBank or the Company may elect to terminate the Merger Agreement in certain other circumstances.

TowneBank and the Company may waive one or more conditions to the Merger.

Prior to or at the effective time of the Merger, either party has the right to waive any default in the performance of any term of the Merger Agreement by the other party, to waive or extend the time for the compliance of fulfillment by the other party of any and all of such other party’s obligations under the Merger Agreement, and to waive any or all of the conditions to its obligations under the Merger Agreement.

Failure to complete the Merger could negatively impact the Company.

If the Merger is not completed for any reason, including as a result of either the Company’s shareholders failing to approve the merger proposal or the articles amendment proposal, there may be various adverse consequences, and the Company may experience negative reactions from the financial markets and from their respective customers and personnel. For example, the Company’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Additionally, if the Merger Agreement is terminated, the market price of the Company’s common stock could decline to the extent that current market prices reflect a market assumption that the Merger will be beneficial and will be completed. The Company also could be subject to litigation related to any failure to complete the Merger or to proceedings commenced against the Company to perform its respective obligations under the Merger Agreement. If the Merger Agreement is terminated under certain circumstances, the Company may be required to pay a termination fee of $8.2 million to TowneBank.

Additionally, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of preparing, filing, printing and mailing a proxy statement/offering circular, and all filing and other fees paid in connection with the Merger. If the Merger is not completed, the Company would have to pay these expenses without realizing the expected benefits of the Merger.

The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on customers and personnel may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with the Company to seek to change existing business relationships with the Company. In addition, subject to certain exceptions, the Company has agreed to operate its businesses in the ordinary course prior to the closing, and the Company is restricted from making certain acquisitions and taking other specified actions without the consent of TowneBank until the Merger is completed. These restrictions may prevent the Company from pursuing attractive business opportunities or strategic transactions that may arise prior to the completion of the Merger.

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The Merger Agreement contains provisions that could discourage a potential acquirer that might be willing to pay more to acquire or merge with the Company.

The Merger Agreement contains provisions that restrict the Company’s ability to, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by the Company's board of directors, engage or participate in any negotiations concerning, or provide any confidential or nonpublic information or data relating to, any alternative acquisition proposals. These provisions, which include a $8.2 million termination fee payable by the Company under certain circumstances, might discourage a potential acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share price to the Company’s shareholders than what is contemplated in the Merger Agreement, or might result in a potential acquirer’s proposing to pay a lower per share price to acquire the Company than it might otherwise have proposed to pay.

The support agreements could discourage a third party from pursuing an alternative transaction involving the Company.

Concurrently with the execution and delivery of the Merger Agreement, TowneBank entered into support agreements with each director of the Company and PL Capital Advisors, LLC, a shareholder of the Company (“PL Capital”). Pursuant to the support agreements, each party to a support agreement has agreed to (i) vote the shares of Company common stock over which they have the power to vote or direct the voting of in favor of the approval of the proposal to approve the merger proposal and the articles amendment proposal, and against any competing transaction and (ii) not transfer such holder’s shares of Company common stock prior to the Company’s special meeting of shareholders, with certain limited exceptions set forth in the support agreements. The existence of the support agreements could discourage a third party from pursuing an alternative transaction involving the Company.

The Company will incur transaction and integration costs in the Merger.

The Company has incurred and expects to incur significant, non-recurring costs in connection with negotiating the Merger Agreement and closing the Merger. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, regulatory fees, financial printing and other printing costs and other related costs. The Company may also incur additional costs to maintain employee morale and to retain key employees. Some of these costs are payable by TowneBank, the Company or both companies regardless of whether the Merger is completed.

In addition, the Surviving Corporation is expected to incur substantial costs in connection with the related integration. There are a large number of processes, policies, procedures, operations, technologies and systems that may need to be integrated, including purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, pricing and benefits. Although the Company has assumed that a certain level of costs will be incurred, there are many factors beyond their control that could affect the total amount or the timing of the integration costs. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate accurately. Furthermore, there can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time. These integration costs may result in the Surviving Corporation taking charges against earnings following the completion of the Merger, and the amount and timing of such charges are uncertain at present.

Shareholder litigation could prevent or delay the completion of the merger or result in the payment of damages following completion of the Merger.

In connection with the Merger, it is possible that TowneBank shareholders or the Company’s shareholders may file putative class action lawsuits against the board of directors of TowneBank or the Company. Among other remedies, these shareholders could seek to enjoin the Merger. The outcome of any such litigation is uncertain. If a dismissal is not granted or a settlement is not reached, such potential lawsuits could prevent or delay completion of the Merger and result in substantial costs to the Company, including any costs associated with indemnification obligations of the Company. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is consummated may adversely affect TowneBank's as the Surviving Corporation, business, financial condition, results of operations, or cash flows, or the market price for shares of TowneBank's common stock.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Pursuant to the Company’s equity compensation plans, participants may pay the exercise price of certain awards or satisfy tax withholding requirements associated with awards by surrendering shares of the Company’s common stock that the participants already own. Additionally, participants may also surrender shares upon vesting of restricted stock awards to satisfy tax withholding requirements. Shares surrendered by participants of these plans are repurchased at current market value pursuant to the terms of the applicable awards. During the three months ended March 31, 2025, the Company did not repurchase any shares related to the equity compensation plan awards.

During the three months ended March 31, 2025, the Company did not have an effective share repurchase program that was authorized by the Company’s Board of Directors.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

None.

Item 5.

Other Information.

During the three months ended March 31, 2025, 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).

Index

Item 6.

Exhibits.

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of April 2, 2025, by and among Old Point Financial Corporation, The Old Point National Bank of Phoebus, and TowneBank (incorporated by reference to Exhibit 2.1 to Form 8-K filed April 7, 2025)*

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		Amendment to the Employment Agreement, dated January 10, 2025, by and between Old Point Financial Corporation and The Old Point National Bank of Phoebus and Robert F. Shuford, Jr. (incorporated by reference to Exhibit 10.24 to Form 10-K filed March 31, 2025)

10.2		Change of Control Severance Agreement, dated April 2, 2025, 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 April 7, 2025)

10.3		Change of Control Severance Agreement, dated April 2, 2025, by and between The Old Point National Bank of Phoebus and Thomas Hotchkiss (incorporated by reference to Exhibit 10.2 to Form 8-K filed April 7, 2025)

10.4		Change of Control Severance Agreement, dated April 2, 2025, by and between The Old Point National Bank of Phoebus and Andrew B. Buxbaum

10.5		Change of Control Severance Agreement, dated April 2, 2025, by and between Old Point Financial Corporation, Old Point Trust and Financial Services, N.A. and A. Eric Kauders, Jr.

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

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

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

101		The following materials from Old Point Financial Corporation’s quarterly report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline XBRL, filed herewith: (i) Consolidated Balance Sheets (unaudited for March 31, 2025), (ii) Consolidated Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited)

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2025, formatted in Inline XBRL (included with Exhibit 101)

* Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish supplementally a copy of any omitted schedule or similar attachment to the SEC upon request.

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OLD POINT FINANCIAL CORPORATION

Date: May 14, 2025	/s/Robert F. Shuford, Jr.
	Robert F. Shuford, Jr.
	Chairman, President & Chief Executive Officer
	(Principal Executive Officer)

Date: May 14, 2025	/s/Cathy W. Liles
	Cathy W. Liles
	Chief Financial Officer & Senior Vice President/Finance
	(Principal Financial & Accounting Officer)

Old Point Financial - 10-Q quarterly report FY2025 Q1

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