Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Caution About Forward-Looking Statements

We make forward-looking statements in this quarterly report on Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include statements regarding expectations, intentions, projections and beliefs concerning our profitability, liquidity, and allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words "believes," "expects," "may," "will," "should," "projects," "contemplates," "anticipates," "forecasts," "intends," or other similar words or terms are intended to identify forward looking statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may cause actual results to differ from projections include:

• the success or failure of our efforts to implement our business plan;
• any required increase in our regulatory capital ratios;
• satisfying other regulatory requirements that may arise from examinations, changes in the law and other similar factors;
• deterioration of asset quality;
• changes in the level of our nonperforming assets and charge-offs;
• fluctuations of real estate values in our markets;
• our ability to attract and retain talent;
• demographical changes in our markets which negatively impact the local economy;
• the uncertain outcome of current or future legislation or regulations or policies of state and federal regulators;
• the successful management of interest rate risk;
• the successful management of liquidity;
• changes in general economic and business conditions in our market area and the United States in general;
• credit risks inherent in making loans such as changes in a borrower's ability to repay and our management of such risks;
• competition with other banks and financial institutions, and companies outside of the banking industry, including online lenders and those companies that have substantially greater access to capital and other resources;
• demand, development and acceptance of new products and services we have offered or may offer;
• deposit flows and competition for deposits;
• the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rate, market and monetary fluctuations;
• the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues and other catastrophic events;
• geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;
• technology utilized by us, including the successful core operating system conversion in 2025;
• the effects of cyber incidents or other failures, disruptions or breaches of our operational or security systems, or those of our third-party vendors or other service providers, including as a result of cyber threats or attacks;
• our ability to assist in managing third party fraud against customer accounts including but not limited to check, credit and debit card, and electronic funds transfer fraud;
• our reliance on third-party vendors and correspondent banks;
• changes in generally accepted accounting principles;
• changes in governmental regulations, tax rates and similar matters; and,
• other risks, which may be described, from time to time, in our filings with the SEC.

Because of these uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies

For discussion of our significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2024, and Note 2 Summary of Significant Accounting Policies, in Item 1 of this Form 10-Q. Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. Our most critical accounting policies relate to our allowance for credit losses.

The allowance for credit losses reflects the estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated, and additional provisions could be required. For further discussion of the estimates used in determining the allowance for credit losses, we refer you to the section on "Asset Quality" in this discussion.

Overview and Highlights

Quarter-to-date highlights include:

·

Net income for the three months ended September 30, 2025 was $2.8 million, or $0.12 per share, an increase of $650,000, or 30.83%, from the $2.1 million or $0.09 per share reported for the same period in 2024.

·

Returns on average assets and equity of 1.21% and 14.28% for the third quarter of 2025 compared to 0.97% and 12.35% for the third quarter of 2024, respectively;

·

Net interest margin was 3.93% for the third quarter of 2025 compared to 3.43% for the third quarter of 2024;

·

Net interest income was $8.6 million for the third quarter of 2025, an increase of $1.5 million or 20.28%, compared to the third quarter of 2024;

·

Noninterest income was $2.5 million, an increase of $73,000, or 3.01%, during the third quarter of 2025 compared to the third quarter of 2024; and

·

Noninterest expense was $7.4 million, an increase of $548,000, or 8.02%, for the third quarter of 2025 compared to the third quarter of 2024.

Comparison of the Three Months ended September 30, 2025, and 2024

Net interest income for the quarter ended September 30, 2025 was $8.6 million, an increase of $1.5 million, or 20.28%, when compared to the third quarter of 2024. Interest income increased $1.1 million to $12.6 million due to the combination of an increase of 22 basis points ("bps") in the yield on earning assets to 5.73% and a $39.4 million increase in the average balance of earning assets when compared to 2024. The loan portfolio was the primary driver of both increases as the yield rose 26 bps to 6.31% while the average balance increased $66.1 million compared to the quarter ending September 30, 2024. Also contributing to the improvement in net interest income was the $394,000 decrease in interest expense to $4.0 million during the third quarter of 2025 as compared to $4.4 million in 2024. The reduction in interest expense is due to a number of factors including a 31 bp decrease in the cost of interest-bearing deposits to 2.59% due to maturing time deposits and money market accounts repricing in a lower interest-rate environment and declines in both the cost and average balance of borrowed funds. The decline in the average balance of borrowed funds was due to the decrease in the average balance related to a $10 million borrowing from the Federal Reserve Bank under the Bank Term Funding Program that was repaid in October 2024 combined with $4.2 million in principal payments made on trust preferred securities in October 2024 and January 2025. In addition, the variable rate paid on the trust preferred securities decreased as overnight and short-term borrowing rates declined during the last half of 2024. As a result, the cost of total interest-bearing liabilities decreased 40 bps to 2.69% during the third quarter of 2025 as compared to the third quarter of 2024. The net interest margin increased 50 bps to 3.93% for the quarter ending September 30, 2025 as compared to 3.43% for the same period in 2024 due to the increase in the yield on earning assets and the decline in the cost of funds.

The following table shows the rates paid on earning assets and interest-bearing liabilities for the periods indicated:

Net Interest Margin Analysis

Average Balances, Income and Expense, and Yields and Rates

Three Months Ended September 30,

				2025							2024
				Average		Income/		Yields/		Average			Income/			Yields/
(Dollars are in thousands)				Balance		Expense		Rates		Balance			Expense			Rates
ASSETS
	Loans (1) (2)		$	705,820	$	11,217		6.31%	$	639,707		$	9,728			6.05%
	Federal funds sold			368		4		4.33%		117			2			5.45%
	Interest bearing deposits in other banks			59,234		644		4.31%		86,773			1,164			5.34%
	Investment securities (2)			108,527		744		2.74%		107,947			653			2.42%
	Total earning assets			873,949		12,609		5.73%		834,544			11,547			5.51%
	Less: Allowance for credit losses			(8,011)						(7,867)
	Non-earning assets			37,953						41,706
		Total assets	$	903,891					$	868,383
LIABILITIES AND SHAREHOLDERS' EQUITY
	Interest-bearing demand deposits		$	71,615	$	124		0.69%	$	72,521		$	160			0.88%
	Savings and money market deposits			198,553		885		1.77%		174,313			811			1.85%
	Time deposits			292,176		2,665		3.62%		278,833			2,861			4.08%
	Total interest-bearing deposits			562,344		3,674		2.59%		525,667			3,832			2.90%
	Other borrowings			10,000		89		3.51%		20,000			211			4.13%
	Trust preferred securities			11,986		209		6.82%		16,186			323			7.81%
	Total borrowed funds			21,986		298		5.31%		36,186			534			5.77%
	Total interest-bearing liabilities			584,330		3,972		2.69%		561,853			4,366			3.09%
	Non-interest-bearing deposits			233,021						228,961
	Other liabilities			9,943						9,663
		Total liabilities		827,294						800,477
	Shareholders' equity			76,597						67,906
		Total liabilities and shareholders' equity	$	903,891					$	868,383
	Net interest income				$	8,637						$	7,181
	Net interest margin						3.93%								3.43%
	Net interest spread						3.04%								2.42%
(1) Nonaccrual loans and loans held for sale have been included in average loan balances.
(2) Tax exempt income is not significant and has been treated as fully taxable.

Net interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing liabilities. The following table sets forth the amounts of the total changes in interest income and interest expense which can be attributed to rates and volume for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.

(Dollars in thousands)		Volume Effect				Rate Effect				Change in Interest Income/ Expense
Interest income:
Loans		$	1,052			$	437			$	1,489
Federal funds sold			2				-				2
Interest bearing deposits in other banks			(324	)			(196	)			(520	)
Investment securities			4				87				91
Total earning assets			734				328				1,062
Interest expense:
Interest-bearing demand deposits			(2	)			(34	)			(36	)
Savings and money market deposits			110				(36	)			74
Time deposits			134				(330	)			(196	)
Other borrowings			(94	)			(28	)			(122	)
Trust preferred securities			(77	)			(37	)			(114	)
Total interest-bearing liabilities			71				(465	)			(394	)
Change in net interest income		$	663			$	793			$	1,456

The provision for credit losses charged to the income statement for the quarter ended September 30, 2025, was $189,000 compared to $49,000 for the three months ended September 30, 2024. The third quarter 2025 provision reflects the impact of the loan growth while the provision recorded in 2024 was impacted by the resolution of a loan relationship that had resulted in a $262,000 specific allowance allocation during the second quarter of 2024. The provision for credit losses on unfunded commitments was $0 for the third quarter of 2025 due to a slight reduction in commitments on construction loans offset by a small increase in the expected loss rate. For a discussion of the factors affecting the allowance for credit losses, including provision expense, refer to Note 7, Allowance for Credit Losses for Loans, in Item 1 of this Form 10-Q.

Noninterest income totaling $2.5 million for the quarter ended September 30, 2025 increased $73,000 compared to the quarter ended September 30, 2024. Modest increases in earnings from service charges, card processing, financial services revenue, and other miscellaneous income totaling $8,000, $21,000, $31,000, and $35,000, respectively, were partially offset by the $20,000 decrease in income from bank-owned life insurance policies which were either surrendered or paid out due to death in the fourth quarter of 2024.

Noninterest expense was $7.4 million for the quarter ended September 30, 2025 compared to $6.8 million for the quarter ended September 30, 2024. The $548,000 increase primarily resulted from increases in salaries and benefits of $209,000, other expenses related to the core conversion of $104,000, data processing costs of $38,000, ATM network expenses of $42,000, and loan-related expenses of $104,000. The increase in salaries and benefits is attributable to normal recurring salary adjustments, increases in incentive accruals based on the Company's year-to-date performance and production, higher health insurance expenses, staffing costs for the Wytheville loan production office, and overtime associated with the core conversion. Other expenses related to the core conversion include professional and ancillary costs for other applications and systems impacted by the conversion as well as internal and external travel costs associated with testing and data validation. The increase in loan-related expenses is due to expenses associated with a home equity loan promotion during the second and third quarters of 2025.

Subsequent to quarter-end, there has been, and will be, additional costs associated with the core system conversion including additional costs related to overtime, meals and other expenses related to the installation, testing and training on the new system and the other ancillary systems impacted by the core conversion.

The efficiency ratio, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, decreased to 66.24% during the third quarter of 2025 from 71.10% for the third quarter of 2024. We continue to assess our operational procedures and structure to improve efficiencies and contain costs.

Income tax expense for the third quarter of 2025 totaled $812,000, an increase of $191,000, or 30.76%, from $621,000 recorded during the same period in 2024. This increase was in line with the increase in pre-tax income which increased $841,000 or 30.82% for the comparative three months ended September 30, 2025 and 2024. The effective tax rate for the three months ended September 30, 2025 was 22.75%,compared to 22.76% for the same period in 2024.

While the signing of the One Big Beautiful Bill Act on July 4, 2025, made many of the provisions of the 2017 Tax Cut and Jobs Act permanent, including the 21% corporate tax rate, and the reinstatement of bonus depreciation, it also put in place modifications to reduce or limit certain fringe benefits and charitable contribution deductions and modified information reporting rules by requiring increased compliance processes by businesses. Pending the release of final regulations later in 2025, a full assessment of the impact of this legislation on the Company cannot yet be determined.

Comparison of the Nine Months ended September 30, 2025 and 2024

Year-to-date highlights include:

·

Net income for the nine months ended September 30, 2025 was $7.2 million, or $0.30 per share, an increase of $1.6 million, or 29.04%, from the $5.6 million or $0.24 per share reported for the same period in 2024.

·

Returns on average assets and equity of 1.09% and 13.03% for the first nine months of 2025, compared to 0.87% and 11.36% for the first nine months of 2024, respectively;

For the nine months ended September 30, 2025, net interest income totaled $24.5 million, an increase of $3.4 million, or 16.03%, as compared to the nine months ended September 30, 2024. The net interest margin increased 39 bps to 3.83% as compared to 3.44% for the same period in 2024. Net interest income improved due to increased average earning assets, which increased $34.7 million, or 4.23%, to $854.5 million. In addition, the yield on earning assets improved 22 bps to 5.62% during the nine months ended September 30, 2025 compared to the same period in 2024. Interest expense for the nine months ended September 30, 2025 totaled $11.5 million, a decrease of $634,000, or 5.24%, from the same period in 2024. The decrease in interest expense is due primarily to the lower costs of interest-bearing deposits and borrowed funds as discussed above.

The following table shows the rates paid on earning assets and interest-bearing liabilities for the periods indicated:

Net Interest Margin Analysis

Average Balances, Income and Expense, and Yields and Rates

Nine Months Ended September 30,

				2025							2024
				Average		Income/		Yields/		Average			Income/			Yields/
(Dollars are in thousands)				Balance		Expense		Rates		Balance			Expense			Rates
ASSETS
	Loans (1) (2)		$	682,395	$	31,669		6.20%	$	638,403		$	28,316			5.93%
	Federal funds sold			262		9		4.38%		116			5			5.40%
	Interest bearing deposits in other banks			61,520		1,999		4.34%		74,798			2,999			5.36%
	Investment securities (2)			110,358		2,241		2.71%		106,537			1,852			2.32%
	Total earning assets			854,535		35,918		5.62%		819,854			33,172			5.40%
	Less: Allowance for credit losses			(7,919)						(7,581)
	Non-earning assets			37,425						39,950
		Total assets	$	884,041					$	852,223
LIABILITIES AND SHAREHOLDERS' EQUITY
	Interest-bearing demand deposits		$	72,064	$	389		0.72%	$	72,914		$	456			0.84%
	Savings and money market deposits			193,514		2,495		1.72%		168,134			2,030			1.61%
	Time deposits			280,683		7,689		3.66%		271,491			8,004			3.94%
	Total interest-bearing deposits			546,261		10,573		2.59%		512,539			10,490			2.73%
	Other borrowings			10,018		266		3.51%		20,000			630			4.14%
	Trust preferred securities			12,052		618		6.76%		16,186			971			7.88%
	Total borrowed funds			22,070		884		5.28%		36,186			1,601			5.81%
	Total interest-bearing liabilities			568,331		11,457		2.69%		548,725			12,091			2.94%
	Non-interest-bearing deposits			232,139						228,350
	Other liabilities			9,736						9,569
		Total liabilities		810,206						786,644
	Shareholders' equity			73,835						65,579
		Total liabilities and shareholders' equity	$	884,041					$	852,223
	Net interest income				$	24,461						$	21,081
	Net interest margin						3.83%								3.44%
	Net interest spread						2.93%								2.46%
(1) Nonaccrual loans and loans held for sale have been included in average loan balances.
(2) Tax exempt income is not significant and has been treated as fully taxable.

Net interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing liabilities. The following table sets forth the amounts of the total changes in interest income and interest expense which can be attributed to rates and volume for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.

(Dollars in thousands)		Volume Effect				Rate Effect				Change in Interest Income/ Expense
Interest income:
Loans		$	1,988			$	1,365			$	3,353
Federal funds sold			5				(1	)			4
Interest bearing deposits in other banks			(482	)			(518	)			(1,000	)
Investment securities			68				321				389
Total earning assets			1,579				1,167				2,746
Interest expense:
Interest-bearing demand deposits			(5	)			(62	)			(67	)
Savings and money market deposits			320				145				465
Time deposits			266				(581	)			(315	)
Other borrowings			(279	)			(85	)			(364	)
Trust preferred securities			(227	)			(126	)			(353	)
Total interest-bearing liabilities			75				(709	)			(634	)
Change in net interest income		$	1,504			$	1,876			$	3,380

For the nine months ended September 30, 2025, the provision for credit losses totaled $602,000 as compared to $478,000 recorded for the same period in 2024.

For the nine months ended September 30, 2025, noninterest income increased $69,000 to $7.3 million compared to the same period in 2024, mainly due to a branded card incentive payment of $141,000 in 2025 which was partially offset by a $98,000 decrease in service charges.

For the nine months ended September 30, 2025, noninterest expense totaled $21.9 million, an increase of $1.2 million, or 5.90%, over the same period in 2024. The components of the year-over-year increase are largely similar to those discussed for the current quarter. Additional items include $47,000 in costs incurred in "refreshing" a branch office and $42,000 in costs incurred for snow and ice removal to keep our branch locations open and safe during the winter storms in the first quarter of 2025.

Balance Sheet

Total assets as of September 30, 2025 were $910.7 million, an increase of $55.8 million, or 8.73% annualized, from $854.9 million as of December 31, 2024. Gross loans of $707.3 million as of September 30, 2025 reflected an increase of $49.7 million, or 10.11% annualized, from $657.5 million as of December 31, 2024. Liquid assets in the form of cash and cash equivalents increased $13.0 million, or 25.77% annualized, during the first nine months of 2025. Investment securities increased $169,000 during the first nine months of 2025 due to purchases of $5.3 million and a decrease in the unrealized loss on available-for-sale securities of $4.6 million which more than offset maturities, calls, payments and amortization of $9.7 million. There have been no sales of loans or investments during 2025 other than normal sales of mortgage loans originated for sale.

Commercial and residential real estate loans, the two largest categories of loans, increased $9.1 million and $16.7 million, respectively, from December 31, 2024 to September 30, 2025. Multi-family real estate loans increased $12.5 million. Consumer loans increased $3.5 million, which included the purchase of $2.8 million of individual loans during the nine months ended September 30, 2025. Farmland and Agriculture loans increased $7.6 million and $847,000, respectively, during the first nine months of 2025.

Deposits totaled $799.4 million as of September 30, 2025 compared to $750.0 million as of December 31, 2024. The increase of $49.4 million, or 8.81% annualized, was due to efforts to attract and retain time deposits and money market account relationships, including replacing a large, high-rate account with lower-cost brokered time deposits, combined with cyclical funds inflows. As a result of these efforts and seasonality, total time deposits increased $23.7 million, money market accounts increased $23.7 million, and noninterest bearing deposits increased $3.9 million during the first nine months of 2025. During the second quarter of 2025, $15.0 million of brokered time deposits were issued with maturities ranging from two months to two years. $10.0 million of these brokered time deposits matured in August and were not replaced. These deposits supplement liquidity, support loan closings and advances and bolster on-balance-sheet liquidity.

As of September 30, 2025, borrowed funds totaled $22.0 million, a decrease of $3.0 million from December 31, 2024. During the first quarter of 2025, a $3.0 million principal reduction was paid toward outstanding trust preferred securities. This repayment improved net interest income and the net interest margin during the current reporting periods and should positively impact future periods. On June 30, 2025, we took a short-term Federal Home Loan Bank advance of $5.0 million to bolster liquidity based on anticipated loan closings or advances. This advance was repaid in July.

During the nine months ended September 30, 2025, total shareholders' equity increased $8.8 million to $79.5 million due to net income of $7.2 million and a decrease in the net unrealized loss on available-for-sale securities of $3.7 million. These increases to capital were offset by dividends paid to shareholders of $1.9 million and the repurchase of common stock totaling $180,000. Consequently, book value per share increased to $3.37 as of September 30, 2025 compared to $2.99 as of December 31, 2024. The Bank remains well capitalized per regulatory guidance.

As previously announced, the Board of Directors extended the repurchase of up to 500,000 shares of the Company's common stock through March 31, 2026. During the first nine months of 2025, the Company repurchased 59,531 shares at an average price of $3.02 per share. Since the commencement of the repurchase plan in 2022, 344,893 shares have been repurchased at an average price of $2.52 per share.

Asset Quality

The allowance for credit losses was $8.0 million, or 1.13% as a percentage of total loans, as of September 30, 2025 and $7.7 million, or 1.17%, as of December 31, 2024. The allowance for credit losses on unfunded commitments was $496,000 as of September 30, 2025 as compared to $404,000 as of December 31, 2024. The increase in the allowance for credit losses on unfunded commitments was due to an increase in loan commitments, specifically residential and commercial real estate construction loan commitments.

Annualized net charge-offs (recoveries) as a percentage of average loans were 0.04% during the first nine months of 2025 compared to 0.01% during the same period of 2024 and 0.10% during the third quarter of 2025. The higher charge-off rate during the third quarter was related to a partial charge-off of $138,000 on a loan that had been specifically provided for in 2024.

Nonperforming assets, which include nonaccrual loans, accruing loans past due 90 days or more, and other real estate owned, totaled $3.2 million as of September 30, 2025, a decrease of $164,000, or 4.88%, since year-end 2024. Nonaccrual loans decreased $321,000 during the first nine months of 2025 primarily due to the resolution of several large credits and a partial charge-off exceeding the impact of a single loan relationship totaling $802,000 placed in nonaccrual status in 2025. Nonperforming assets as a percentage of total assets were 0.35% as of September 30, 2025 and 0.39% as of December 31, 2024.

Other real estate owned increased $2,000 to $89,000 as of September 30, 2025 compared to December 31, 2024, due to the sale of a property during the first quarter of 2025 and the foreclosure on one property during the third quarter of 2025. Expenses associated with other real estate owned, including gains and losses on sales, were $6,000 for the three months ended September 30, 2025 compared to net recoveries of $3,000 during the three months ended September 30, 2024 due to gains on sales of foreclosed properties of $0 and $10,000 during the respective three-month periods in 2025 and 2024.

For detailed information on nonaccrual loans and other real estate owned as of September 30, 2025 and December 31, 2024, refer to Note 6 Loans and Note 10 Other Real Estate Owned in Item 1 of this Form 10-Q.

Loans rated substandard or below totaled $5.2 million as of September 30, 2025, an increase of $1.2 million from $4.0 million as of December 31, 2024 due to two loan relationships totaling $2.9 million that were downgraded during the first nine months of 2025. The Company is working with one of these borrowers to bring the classified portion of the loan totaling $2.2 million into compliance with applicable loan covenants and does not anticipate any loss will result from this loan. Total past due loans decreased to $4.6 million as of September 30, 2025 from $6.2 million as of December 31, 2024.

The allowance for credit losses is maintained at a level that management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio, whether or not the losses are actually ever realized. Through our quarterly assessment, we continue to adjust the CECL model to best reflect the risks in the portfolio. However, future provisions may be deemed necessary. During the first nine months of 2025, we maintained the adjustments to our qualitative factors initiated in 2024 to consider risk factors associated with commercial real estate and residential mortgage loans; however, we removed the qualitative factor related to Hurricane Helene which occurred in September 2024. Those changes, along with recoveries of loans previously charged off and the assessment of the historical and specific risks associated with the loan portfolio, resulted in a provision for credit losses of $602,000, of which $510,000 was a provision for the loan portfolio and $92,000 was a provision for unfunded commitments. The following table summarizes components of the allowance for credit losses and related loans as of September 30, 2025 and December 31, 2024:

Selected Credit Ratios
		September 30,		December 31,
(Dollars in thousands)		2025		2024
Allowance for credit losses - loans	$	7,967	$	7,684
Total loans		707,272		657,536
Allowance for credit losses to total loans		1.13%		1.17%
Nonaccrual loans	$	2,952	$	3,273
Nonaccrual loans to total loans		0.42%		0.50%
Ratio of allowance for credit losses loans to nonaccrual loans		2.70X		2.35X
Charge-offs, net of recoveries	$	227	$	78
Average loans	$	682,395	$	641,022
Net charge-offs to average loans1		0.04%		0.01%

¹ - Annualized

Deferred Tax Asset and Income Taxes

Due to timing differences between the book and tax treatments of several income and expense items, a net deferred tax asset of $1.6 million is recorded as of September 30, 2025 and December 31, 2024, excluding the deferred tax asset on the unrealized loss on securities available-for-sale of $2.2 million and $3.2 million, as of September 30, 2025 and December 31, 2024, respectively. Our income tax expense was computed at the federal corporate income tax rate of 21% of taxable income and a blended state tax rate of 2.4%. We have no significant nontaxable income or nondeductible expenses.

Capital Resources

The Company meets the eligibility criteria to be classified as a small bank holding company in accordance with the Federal Reserve's Small Bank Holding Company Policy Statement issued in February 2015 and is therefore not obligated to report consolidated regulatory capital. The Bank continues to be subject to various capital requirements administered by banking agencies.

The Bank's capital ratios along with the minimum regulatory thresholds to be considered well-capitalized are presented in Note 4 in Item 1 of this Form 10-Q.

As of September 30, 2025, the Bank remains well capitalized under the regulatory framework for prompt corrective action. The ratios mentioned above for the Bank comply with the Federal Reserve rules to align with the Basel III Capital requirements.

Book value per common share was $3.37 and $2.99 as of September 30, 2025 and December 31, 2024, respectively. The increase in book value was due largely to net earnings for the year of $7.2 million combined with a decrease in the unrealized loss on available for sale investment securities, net of the tax effects, for the year of $3.7 million, which more than offset the dividend payment of $0.08 per share and the repurchase of common shares of $180,000 during the first nine months of 2025.

Other key performance indicators are as follows:

		Three months ended September 30,								Nine months ended September 30,
		2025				2024				2025				2024
Return on average assets1			1.21	%			0.97	%			1.09	%			0.87	%
Return on average shareholders' equity1			14.28	%			12.35	%			13.03	%			11.36	%
Average equity to average assets			8.47	%			7.82	%			8.35	%			7.70	%

¹ - Annualized

Under current economic conditions, we believe it is prudent to continue to retain capital sufficient to support planned asset growth while being able to absorb potential losses that may occur if asset quality deteriorates, and based upon projections, we believe our current capital levels will be sufficient.

During the first quarter of 2025, the Company paid a cash dividend of $0.08 per common share to our shareholders. Future payments of cash dividends will depend on a number of factors including but not limited to maintaining positive retained earnings, compliance with regulatory rules governing the payment of dividends, strategic plans, and sufficient capital at the Bank to allow payment of dividends to the Company.

On April 28, 2022, the board of directors of the Company authorized the repurchase of up to 500,000 shares of the Company's outstanding common stock. As previously reported, this plan was extended by the Board of Directors through March 31, 2026. The actual means and timing of any purchases, number of shares and prices or range of prices will be determined by the Company in its discretion and will depend on a number of factors, including the market price of the Company's common stock, general market and economic conditions, and applicable legal and regulatory requirements. As of September 30, 2025, the Company has repurchased 344,893 shares at an average price of $2.52 per share since inception of the plan. During the quarter ended September 30, 2025, the Company repurchased 23,685 shares at an average price of $3.07 per share. There is no assurance that the Company will purchase any additional shares under this program.

Liquidity

We closely monitor our liquidity and our liquid assets in the form of cash, due from banks, federal funds sold and unpledged available-for-sale investments. Collectively, those balances were $141.1 million as of September 30, 2025, up from $128.5 million as of December 31, 2024. The increase is primarily due to deposit growth, including brokered certificates of deposit. A surplus of short-term assets is maintained at levels management deems adequate to meet potential liquidity needs

As of September 30, 2025, all of our investments are classified as available-for-sale, providing an additional source of liquidity in the amount of $35.8 million, which is net of the $60.4 million of securities pledged as collateral. Generally, the investment portfolio serves as a source of liquidity while yielding a higher return at the purchase date when compared to other short-term investment options such as federal funds sold and overnight deposits with the Federal Reserve Bank of Richmond (the FRB). Due to the unrealized loss on securities available-for-sale, the sale of investments, other than shorter-term investments with minimal unrealized losses or more recently purchased investments, would not be a main source of liquidity at this time due to the immediate impact on regulatory capital; however, the majority of the portfolio is considered high credit quality investments and would be available to pledge against borrowed funds. Total investment securities increased $169,000, or 0.24% annualized, during the first nine months of 2025 from $96.0 million as of December 31, 2024, to $96.2 million as of September 30, 2025. The Bank also has additional borrowing capacity on lines for which investments and certain loans are currently pledged.

Our loan to deposit ratio was 88.48% and 87.67% as of September 30, 2025 and December 31, 2024, respectively.

Available third-party sources of liquidity as of September 30, 2025 include the following: a line of credit with the FHLB, access to brokered certificates of deposit markets and the discount window at the Federal Reserve Bank. We also have the ability to borrow $30.0 million in unsecured federal funds through credit facilities extended by correspondent banks.

We have used our line of credit with the FHLB to issue letters of credit totaling $14.0 million to the Treasury Board of Virginia for collateral on public funds. No draws on these letters of credit have been issued. The letters of credit are considered to be draws on our FHLB line of credit. In May 2023, we borrowed $10.0 million from the FHLB, through a fixed rate 5-year advance, to support loan fundings and other general liquidity needs; and, in June 2025, we borrowed an additional $5.0 million which was repaid in July 2025. An additional $199.3 million was available as of September 30, 2025 on the $223.3 million line of credit. Full use of the FHLB borrowing capacity would require the Company to pledge additional assets.

As of September 30, 2025, we held brokered time deposits of $8.0 million, an increase of $5.0 million from December 31, 2024. These added brokered deposits supplemented liquidity and supported loan closings and advances and bolstered on-balance-sheet liquidity. Internet accounts are limited to customers located in our primary market area and the surrounding geographical area. The average balance of and the rate paid on deposits is shown in the net interest margin analysis tables. Total reciprocal Certificate of Deposit Registry Services ("CDARS") time deposits were $7.9 million and $7.0 million as of September 30, 2025 and December 31, 2024, respectively. Aside from the availability of CDARS time deposits, we also offer a similar deposit product for transaction account customers through Intrafi Cash Service ("ICS"). As of September 30, 2025, approximately $17.1 million were placed in this product as compared to $23.7 million at December 31, 2024. Both the CDARS and ICS offerings assist us in maintaining deposit relationships, while assuring the depositors' funds retain federal deposit insurance coverage.

Additional liquidity is available through the Federal Reserve Bank discount window for overnight funding needs. We may collateralize this line with investment securities and loans at our discretion; however, while we do not anticipate using this as a primary funding source, securities with an estimated market value of $28.5 million were pledged as of September 30, 2025.

Time deposits of $250,000 or more were approximately 6.55% of total deposits at September 30, 2025 and 6.84% of total deposits at December 31, 2024.

In January 2025, we made a voluntary principal payment of $3.0 million on an outstanding trust preferred security. We may consider making future principal payments based on our available liquidity and considering other funding opportunities that may be available.

With the on-balance sheet liquidity and other external sources of funding, we believe the Bank has adequate liquidity and capital resources to meet our requirements and needs for the foreseeable future. However, liquidity can be further affected by a number of factors such as counterparty willingness or ability to extend credit, regulatory actions and customer preferences, some of which are beyond our control. With the current economic uncertainty resulting from inflation, the impact of proposed tariffs and the wars in Ukraine and Gaza, we continue monitoring our liquidity position, specifically cash on hand in order to meet customer demands. Additionally, our contingency funding plan is reviewed quarterly with our Asset Liability Committee.

Off Balance Sheet Items and Contractual Obligations

There have been no material changes during the nine months ended September 30, 2025 to the off-balance sheet items and the contractual obligations disclosed in our 2024 Form 10-K.