What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-17 compared with 2021-05-17 · 357 added, 396 removed, 76 unchanged (91% of the section changed)

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

Discussion and Analysis of Financial Condition and Results of Operations

About Forward Looking Statements

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 loan 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:

These forward looking

statements include statements regarding expectations, intentions, projections and beliefs concerning our profitability, liquidity, and

allowance for loan 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.

factors that may cause actual results to differ from projections include:

success or failure of our efforts to implement our business plan;

required increase in our regulatory capital ratios;

other regulatory requirements that may arise from examinations, changes in the law and

other similar factors;

other regulatory requirements that may arise from examinations, changes in the law and other similar factors;

deterioration

1 unchanged sentence

in the level of our nonperforming assets and charge-offs;

● fluctuations

of real estate values in our markets;

2 unchanged sentences

changes in our markets which negatively impact the local economy;

uncertain outcome of current or future legislation or regulations or policies of state

and federal regulators;

uncertain outcome of current or future legislation or regulations or policies of state and federal regulators;

successful management of interest rate risk;

successful management of liquidity;

in general economic and business conditions in our market area and the United States

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;

in general economic and business conditions in our market area and the United States in general;

risks inherent in making loans such as changes in a borrower’s ability to repay and our management of such risks;

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;

development and acceptance of new products and services we have offered or may offer;

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;

occurrence of significant natural disasters, including severe weather conditions, floods,

health related issues (including the ongoing novel coronavirus (COVID-19) outbreak and

the associated efforts to limit the spread of the disease), and other catastrophic events;

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;

occurrence of significant natural disasters, including severe weather conditions, floods, health related issues (including the ongoing

novel coronavirus (COVID-19) outbreak and the associated efforts to limit the spread of the disease), and other catastrophic events;

utilized by us;

4 unchanged sentences

risks, which may be described, from time to time, in our filings with the SEC.

of these uncertainties, our actual future results may be materially different from the results indicated by these forward looking

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.

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.

Accounting Policies

discussion of our significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2021 (the 2021

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 provision for loan losses and the calculation of

our deferred tax asset and related valuation allowance.

provision for loan 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 further deteriorate, resulting in an impairment of their ability to make payments,

our estimates would be updated, and additional provisions could be required.

tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and

liabilities using the enacted marginal tax rate.

In the past, the Company provided a valuation allowance on its net deferred tax

assets where it was deemed more likely than not such assets would not be realized.

At March 31, 2021 and December 31, 2020, the

Company had no valuation allowance on its net deferred tax assets.

Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be

sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized

in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood

of being realized upon settlement.

further discussion of the deferred tax asset and valuation allowance, we refer you to the section on “Deferred Tax Asset

and Income Taxes” below.

December 31, 2019, COVID-19 has adversely affected, and will continue to adversely affect, economic activity globally, nationally

Market interest rates have declined significantly.

In early 2020, the Federal Open Market Committee reduced the target

federal funds rate twice by a total of 150 basis points (bps).

As a result of these actions the target federal funds rate now

stands at 0.00% - 0.25% and the prime interest rate stands at 3.25%.

and local governments have issued executive orders and businesses have implemented rules as simple as wearing a mask in public

and social distancing to limiting attendance at public and household gatherings.

This has had, and will continue to have, a significant

adverse impact on the economy as certain industries have been seriously impaired or have been forced to close.

services are considered essential services, and we have continued to meet the needs of our customers.

We supplemented our existing

procedures for the adoption of workplace safety standards outlined by the Virginia Department of Labor and Industry.

first quarter of 2020, we have maintained a committee dedicated to managing our response to the pandemic.

This has included marshalling

supplies and personal protective equipment, coordinating employee and customer communications, evaluating staffing and maintaining

compliance with various mandates and regulations.

Through the first quarter of 2021, we continued to provide services at our branch

offices via drive-thru facilities and ITMs.

However, as the ongoing national vaccination program is mitigating the risk of infection,

we began re-opening our branches in April, and all branch lobbies are now open as of April 19, 2021.

We continue to maintain diligence,

including the practices of daily self-assessments and temperature monitoring for all employees prior to entering their worksite.

Last year, as part of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the Small Business Administration

(SBA) was authorized to guarantee Paycheck Protection Program (PPP) loans used by borrowers for payroll and other permitted purposes.

The SBA provided a 100% guarantee and paid originators a processing fee ranging from 1% to 5%, based on the loan amount.

a total of $44.5 million of these loans for our customers through August 2020, when the funding period closed, and received $1.6

million in net fees from the SBA, which is being recognized as income over the terms of these loans.

Through March 31, 2021, 407

loans have received forgiveness payments from the SBA totaling $24.7 million.

December 2020, the Consolidated Appropriations Act, 2021 was enacted providing additional economic relief related to the COVID-19

This legislation included a second round (Round 2) of PPP loans.

We are participating in this program and have funded

321 Round 2 loans totaling $18.8 million through March 31, 2021.

response to the economic impact brought on by the COVID-19 pandemic, banking and financial regulators provided guidance to financial

institutions regarding borrower requests for forbearance.

In general, short-term deferrals or other minor modifications extended

to borrowers who were current in their loan obligations at December 31, 2019, were not considered troubled debt restructurings

(TDRs) or impairments.

These accommodations have been provided in the form of payment deferrals or conversion to interest only

for a period of time, generally, three to six months.

As of March 31, 2021, of the 648 loans, totaling $103.4 million, which received

some form of forbearance in accordance with the applicable legislative and regulatory guidelines, only two accounts totaling $206

thousand remain in forbearance at quarter-end.

majority of the loans which obtained forbearance are within our general market area.

Of such loans with a remaining balance at

March 31, 2021, 64.9%, 14.5% and 20.2% of the outstanding principal is in Virginia, Tennessee and West Virginia, respectively.

At March 31, 2021, these loans cover a number of industries, such as residential property rental, commercial and other real estate

rental, hotels and motels;

coal mining and natural gas extraction and amusement and entertainment venues.

While we believe that

the majority of these borrowers will be able to repay their obligations, we cannot reasonably estimate the risk of loss should

the adverse economic impact of the pandemic continue for an extended period of time.

summary, the adverse economic impact of the COVID-19 pandemic has been extensive and wide ranging, resulting in a steep decline

in interest rates, an increase in unemployment and a resulting decline in economic output.

At this time, we cannot reasonably

estimate the term or intensity of any possible adverse impact on our financial

position, operations or liquidity.

However, we are encouraged by the recent vaccination programs and therapeutic treatments that

have been developed and are becoming more available to the mass population.

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 the allowance for loan losses and the related provision for

loan losses and the calculation of our deferred tax asset and related valuation allowance.

allowance represents an amount that, in the Company's judgment, will be adequate to absorb probable and estimable losses inherent in

the loan portfolio.

The judgment in determining the level of the allowance is based on evaluations of the collectability of loans while

taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time, changes in the nature

and volume of the loan portfolio, current economic conditions that may affect a borrower's ability to repay and the value of collateral,

overall portfolio quality and review of specific potential losses.

This evaluation is inherently subjective because it requires estimates

that are susceptible to significant revision as more information becomes available.

tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities

using the enacted marginal tax rate.

In the past, the Company provided a valuation

allowance on its net deferred tax assets where it was deemed more likely than not such assets would not be realized.

At March 31, 2022

and December 31, 2021, the Company had no valuation allowance on its net deferred tax assets.

Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained

on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial

statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized

upon settlement.

further discussion of the deferred tax asset and valuation allowance, we refer you to the section on “Deferred Tax Asset and Income

Taxes” below.

and Highlights

Company had net income for the three months ended March 31, 2021 of $1.58 million, or basic net income per share of $0.07, as

compared to the three months ended March 31, 2020 when the Company had net income of $46 thousand, or $0.00 basic net income per

The primary drivers for the increase were increases in net interest income of $204 thousand, a reduction in the provision

for loan losses of $814 thousand, and a reduction in total noninterest expense of $910 thousand.

interest income increased $271 thousand due to a $647 thousand decrease in interest expense, which more than offset a $376 thousand

decrease in interest income.

An increased volume of earning assets, due largely to loan growth, including PPP loans, and interest

earning deposits resulting from stimulus payments and PPP loan forgiveness resulted in a volume related increase in interest income

of $725 thousand, which was offset by $1.1 million decrease due to lower interest rates, resulting in a net decrease in interest

income of $376 thousand.

The reduction in interest expense was driven by the reduction in market rates throughout 2020 and into

Company generated net income for the three months ended March 31, 2022 of $1.9 million, or basic and diluted net income per share of

$0.08, as compared to the three months ended March 31, 2021 when the Company had net income of $1.6 million, or $0.07 basic and diluted

net income per share.

The primary drivers for the increase were increases in net interest income of $208 thousand, a reduction in the

provision for loan losses of $86 thousand, and an increase in total noninterest income of $241 thousand.

interest income increased $208 thousand due to a $270 thousand decrease in interest expense, which more than offset a $62 thousand decrease

in interest income.

Although year-over-year there was a $36.3 million increase in the volume of earning assets, due largely to growth

in the investment and loan portfolios of $60.7 million and $9.7 million, respectively, interest income attributed to the increased volume

of earning assets increased only $43 thousand.

There are a couple of primary reasons for the results.

One, the net increase was negatively

impacted comparative to the prior year due to a $312 thousand decrease in loan fee income resulting from the forgiveness in PPP loans

in 2021 which was not replicated in 2022.

We anticipate loan interest income to be less in the second and third quarters of 2022 as compared

to the same periods in 2021 for the same reasons related to the PPP loan fee income cessation.

Secondly, interest income was negatively

impacted by the repricing of earning assets at lower interest rates which caused a year-over-year, rate related, decline of $105 thousand.

Interest expense decreased driven by the continued low interest rate environment throughout 2021 and into the first quarter of 2022,

as our overall cost of funds fell 16 basis points year-over-year to 0.30% for the first quarter of 2022.

reduction in the provision for loan losses is due to a combination of factors, including the limited risk associated with PPP

loans, improving economic trends during the first quarter, including improving employment statistics, combined with the liquidity

provided to customers through stimulus payments and the funding and forgiveness of PPP loans.

noninterest income decreased $36 thousand during the first quarter of 2021 compared to the first quarter of 2020 as the $220 thousand

resigning fee received from a service provider in 2020, for renewing and extending the service agreement, was not repeated in

As part of the project to improve earnings, fee schedule changes were implemented in August of 2020, and this contributed

to more than $144 thousand of increases in service charges and other fee income during the first quarter of 2021 compared to the

first quarter of 2020.

However, increases in deposit balances from federal COVID relief stimulus payments to customers and PPP

loan funds (which are generally deposited into customer accounts) reduced our fee income from overdrafts by approximately $169

thousand for that same year-over-year quarterly comparison.

Card processing revenue increased $111 thousand due to increased volume

and the incremental increase in related interchange income received.

In addition, efforts to increase noninterest income revenues

from financial services drove an increase of $94 thousand for the same period comparison.

noninterest expense decreased $902 thousand, as salaries and benefits expense decreased $422 thousand due to the impact of the

restructuring implemented in May and June of 2020, and other operating expenses decreased $496 thousand.

Effective April 16, 2021,

our Pound and Weber City offices in Virginia, were permanently closed and the customer accounts were transferred to nearby offices.

For the time being, ITMs remain at these locations.

assets increased $54.0 million, or 7.1%, to $810.3 million at March 31, 2021 from $756.3 million at December 31, 2020, due largely

to stimulus payments received by our deposit customers and ongoing PPP activity.

Also, the mix of deposits continues

to shift away from time deposits to lower, and noninterest, rate bearing deposits.

Furthermore, Federal Home Loan Bank advances were

paid off resulting in a decrease in interest expense of $96,000.

In March and May 2022, the Federal Open Market Committee raised the

target federal funds rate 25 and 50 basis points, respectively, in what is largely considered to be a series of rate increases during

Due to our interest rate sensitivity position, we anticipate interest income to increase as interest rates increase in the near

however, future year-over-year comparisons may not reflect the increase due to the impact of the PPP loan forgiveness in 2021.

year-over-year reduction in the provision for loan losses of $86 thousand is due to a combination of factors, including the improving

characteristics of the loan portfolio, as exhibited by the decline in nonperforming loans, combined with continued improving employment

Annualized net charge-offs to average loans remain at low levels and were 0.05% for the quarter ended March 31, 2022.

loans to total loans and nonperforming assets to total assets declined to 0.44% and 0.42%, respectively at March 31, 2022.

non-interest income increased $240,000 during the first quarter of 2022 compared to the first quarter of 2021 due to increases in service

charges and fees and card processing fees of $175 thousand and $52 thousand, respectively.

The service charges and fees increase relates

to increased volume in overdraft charges related to customer activity beginning to return to pre-pandemic levels as businesses reopened

and as customers spend savings from stimulus payments accumulated during the pandemic.

Card processing fee revenue is also volume related

for reasons similar to those impacting service charge income.

In addition, year-over-year, fees generated through financial and merchant

services increased $12 thousand and $11 thousand, respectively, due to increased volume from both new and existing customers using these

We continue efforts to increase noninterest income revenue through product enhancements and customer development.

non-interest expense increased $90 thousand, as salaries and benefits expense increased $196 thousand due to the impact of increasing

our minimum base hourly wage in the fourth quarter of 2021, targeted salary adjustments to retain and attract employees, combined with

normal annual wage adjustments and added accrued costs for performance incentive plans to be awarded in the first quarter of 2023, if

2022 goals are met.

Occupancy expense decreased $170 thousand due largely to the reduction in the number of buildings through sales or

transfers to other real estate owned.

Additionally, net depreciation costs for furniture, equipment and computer equipment decreased

$89 thousand as assets reached the end of their estimated economic useful lives, along with the decommissioning of a number of interactive

teller machines during the fourth quarter of 2021.

Other operating expenses increased $83 thousand year-over-year, primarily due to costs

related to the holding and disposal of other real estate owned, which increased from $33 thousand to $130 thousand in 2021 to 2022.

network expenses increased $25 thousand to $367 thousand, due to increased activity combined with general cost increases.

Miscellaneous

losses increased $69 thousand to $50 thousand in 2022, as compared to net recoveries of $19 thousand in 2021.

These increased expenses

were partially offset by decreases in data processing and telecommunications costs, and FDIC insurance which decreased $19 thousand and

$21 thousand, respectively.

Data processing and telecommunication costs decreased due to the reduction in the number of branch sites

and renegotiated contracts, while FDIC insurance decreased due to the improved risk factors considered in the premium assessment.

continue to decrease non-interest expenses of the Company and improve efficiency.

assets increased $18.9 million, or 2.4%, to $813.5 million at March 31, 2022 from $794.6 million at December 31, 2021, funded largely

by increased deposits as the low interest rate environment continues to provide liquidity.

Total loans increased $1.4 million, or 0.23%,

to $595.1 million at March 31, 2022 from $593.7 million at December 31, 2021.

Loan growth has resulted in an increase in commercial

real estate loans of $11.8 million, which was positively impacted by our new Boone, North Carolina, loan production office.

deposits have increased $52.9 million, or 7.9%, to $721.0 million at March 31, 2021 from $668.0 million at December 31, 2020,

again, due to stimulus payments and ongoing PPP activity.

to the building we purchased in Bristol, Virginia in 2019 have resumed.

We have received regulatory approval to operate it as

a full service branch, and we plan to open this office in the third quarter of 2021.

We believe this expansion, along with the

Kingsport, Tennessee office, which opened in the third quarter of 2020, fits in with our stated objective of expanding our presence

in the Tri-Cities market area.

The Bristol location is within the business district and will allow us to provide retail consumer,

commercial banking and financial services within Bristol and the surrounding area.

Loan growth has resulted from to increases in construction

and land development loans, commercial loans secured by real estate and multi-family loans, which grew $6.5 million, $1.2 million and

$1.4 million, respectively.

Growth in these components of the portfolio offset a reduction in commercial loans of $6.7 million.

in commercial loans was largely the result of the repayment and forgiveness of PPP loans which declined $3.6 million during the first

three months of 2022.

Our loan production operation in Boone, North Carolina, continues to generate positive results, as well as our

Tri Cities area branches in Bristol, Virginia and Kingsport, Tennessee.

Total deposits increased $23.5 million, or 3.3%, to $731.0 million

at March 31, 2022 from $707.5 million at December 31, 2021, driven by liquidity resulting from the continuing low interest rate environment

and seasonal growth from income tax refunds.

March 31, 2022, shareholders’ equity totaled $58.9 million, a decrease of $4.7 million, or 7.4%, from December 31, 2021.

cause for the net decrease was the change in the net unrealized loss on investment securities available for sale, which increased $5.4

million, or 668.8%, during the first quarter of 2022, due to the impact of the change in interest rates.

Excluding the impact of the

unrealized loss, equity increased $725 thousand, due to net income of $1.9 million less the cash dividend payment of $1.2 million, which

was the first cash dividend paid by the Company.

as of and for the three month period ended March 31, 2022 include:

income for the first quarter of 2021 was $1.58 million, compared to $46 thousand for

the first quarter of 2020;

income for the first quarter of 2022 was $1.9 million, compared to $1.6 million for the first

quarter of 2021;

interest margin was 3.53% for the quarter, a decrease of 6 basis points compared to 3.59%

2 unchanged sentences

to the first quarter of 2021;

and employee benefits expense decreased $422 thousand, or 12.1%, to $3.1 million for

the first quarter of 2021 compared to the same quarter in 2020;

assets grew $54.0 million to $810.3 million;

and employee benefits expense increased $196 thousand, or 6.4%, to $3.3 million for the first

quarter of 2022 compared to the same quarter in 2021;

assets grew $18.9 million to $813.5 million, during the first three months of 2022;

balances grew $23.5 million;

4 unchanged sentences

of the Three Months ended March 31, 2022 to March 31, 2021

Company’s primary source of income is net interest income, which increased by $271 thousand, or 4.4%, to $6.4 million for

the first quarter of 2021 compared to $6.1 million for the first quarter of 2020.

While we had increases in average loan balances

and balances held at other banks, those were impacted by the effect of decreases in interest rates, causing interest income to

decrease by $376 thousand.

However, total interest expense decreased $647 thousand, which more than mitigated the decrease in

Company’s primary source of income is net interest income, which increased by $208 thousand, or 3.2%, to $6.6 million for the first

quarter of 2022 compared to $6.4 million for the first quarter of 2021.

While we had increases in average loan balances and investment

securities, those were impacted by the effect of decreases in interest rates and a decrease of $292 thousand in nonrecurring PPP loan

fees in 2022, causing interest income to decrease by $62 thousand.

However, total interest expense decreased $270 thousand, which more

than mitigated the decrease in interest income.

The decrease in interest expense was driven primarily by a $253 thousand decrease in

interest on deposits, a result of growth in noninterest bearing deposits and a 16 basis-point decrease in the cost of funds to 30 bps.

Overall, the net interest margin decreased 6 bps to 3.53%.

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

Interest Margin Analysis

Balances, Income and Expense, and Yields and Rates

in thousands)

Months Ended March 31,

bearing deposits in other banks

investment securities

earning assets

for loans losses

AND SHAREHOLDERS’ EQUITY

Interest-bearing

demand deposits

and money market deposits

preferred securities

interest-bearing liabilities

Non-interest-bearing

deposit liabilities and cost of funds

Shareholders’

Liabilities and Shareholders’ Equity

Interest Income

The decrease in interest expense was driven primarily by a $579 thousand decrease in interest on deposits, a

result of growth in noninterest bearing deposits and a 44 basis-point decrease in the cost of funds to 46 bps.

Overall, the net

interest margin decreased 16 bps to 3.59%.

This reduction in interest rates was a direct result of actions taken by the Federal

Reserve’s Federal Open Market Committee, in response to the economic impact of the spread of the pandemic.

It is expected

that the lower interest rate environment will continue to put a drag on the net interest margin for the foreseeable future.

future interest rate structure also may be impacted by the pending end of the use of LIBOR as a benchmark interest rate in 2021.

We use LIBOR in pricing some of our interest earning assets and liabilities, including our trust preferred securities.

time it appears that LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR), which is a transparent measure of

the cost of borrowing cash overnight collateralized by Treasury securities.

The United Kingdom’s Financial Conduct Authority

(FCA), who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to

submit LIBOR after December 31, 2021.

As it pertains to U.S.

dollar LIBOR, the FCA will consider the case to require continued

publication, on a synthetic basis, of 1-month, 3-month and 6-month LIBOR settings through June 30, 2023.

After such date, the

LIBOR settings will no longer be representative and representativeness will no longer be restored.

It should be noted, however,

that bank regulators, in a joint statement have urged banks to stop using LIBOR altogether on new transactions by the end of 2021

to avoid the creation of safety and soundness risk.

The Federal Reserve Bank of New York has created a working group called the

Alternative Reference Rate Committee (ARRC) to assist U.S.

institutions in transitioning away from LIBOR as a benchmark interest

The ARRC has recommended the use of the Secured Overnight Financing Rate (SOFR) as a replacement index for LIBOR.

there is not yet a consensus as to what rate or rates may become acceptable alternatives to LIBOR, however, we cannot predict

the effect of any such alternatives on the value of LIBOR-based variable-rate loans, as well as LIBOR-based securities, trust

preferred securities, or other securities or financial arrangements.

Regardless of whether SOFR or some other benchmark rate replaces

LIBOR, we do not anticipate that the change will have a material impact on our ability to negotiate and price earning assets and

However, the transition to alternative reference rate for new contracts, or the implementation of a substitute index

or indices for the calculation of interest rates under the Company’s existing loan agreements with borrowers or other financial

arrangements, could change the Company’s market risk profile, interest margin, interest spread and pricing models, may cause

the Company to incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not

accept a substitute index or indices, and may result in disputes or litigation with customers or other counter-parties over the

appropriateness or comparability to LIBOR of the substitute index or indices.

we prepared for potential asset quality challenges during 2020, a provision to the allowance for loan losses of $1.0 million was

made for the first quarter of 2020.

Based on our current assessment of the loan portfolio, a lower provision of $186 thousand

was made in the first quarter of 2021.

For a discussion of the factors affecting the allowance for loan losses, including provision

expense, refer to Note 7, Allowance for Loan Losses, in Item 1 of this Form 10-Q.

Depending on the length of the economic downturn

and the nature and speed of any future recovery, it is possible that additional provisions may be needed beyond those necessary

to support organic growth of the loan portfolio.

income for the first quarter of 2021 was $2.1 million, a decrease of $36 thousand, or 1.7%, when compared to the same period in

This decrease was driven primarily by a $220 thousand bonus received in the first quarter of 2020 from a service provider

for renewing and extending our agreement, and is recognized in other noninterest income.

Card processing and interchange fees

increased $111 thousand, for the quarterly year-over-year comparison, as customer card usage increased.

Revenue from financial

services activities increased $94 thousand, or 71.2%.

expense decreased $902 thousand to $6.3 million in the first quarter 2021 compared to the first quarter of 2020.

This decrease

was primarily due to the $422 thousand decrease in salaries and benefits expense, a result of the restructuring implemented last

May and June.

Other operating expenses decreased $496 thousand primarily due to decreases in consulting, data processing, ATM

network costs, and travel, which decreased $268 thousand, $46 thousand, $49 thousand and $66 thousand, respectively.

The conclusion

of the earnings improvement project drove the reductions in consulting fees and travel expenses, and data processing expense decreased

due to restructuring and renewal of software agreements.

Occupancy expense increased $63 thousand due largely to costs associated

with the new Kingsport, Tennessee, office.

The closings of our Pound and Weber City offices in Virginia are expected to create

some modest expense reductions.

Personnel assigned to these locations were reassigned, and the Pound office will function as a

regional training site.

efficiency ratio, a non-GAAP measure, improved to 74.3% for the first quarter of 2021 from 87.3% for the first quarter of 2020,

as we continue to implement changes to increase income and further control operating expenses.

Beginning in the second quarter

of 2021, we have re-engaged the firm that assisted in the operational assessment in 2019 and 2020, to review our efforts to date

and work toward enhancing our revenue and cost control structure.

Interest Margin

Interest Spread

(1) Nonaccrual

loans and loans held for sale have been included in average loan balances.

Tax exempt income is not significant and has been treated as fully taxable.

Includes loans held for sale

interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing

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 period indicated:

Volume and Rate Analysis

Increase (decrease)

Months Ended March 31,

in thousands)

in Interest Income/ Expense

bearing deposits in other banks

investment securities

Earning Assets

Interest-bearing

demand deposits

and money market deposits

preferred securities

Interest-bearing Liabilities

in Net Interest Income

on our current assessment of the loan portfolio, a lower provision of $100 thousand was made in the first quarter of 2022, after considering

the continued improvement in loan quality, exhibited by reductions in past due and nonaccrual loans and classified assets.

For a discussion

of the factors affecting the allowance for loan losses, including provision expense, refer to Note 7, Allowance for Loan Losses, in Item

1 of this Form 10-Q.

income for the first quarter of 2022 was $2.4 million, an increase of $240 thousand, or 11.3%, when compared to the same period in 2021.

As discussed previously, increased revenues from service charges and card servicing fees, which increased $175 thousand and $52 thousand,

respectively, were the primary drivers of this improvement.

Revenue from financial services activities increased $12 thousand, or 5.3%,

while merchant services income increased $11 thousand or 37.6%, as we continue to develop, or expand existing, customer relationships

in these service sectors.

non-interest expense increased $90 thousand, year-over-year for the three month period ending March 31, 2022.

As previously discussed,

increases to salaries and benefits expenses of $196 thousand were largely offset by reduced occupancy expenses which decreased $170 thousand.

efficiency ratio, a non-GAAP measure, which is defined as noninterest expense divided by the sum of net interest income plus noninterest

income, improved to 71.6% for the first quarter of 2022 from 74.3% for the first quarter of 2021, as we continue to implement changes

to increase income and further control operating expenses.

April 29, 2022, the Bank notified its principal regulators that it will be closing branch offices in Big Stone Gap and Chilhowie, Virginia,

on August 12, 2022.

Accounts serviced at these offices will be transferred to nearby branches, and employees will be reassigned to other

positions or offices, as available.

Interactive teller machines at these locations will remain in service for the foreseeable future.

This restructuring of the branch network should improve the efficiency of service to the customers of these communities.

tax expense for the first quarter of 2022 totaled $530 thousand, an increase of $108 thousand, or 25.6% from the $422 thousand recorded

during the same period in 2021.

The year-over-year increase approximates the increase of pre-tax earnings.

assets increased $18.9 million, or 2.4%, to $813.5 million at March 31, 2022 from $794.6 million at December 31, 2021.

was primarily driven by the $52.9 million increase in deposits, which has increased interest-bearing deposits in other banks and

has helped fund loan growth of $18.9 million.

investments decreased $2.1 million, or 4.4%, to $46.3 million at March 31, 2021 due primarily to principal paydowns of $2.9 million

and a decrease of $525 thousand in net unrealized gains, which was offset by purchases of $1.5 million.

Through April 30, 2021,

approximately $11.9 million has been placed in the investment portfolio since March 31, 2021, with an expectation that additional

overnight funds will be invested in the second quarter, as we seek to manage liquidity and increase the return on earning assets.

were no loans held for sale at March 31, 2021 versus $389 thousand at December 31, 2020.

This growth was

primarily driven by the $23.5 million increase in deposits, which has increased

interest-bearing deposits in other banks and has helped fund loan growth which increased $16.0 million and $1.4 million, respectively.

investments decreased $538 thousand, or 0.5%, to $106.8 million at March 31, 2022 due primarily to an increase of $6.9 million in

net unrealized losses and $4.2 million of repayments and maturities, which were largely offset by purchases of $10.7 million.

expected that purchases will continue as we deploy excess liquidity, and use the investment portfolio to manage the balance sheet

and increase the return on earning assets.

were $100 thousand of loans held for sale at March 31, 2022 versus $0 at December 31, 2021.

These loans are originated for sale into

the secondary market on a best efforts basis.

receivable increased $18.9 million, or 3.3%, to $594.5 million at March 31, 2021 as compared to $575.6 million at December 31,

2020, due mainly to increases in commercial loans secured by real estate and commercial & industrial loans (not secured by

real estate), which grew $11.8 million and $4.7 million, respectively.

During the first quarter of 2021, 323 loans totaling $18.8

million were funded in Round 2 of the PPP program.

At the same time, $15.4 million of PPP loans originated in Round 1 were repaid

through SBA forgiveness during the first three months of 2021.

As of April 30, 2021, an additional 78 loans PPP loans totaling

$3.7 million were funded, bringing the total round 2 loans to $22.5 million.

deposits increased $52.9 million, or 7.9%, to $721.0 million at March 31, 2021 from $668.0 million at December 31, 2020, due primarily

to approximately $48 million in stimulus payments received by customers in March, plus PPP loan funds, which are generally deposited

into customers’ deposit accounts.

During those three months, noninterest-bearing demand deposits increased $35.6 million,

During this same period, interest-bearing deposits increased $17.4 million, or 3.9%, driven mainly by an increase in

interest-bearing demand deposits of $7.3 million and an increase in savings accounts of $13.4 million, offset by a decrease in

time deposits of $7.9 million.

Although we have lowered deposit rates, we continue to maintain core deposits through attractive

consumer and commercial deposit products and strong ties with our customer base and communities.

receivable increased $1.4 million, or 0.2%, due

mainly to increases in construction and land development loans, commercial loans secured by real estate and multi-family loans, which

grew $6.5 million, $1.2 million and $1.4 million, respectively.

Growth in these components of the portfolio offset a reduction in commercial

loans of $6.7 million.

The decrease in commercial loans was largely the result of the repayment and forgiveness of PPP loans which declined

$3.6 million during the first three months of 2022.

At March 31, 2022, PPP loans totaled $2.8 million.

deposits increased $23.5 million, or 3.3%, to $731.0 million at March 31, 2022 from $707.5 million at December 31, 2021, due to increases

in noninterest-bearing demand deposits of $18.0 million, or 7.2%, and interest-bearing deposits of $5.5 million, or 1.2%.

The increase in deposits was driven mainly by increases in interest-bearing

NOW and demand deposits and other interest-bearing transaction accounts which increased $5.5 million and $5.6 million, respectively,

offset by a decrease in time deposits of $5.7 million.

The increase in deposits is something experienced across the industry, due to

the continuing low interest rate environment, combined with the lingering impact of various stimulus and liquidity measures implemented

by the government during the peak of the pandemic.

While it is likely that recent and expected increases to the federal funds rate will,

at some point, impact liquidity, we continue to maintain core deposits through attractive consumer and commercial deposit products and

strong ties with our customer base and communities.

preferred securities of $16.5 million at March 31, 2022 were unchanged compared to December 31, 2021.

funds from the FHLB were $5.0 million at both March 31, 2021 and December 31, 2020.

following table presents the FHLB advances:

in thousands)

anticipate that this FHLB borrowing will be repaid in full during the second quarter of 2021.

equity at March 31, 2021 was $59.3 million, an increase of $1.2 million, or 2.0%, compared to $58.2 million at December 31, 2020.

Net income of $1.58 million offset by comprehensive loss of $415 thousand drove this increase.

equity at March 31, 2022 was $58.9 million, a decrease of $4.7 million, or 7.4%, compared to $63.6 million at December 31, 2021.

previously and in the Capital Resources section the primary driver of the decline was the $5.4 million net increase in the other accumulated

comprehensive loss, related to the unrealized loss on available for sale investment securities, along with a cash dividend payment.

increase in other accumulated comprehensive loss is related to the recent increase in interest rates and is not related to any deterioration

in the credit quality of any investment securities held.

Non-performing

assets decreased $185 thousand, or 2.1%, during the first three months of 2021, driven by a decrease in nonaccruing loan balances

of $192 thousand that was partially offset by an increase in other real estate owned (OREO) of $8 thousand.

As a result, the ratio

of nonperforming assets to total assets decreased to 1.07% at March 31, 2021 compared to 1.17% at December 31, 2020.

assets decreased $867 thousand, or 20.2%, during the first three months of 2022, driven by a decrease in nonaccruing loan balances of

$301 thousand, a decrease in other real estate owned (OREO) of $566 thousand.

As a result, the ratio of nonperforming assets to total

assets decreased to 0.42% at March 31, 2022 compared to 0.54% at December 31, 2021.

Nonperforming

assets include nonaccrual loans, OREO and loans past due more than 90 days which are still accruing interest.

Our policy is to

place loans on nonaccruing status once they reach 90 days past due.

The makeup of the nonaccruing loans is primarily those secured

by residential mortgages, and commercial real estate.

is primarily made up of commercial and single-family residential properties.

We continue extensive and aggressive measures to

work through problem credits and liquidate foreclosed properties in an effort to reduce nonperforming assets.

We are mindful of

the impact on earnings and capital as we work to achieve our goal to reduce nonperforming assets.

However, we may recognize some

losses and reductions in the allowance for loan loss as we expedite the resolution of these problem assets.

Nonperforming

assets consisted of the following as of March 31, 2021 and December 31, 2020:

December 31, 2020

Nonaccrual loans

Loans past due more than 90 days, still accruing

Nonperforming loans

Other real estate owned

Our policy is to place

loans on nonaccruing status once they reach 90 days past due.

The makeup of the nonaccruing loans is primarily those secured by residential

mortgages, and commercial real estate.

is primarily made up of commercial properties, farmland and land of which $475 thousand consists of former branch office sites that were

transferred to OREO in 2021.

Those two remaining branch sites at March 31, 2022, were sold in May 2022, bringing our OREO balance down

to $321 thousand.

We continue extensive and aggressive measures to work through problem credits and liquidate foreclosed properties in

an effort to reduce nonperforming assets.

We remain mindful of the impact on earnings and capital as we work to achieve our goal to reduce

nonperforming assets.

Nonperforming loans/Total loans at period end

Nonperforming assets/Total assets at period end

OREO properties are available for sale by commercial and residential realtors under the direction of our Special Assets division.

During the first three months of 2021, $118 thousand of OREO was acquired as a result of settlement of foreclosed loans.

real estate sales for the first three months of 2021 totaled $65 thousand, resulting in a net loss of $17 thousand.

to reduce our level of foreclosed properties, we maintain an aggressive approach toward liquidating properties, exhibited over

the past, by making pricing adjustments to expedite sales.

This includes valuation adjustments of $28 thousand recorded thus far

As we continue these efforts, additional losses could occur, while reducing future carrying costs.

We do have lease agreements

on certain OREO properties which are generating rental income at market rates.

Rental income on OREO properties was $18 thousand

for the first three months of 2021 compared to $25 thousand for the first three months of 2020.

However, we may recognize some losses and reductions in the allowance for loan loss as we expedite the resolution

of these problem assets.

rated substandard or below totaled $2.6 million at March 31, 2022, a decrease of $261 thousand from $2.9 million at December 31, 2021.

Total past due loans decreased to $5.6 million at March 31, 2021 from $8.6 million at December 31, 2020.

allowance for loan losses at March 31, 2021 was $7.3 million, or 1.23% of total loans as compared to $7.2 million, or 1.25%, of

total loans at December 31, 2020.

Impaired loans totaled $4.8 million with an estimated related

specific allowance of $608 thousand for potential losses at March 31, 2021 as compared to $5.1 million of impaired loans with

an estimated related allowance of $1.1 million at the end of 2020.

A provision of $186 thousand was recorded for the first quarter

of 2021 compared to $1.0 million for the first three months of 2020.

In the first three months of 2020, net charge-offs were $83

thousand, or 0.06% of average loans, annualized, as compared to $31 thousand, or 0.02%, of average loans for the same period of

The allowance for loan losses is being 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.

We continue to adjust

the allowance for loan loss model to best reflect the risks in the portfolio and the changes made in our internal policies and

Total past due loans decreased to $2.7 million at March 31, 2022 from $3.4 million at

December 31, 2021.

Please refer to Note 6 Loans in Section 1 of this Form 10-Q for additional details related to loan ratings and past

allowance for loan losses at March 31, 2022 was $6.8 million, or 1.14% of total loans as compared to $6.7 million, or 1.13%, of total

loans at December 31, 2021.

Impaired loans totaled $2.8 million with an estimated related specific allowance of $199 thousand for potential

losses at March 31, 2022 as compared to $2.8 million of impaired loans with an estimated related allowance of $166 thousand at the end

A provision of $100 thousand was recorded for the first quarter of 2022 compared to $186 thousand for the first three months

In the first three months of 2022, net charge-offs were $76 thousand, or 0.05% of average loans, annualized, as compared to

$84 thousand, or 0.06%, of average loans for the same period of 2021.

The allowance for loan losses is being 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.

We continue to adjust the allowance for loan loss model to best reflect the risks in the portfolio

and the changes made in our internal policies and procedures;

however, future provisions may be deemed necessary.

During 2020 and continuing through the first quarter of 2021,

due to uncertainties presented by the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative

factors were revised accordingly.

This revision included reviewing our internal scoring related to loan modifications and extensions,

Due to uncertainties

related to the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors that were revised early

in the pandemic remain largely in place.

These revisions included reviewing our internal scoring related to loan modifications and extensions,

and external factors, specifically, unemployment and other economic factors.

following table summarizes components of the allowance for loan losses and the related loans as of March 31, 2021 and December

have commenced the process of preparing to implement the Current Expected Credit Loss (CECL) model to replace our legacy loan loss

We are on schedule to be testing and running concurrent quarterly calculations of both the legacy and CECL models by the end

of the second quarter 2022.

Selected Credit Ratios

(Dollars in thousands)

March 31,2021

December 31, 2020

Specific allowance

General allowance

Total allowance

Impaired loans

Total allowance/Total loans

General allowance/Other loans

Allowance for loan losses

Allowance for loan losses to total loans

Nonaccrual loans

Nonaccrual loans to total loans

Ratio of allowance for loan losses to nonaccrual loans

Charge-offs net of recoveries

Average loans

Net charge-offs to average loans

Tax Asset and Income Taxes

to timing differences between book and tax treatment of several income and expense items, a net deferred tax asset of $2.8 million

and $3.1 million existed at March 31, 2021 and December 31, 2020, respectively.

Our income tax expense was computed at the corporate

income tax rate of 21% of taxable income.

We have no significant nontaxable income or nondeductible expenses.

stockholders’ equity at March 31, 2021 was $59.3 million compared to $58.2 million at December 31, 2020, an increase of

$1.2 million.

The increase includes net unrealized losses of $415 thousand related to the available-for-sale investment portfolio,

net of tax, plus net income of $1.58 million for the three month period.

to timing differences between book and tax treatment of several income and expense items, a net deferred tax asset, excluding the deferred

tax asset on the unrealized loss on securities available for sale, of $2.6 million and $1.7 million existed at March 31, 2022 and December

31, 2021, respectively.

Our income tax expense was computed at the corporate income tax rate of 21% of taxable income.

We have no significant

nontaxable income or nondeductible expenses.

shareholders’ equity at March 31, 2022 was $58.9 million compared to $63.6 million at December 31, 2021, a decrease of $4.7 million,

As previously discussed, this decline was driven by the $5.4 million net increase in the accumulated comprehensive loss related

to the unrealized loss on investment securities available- for-sale.

Excluding the impact of the unrealized loss, equity increased $725

thousand, due to net income of $1.9 million less the cash dividend payment of $1.2 million.

Company meets the eligibility criteria to be classified as a small bank holding company in accordance with the Federal Reserve’s

1 unchanged sentence

The Bank continues to be subject to various capital requirements administered by banking agencies.

Bank’s capital ratios along with the minimum regulatory thresholds to be considered well-capitalized are presented in the

following table.

Well-Capitalized

Tier 1 leverage

Common equity Tier 1

Tier 1 risk-based capital

Total risk-based capital

Bank’s capital ratios along with the minimum regulatory thresholds to be considered well-capitalized are presented at Note 4 in

Item 1 of this Form 10-Q.

March 31, 2022, 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, which is total stockholders’ equity net of accumulated other comprehensive income, was $2.47 per common share

at March 31, 2021 and $2.40 per common share at December 31, 2020.

Other key performance indicators are as follows:

Three months ended March 31,

Return on average assets 1

Return on average equity 1

Average equity to average assets

1 - Annualized

current economic conditions, we believe it is prudent to continue to increase capital 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

The ratios mentioned above

for the Bank comply with the Federal Reserve rules to align with the Basel III Capital requirements.

value per common share was $2.46 at March 31, 2022, and $2.66 at December 31, 2021.

Excluding the impact of the accumulated other comprehensive

loss, book value per share was $2.72 and $2.69 at March 31, 2022 and December 31, 2021, respectively.

Other key performance indicators

are as follows:

months ended March 31,

on average assets 1

on average equity 1

equity to average assets

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.

cash dividends have been paid historically and we do not anticipate paying a cash dividend in the foreseeable future as the Company

continues to have a retained deficit.

Earnings will continue to be retained to build capital and position the Company to pay a

dividend to its shareholders as soon as practicable.

the first quarter of 2022, the Company paid its first cash dividend of $0.05 to shareholders.

Earnings will continue to be retained to

provide capital to support the planned growth and operations of the Company and to continue to pay any future dividends to shareholders.

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 through March 31, 2023.

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.

There is no assurance that the

Company will purchase any shares under this program

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 $171.2 million at March 31, 2021, an increase from $134.0 million at December

A surplus of short-term assets is maintained at levels management deems adequate to meet potential liquidity needs during

Collectively, those balances were $184.7 million at March 31, 2022, an increase of $25.4 million from $159.3 million

at December 31, 2021.

A surplus of short-term assets is maintained at levels management deems adequate to meet potential liquidity needs

March 31, 2022, all of our investment securities were classified as available-for-sale.

These investments provide a source of

liquidity in the amount of $40.0 million, which is net of the $6.3 million of securities pledged as collateral.

Investment securities

available for sale serve as a source of liquidity while yielding a higher return versus other short-term investment options, such

as federal funds sold and overnight deposits with the Federal Reserve Bank.

These investments provide a source of liquidity

in the amount of $95.8 million, which is net of the $11.1 million of securities pledged as collateral.

Investment securities available

for sale serve as a source of liquidity while yielding a higher return versus other short-term investment options, such as federal funds

sold and overnight deposits with the Federal Reserve Bank.

loan to deposit ratio was 81.4% at March 31, 2022 and 83.9% at December 31, 2021.

6 unchanged sentences

federal funds through credit facilities extended by correspondent banks.

Bank’s total line of credit with the FHLB is $188.8 million, with unused availability at March 31, 2021 of $171.8 million.

One advance for $5.0 million was outstanding at March 31, 2021 and the credit line also secures letters of credit totaling $17.0

The advance and letters of credit are secured by a blanket lien on our residential real estate loans which amounted to

$126.4 million at March 31, 2021.

Bank also has access to the brokered deposits market and the Certificate of Deposit Registry Service (CDARS).

Bank’s line of credit with the FHLB is $198.6 million, with unused availability at March 31, 2022 of $186.6 million.

No FHLB advances

were outstanding at March 31, 2022, but the credit line also secures letters of credit totaling $12.0 million.

The available line and

the outstanding letters of credit are secured by a blanket lien on our residential real estate loans which amounted to $132.0 million

at March 31, 2022.

we held no brokered deposits and $9.8 million in CDARS reciprocal time deposits.

Bank also has access to the brokered deposits market and the Certificate of Deposit Registry Service (CDARS).

At March 31, 2022, we held

no brokered deposits and $4.4 million in CDARS reciprocal time deposits.

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, we do not anticipate using this funding source except as

a last resort.

Aside from the conventional discount window facility, the Federal Reserve Bank is also offering funding for specifically

for financial institutions providing PPP loans.

As we continue to assess our overall liquidity, we may consider taking advantage

of this program or some similar credit facilities being offered by other correspondent banks related to matching PPP loans.

We may collateralize this line with

investment securities and loans at our discretion;

however, we do not anticipate using this funding source except as a last resort.

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, etc., some of which are beyond our control.

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, etc., some of which are beyond

bank holding company has approximately $748 thousand in cash on deposit at the Bank at March 31, 2022.

The holding company receives

quarterly dividend payments from the Bank which are used to pay operating expenses, trust preferred interest payments, and provide

additional capital injections to the Bank, if needed.

The Company is making quarterly interest payments on the trust preferred

The holding company receives periodic

dividend payments from the Bank which are used to pay operating expenses, trust preferred interest payments, and fund dividend payments

to shareholders.

The Company makes quarterly interest payments on the trust preferred securities.

discussed in the Capital Resources section, 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 through March 31, 2023.

Payments for any repurchases will be distributed

from available funds, or from dividends payments from the Bank.

Balance Sheet Items and Contractual Obligations

1 unchanged sentence

disclosed in our 2021 Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk

and Qualitative Disclosures About Market Risk

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 2. Management’s Discussion and Analysis