VIRGINIA NATIONAL BANKSHARES CORP MANAGEMENT REPORT OF FINANCIAL CONDITION AND OPERATING RESULTS (Form 10-Q)

The following discussion should be read in conjunction with the unaudited
consolidated financial statements, and notes thereto, of Virginia National
Bankshares Corporation included in this report and the audited consolidated
financial statements, and notes thereto, of the Company included in the
Company's Form 10-K for the year ended December 31, 2021. Operating results for
the three and six months ended June 30, 2022 are not necessarily indicative of
the results for the year ending December 31, 2022 or any future period.

FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD AFFECT FUTURE RESULTS

Certain statements contained or incorporated by reference in this quarterly
report on Form 10-Q may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements include,
without limitation, statements with respect to the Company's operations,
performance, future strategy and goals, and are often characterized by use of
qualified words such as "expect," "believe," "estimate," "project,"
"anticipate," "intend," "will," "should," or words of similar meaning or other
statements concerning the opinions or judgement of the Company and its
management about future events. While Company management believes such
statements to be reasonable, future events and predictions are subject to
circumstances that are not within the control of the Company and its management.
Actual results may differ materially from those included in the forward-looking
statements due to a number of factors, including, without limitation, the
effects of and changes in: general economic and market conditions, including the
effects of declines in real estate values, an increase in unemployment levels
and general economic contraction as a result of COVID-19 or other pandemics;
fluctuations in interest rates, deposits, loan demand, and asset quality;
assumptions that underlie the Company's ALLL; the potential adverse effects of
unusual and infrequently occurring events, such as weather-related disasters,
terrorist acts or public health events (e.g., COVID-19 or other pandemics), and
of governmental and societal responses thereto; the performance of vendors or
other parties with which the Company does business; competition; technology;
changes in laws, regulations and guidance; changes in accounting principles or
guidelines; performance of assets under management; expected revenue synergies
and cost savings from the recently completed merger with Fauquier may not be
fully realized or realized within the expected timeframe; the businesses of the
Company and Fauquier may not be integrated successfully or such integration may
be more difficult, time-consuming or costly than expected; revenues following
the Merger may be lower than expected; customer and employee relationships and
business operations may be disrupted by the merger; and other factors impacting
financial services businesses. Many of these factors and additional risks and
uncertainties are described in the Company's Annual Report on Form 10-K for the
year ended December 31, 2021 and other reports filed from time to time by the
Company with the Securities and Exchange Commission. These statements speak only
as of the date made, and the Company does not undertake to update any
forward-looking statements to reflect changes or events that may occur after
this release.

MERGER WITH FAUQUIER BANKSHARES, INC., AND THE FAUQUIER BANK

On April 1, 2021, the Company completed its Merger with Fauquier. The Merger of
Fauquier with and into the Company was effected pursuant to the terms and
conditions of the Agreement and Plan of Reorganization, dated as of September
30, 2020, between the Company and Fauquier, and a related Plan of Merger.
Immediately after the Merger, The Fauquier Bank, Fauquier's wholly-owned bank
subsidiary, merged with and into Virginia National Bank, the Company's
wholly-owned bank subsidiary.

Pursuant to the Merger Agreement, former holders of shares of Fauquier common
stock received 0.675 shares of the Company's common stock for each share of
Fauquier common stock held immediately prior to the Merger, with cash paid in
lieu of fractional shares. Each share of common stock of the Company outstanding
immediately prior to the Merger remained outstanding and was unaffected by the
Merger.

Refer to Note 2 - Business Combinations, in the Notes to Consolidated Financial
Statements, for further detail on the accounting policy for business
combinations, fair values of assets and liabilities assumed, assumptions used in
determining the fair values of assets and liabilities and the resulting
goodwill.


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OVERVIEW

Our primary financial goal is to maximize the Company's earnings to increase
long-term shareholder value. We monitor three key financial performance measures
to determine our success in realizing this goal: 1) return on average assets, 2)
return on average equity, and 3) net income per share. (Refer to Reconcilement
of Non-GAAP Measures within the Non-GAAP presentations section for further
detail and calculation of amounts labeled as "Non-GAAP.")

ROAA for the three months ended June 30, 2022 was 1.27% compared to 0.03% (1.02%
excluding merger and merger-related expenses, a non-GAAP measure) realized in
the same period in the prior year, as the increase in net income was
significantly higher in the current period and no merger or merger-related
expenses were incurred in the current period. ROAA for the six months ended June
30, 2022 was 1.15% compared to 0.24% (0.93% excluding merger and merger-related
expenses, a non-GAAP measure) realized in the same period in the prior year.

ROAE for the three months ended June 30, 2022 was 16.20% compared to 0.37% (11.88% excluding merger fees and merger-related expenses, a non-GAAP measure) achieved in the same prior year period. ROAE for the half-year ended June 30, 2022 was 14.26%, compared to 2.76% (10.66% excluding merger and merger-related expenses, a non-GAAP measure) achieved in the same period a year earlier.

Net income per diluted share was $1.06 for the three months ended June 30, 2022,
compared to $0.03 ($0.89 excluding merger and merger-related expenses, a
non-GAAP measure) for the same period in the prior year, due to the increase of
$5.5 million in net income. Net income per diluted share was $1.98 for the six
months ended June 30, 2022, compared to $0.41 ($1.33 excluding merger and
merger-related expenses, a non-GAAP measure) for the same period in the prior
year, due to the increase of $9.0 million in net income.

We also manage our capital levels through growth, quarterly cash dividends,
periodic stock dividends and share repurchases, when prudent, while maintaining
a strong capital position. Refer to the Results of Operations, Non-GAAP
Presentation section, later in this Management's Discussion and Analysis for
more discussion on these financial performance measures.

IMPACT OF COVID-19

The Company's financial performance generally, and in particular the ability of
its borrowers to repay their loans, the value of collateral securing those
loans, as well as demand for loans and other products and services the Company
offers, is dependent on the business environment in its primary markets.
COVID-19 has had, and may have in the future, a wide range of economic impacts
nationally and in the Company's primary markets. Continuing cases of COVID-19,
including the emergence of variants of the COVID-19 virus, continue to be a
public health concern in the Company's markets. There have been encouraging
signs of strength in the economic recovery, including growth in consumer
spending and improvement in the labor market, but many businesses continue to
face difficulty in hiring desirable employees and meeting consumer demand, and
certain portions of the global supply chain remain challenged by shortages and
delays that first occurred due to the initial COVID-19 outbreak. There remains
uncertainty about the pace of economic recovery, including uncertainty related
to the labor market, inflation and fiscal and monetary policy responses from the
federal government. There remains a risk that consumers and borrowers who have
been supported during the pandemic by government stimulus measures may not
return to employment and may not be able to repay debts as agreed following the
cessation of government stimulus programs, including expanded unemployment
benefits.

Management will carefully monitor any future impacts attributable to the
COVID-19 pandemic and its impact on the Company's markets, customers and
employees, and believes that the pandemic continues to present risks of elevated
loan losses, sustained net interest margin compression and falling demand for
loans? however, at this time management cannot determine the ultimate impact of
the pandemic on the results of operations of the Company.

Throughout the onset of this pandemic, the Company has maintained its high credit quality standards on organic loan funding to limit exposure to credit risk. There have been no loan deferrals related to COVID-19 June 30, 2022.

As of June 30, 2022, capital ratios of the Company were in excess of regulatory
requirements. While currently included in the category of "well capitalized" by
bank regulators, a prolonged economic recession could adversely impact reported
and regulatory capital ratios. The Company maintains access to multiple sources
of liquidity. Management also revisited its capital and liquidity stress tests,
as well as capital and liquidity contingency plans, to validate that the Company
can react effectively to an economic downturn.


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Operations, Processes, Controls and Business Continuity Plan

The Company reacted quickly to the COVID-19 pandemic. Since the start of the
pandemic, the Company has taken and is continuing to take precautions to protect
the safety and well-being of the Bank's employees and customers. We began
internal social distancing in mid-March of 2020, as well as distancing from the
public by keeping our drive-thru services available, and encouraging customers
to conduct transactions at ATMs, through online banking and/or the mobile app.
The Company also increased consumer and business mobile deposit limits to
encourage customers to make deposits remotely from the safety of their home or
business. The Company implemented a temporary schedule whereby most staff
members worked remotely, allowing the remaining essential staff to create more
distance between each other within the offices. We temporarily increased the
number of staff in the client service center to assist more customers by
telephone and encourage them to utilize online and mobile banking. The client
service center was also moved on a short-term basis to a larger location to
allow for appropriate social distancing. In addition, the Company enhanced
disinfecting procedures to include hospital-grade cleaning solution and foggers,
increased the frequency of cleaning and issued personal protective equipment,
including N-95 and disposable face masks, face shields, sneeze guards, gloves
and thermometers, to employees, along with specific instructions for use, to
enhance their safety. We also installed disinfecting protective strips to high
touch areas and placed free-standing air filter machines throughout our
facilities. We purchased COVID-19 instant test kits that we have on-site, ready
to be deployed when needed, and we provided antibody testing options to all
employees. Management provides frequent email communications and social media
updates regarding COVID-19, helpful tips and status of Company initiatives, as
well as warning customers of potential scams during this pandemic. The Bank
remains very focused on the safety and well-being of its employees and customers
during COVID-19 and is committed to safely and responsibly operating its
branches and operating facilities, as all branches have reopened and work
schedules have returned to normal.

The Company's preparedness resulted in minimal impact to the Company's
operations as a result of COVID-19. Business continuity planning allowed for
successful deployment of most of our employees to work in a remote environment.
No material operational or internal control risks have been identified to date,
and the Company has enhanced fraud-related controls.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accounting and reporting policies followed by the Company conform, in all
material respects, to GAAP and to general practices within the financial
services industry. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. While the
Company bases estimates on historical experience, current information and other
factors deemed to be relevant, actual results could differ from those estimates.

The Company considers accounting estimates to be critical to reported financial
results if (i) the accounting estimate requires management to make assumptions
about matters that are highly uncertain, and (ii) different estimates that
management reasonably could have used for the accounting estimate in the current
period, or changes in the accounting estimate that are reasonably likely to
occur from period to period, could have a material impact on the Company's
consolidated financial statements. The Company's accounting policies are
fundamental to understanding management's discussion and analysis of financial
condition and results of operations.

For additional information regarding critical accounting policies, refer to the
Application of Critical Accounting Policies and Critical Accounting Estimates
section under Item 7 in the Company's 2021 Form 10-K. There have been no
significant changes in the Company's application of critical accounting policies
since December 31, 2021.

FINANCIAL CONDITION

Total assets

The total assets of the Company as of June 30, 2022 were $1.7 billion. This is a
$227 million, or 11.5%, decrease from total assets reported at December 31, 2021
and a $102 million, or 5.5%, decrease from total assets reported at June 30,
2021. The decreases were substantially within gross loans, as SBA PPP loans were
forgiven, legacy organic loan balances declined due to business sales, property
sales and participation fluctuations, Acquired Loan balances declined due to
successful execution of paydowns to improve asset quality, and other
curtailments (see more detail in the Loan portfolio section following).

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Remunerated deposits in other banks

The Company had $145.2 million of interest-bearing deposits in other banks as of
June 30, 2022, compared to $336.0 million as of December 31, 2021 and $177.8
million as of June 30, 2021. Significant excess liquidity has been deployed into
short-term investment securities in the six months ended June 30, 2022 to earn a
higher yield.

Federal funds sold

The Company had overnight federal funds sold of $52.8 million as of June 30,
2022, $152.5 million as of December 31, 2021 and $106.6 million as of June 30,
2021. Any excess funds are sold on a daily basis in the federal funds market.
The Company intends to maintain sufficient liquidity at all times to meet its
funding commitments.

The Company continues to participate in the Excess Balance Account of the
Federal Reserve Bank of Richmond. The EBA is a limited-purpose account at the
FRB for the maintenance of excess cash balances held by financial institutions.
The EBA eliminates the potential of concentration risk that comes with
depositing excess balances with one or multiple correspondent banks.

Securities

The Company's investment securities portfolio as of June 30, 2022 totaled $467.0
million, an increase of $158.2 million compared with the $308.8 million reported
at December 31, 2021 and an increase of $195.7 million from the $271.2 million
reported at June 30, 2021. The increase from year-end and the same period in the
prior year is the result of deploying excess funds into higher yielding assets.
Management proactively manages the mix of earning assets and cost of funds to
maximize the earning capacity of the Company. At June 30, 2022 and December 31,
2021, the investment securities holdings represented 26.8% and 15.7% of the
Company's total assets, respectively.

The Company's investment securities portfolio included restricted securities
totaling $5.1 million as of June 30, 2022, compared to $5.0 million as of
December 31, 2021 and $4.3 million as of June 30, 2021. These securities
represent stock in the FRB, the FHLB, CBB Financial Corporation (the holding
company for Community Bankers Bank), and an investment in an SBA loan fund. The
level of FRB and FHLB stock that the Company is required to hold is determined
in accordance with membership guidelines provided by the Federal Reserve and the
FHLB, respectively. Stock ownership in the bank holding company for Community
Bankers' Bank provides the Company with several benefits that are not available
to non-shareholder correspondent banks. None of these restricted securities are
traded on the open market and can only be redeemed by the respective issuer.

At June 30, 2022, the unrestricted securities portfolio totaled $461.8 million.
The following table summarizes the Company's AFS securities by type as of June
30, 2022, December 31, 2021, and June 30, 2021 (dollars in thousands):

                                   June 30, 2022             December 31, 2021            June 30, 2021
                                               % of                        % of                       % of
                                Balance       Total        Balance        Total        Balance       Total
U.S. Government treasuries     $ 161,009         34.9 %   $        -            -     $       -            -
U.S. Government agencies          30,532          6.6 %       31,581         10.4 %      35,228         13.2 %
Mortgage-backed
securities/CMOs                  175,962         38.1 %      170,964         56.3 %     136,418         51.1 %
Corporate bonds                   11,154          2.4 %            -            -             -            -
Municipal bonds                   83,173         18.0 %      101,272         33.3 %      95,327         35.7 %
Total available for sale
securities                     $ 461,830        100.0 %   $  303,817        100.0 %   $ 266,973        100.0 %




The securities are held primarily for earnings, liquidity, and asset/liability
management purposes and are reviewed quarterly for possible other-than-temporary
impairments. During this review, management analyzes the length of time the fair
value has been below cost, the expectation for that security's performance, the
creditworthiness of the issuer, and the Company's intent and ability to hold the
security to recovery or maturity. These factors are analyzed for each individual
security.


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loan portfolio

A management objective is to grow loan balances while maintaining the asset
quality of the loan portfolio. The Company seeks to achieve this objective by
maintaining rigorous underwriting standards coupled with regular evaluation of
the creditworthiness of, and the designation of lending limits for, each
borrowing relationship. The portfolio strategies include seeking industry, loan
size, and loan type diversification to minimize credit exposure and originating
loans in markets with which the Company is familiar. The Company's geographical
trade area includes localities in Virginia, Maryland and the District of
Columbia that are within a 100-mile radius of any office of the Company.

As of June 30, 2022, total loans were $960.2 million, compared to $1.1 billion
as of December 31, 2021 and $1.2 billion at June 30, 2021. Loans as a percentage
of total assets at June 30, 2022 were 55.0%, compared to 63.1% as of June 30,
2021. Loans as a percentage of deposits at June 30, 2022 were 60.1%, compared to
71.6% as of June 30, 2021.

The following table summarizes the Company's loan portfolio by type of loan as
of June 30, 2022, December 31, 2021, and June 30, 2021 (dollars in thousands):

                                June 30, 2022              December 31, 2021               June 30, 2021
                                           % of                          % of                          % of
                            Balance        Total         Balance         Total         Balance         Total
Commercial loans           $  77,599           8.1 %   $    96,696           9.1 %   $   160,473          13.8 %
Real estate mortgage:
  Construction and land       55,140           5.7 %        79,331           7.5 %        96,421           8.3 %
  1-4 family residential
mortgages                    329,920          34.4 %       358,148          33.8 %       381,801          32.7 %
  Commercial                 446,282          46.5 %       473,632          44.6 %       455,795          39.1 %
    Total real estate
mortgage                     831,342          86.6 %       911,111          85.9 %       934,017          80.1 %
Consumer                      51,251           5.3 %        53,404           5.0 %        71,671           6.1 %
Total loans                $ 960,192         100.0 %   $ 1,061,211         100.0 %   $ 1,166,161         100.0 %



The Company's planned strategy to further improve asset quality through
negotiation of loan paydowns and PPP forgiveness resulted in a decrease in loan
balances from June 30, 2021 and December 31, 2021 to June 30, 2022. The decrease
from June 30, 2021 is due predominantly to: 1) the forgiveness of SBA PPP loans
in the amount of $71.9 million, 2) paydowns of legacy organic loans due mainly
to business sales, property sales and participation fluctuations of $53.8
million, and 3) workouts and paydowns of Acquired Loans of $50.4 million. As of
June 30, 2022, less than $1.9 million of PPP loans remain outstanding on the
Bank's balance sheet.

Loan quality

Non-accrual loans, comprised of only two loans to one borrower, totaled $511
thousand at June 30, 2022, compared to balances of $495 thousand and $17
thousand reported at December 31, 2021 and June 30, 2021, respectively. Acquired
Loans which otherwise would be in non-accrual status are not included in the
balances, as they earn interest through the yield accretion.

The Company had loans in its portfolio totaling $626 thousand, $801 thousand and
$2.8 million, as of June 30, 2022, December 31, 2021 and June 30, 2021,
respectively, that were 90 or more days past due and still accruing interest as
the Company deemed them to be collectible. The balance as of June 30, 2022
includes a government-guaranteed loan in the amount of $548 thousand. The
portfolio includes four non-insured student loans that are 90 days or more past
due and still accruing interest, amounting to $30 thousand.

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The Company had loans classified as impaired loans in the amount of $1.4 million
as of June 30, 2022, $1.5 million as of December 31, 2021, and $1.1 million at
June 30, 2021. Based on regulatory guidance on student lending, the Company has
classified 56 of its Purchased Student Loans as TDRs for a total of $835
thousand as of June 30, 2022. These borrowers that should have been in repayment
have requested and been granted payment extensions or reductions exceeding the
maximum lifetime allowable payment forbearance of twelve months (36 months
lifetime allowance for military service), as permitted under the regulatory
guidance, and are therefore considered TDRs. Student loan borrowers are allowed
in-school deferments, plus an automatic six-month grace period post in-school
status, before repayment is scheduled to begin, and these deferments do not
count toward the maximum allowable forbearance. Management has evaluated these
loans individually for impairment and included any probable loss in the
allowance for loan loss; interest continues to accrue on these TDRs during any
deferment and forbearance periods.

Management identifies potential problem loans through its periodic loan review process and considers potential problem loans as loans classified as special, substandard or impaired.

Allowance for loan losses

In general, the Company determines the adequacy of its ALLL by considering the
risk classification and delinquency status of loans and other factors.
Management may also establish specific allowances for loans which management
believes require allowances greater than those allocated according to their risk
classification. The purpose of the allowance is to provide for losses inherent
in the loan portfolio. Since risks to the loan portfolio include general
economic trends as well as conditions affecting individual borrowers, the
allowance is an estimate. The Company is committed to determining, on an ongoing
basis, the adequacy of its ALLL. The Company applies historical loss rates to
various pools of loans based on risk rating classifications. In addition, the
adequacy of the ALLL is further evaluated by applying estimates of loss that
could be attributable to any one of the following eight qualitative factors:

1)

Changes in national and local economic conditions, including the condition of
various market segments;
2)
Changes in the value of underlying collateral;
3)
Changes in volume of classified assets, measured as a percentage of capital;
4)
Changes in volume of delinquent loans;
5)
The existence and effect of any concentrations of credit and changes in the
level of such concentrations;
6)
Changes in lending policies and procedures, including underwriting standards;
7)
Changes in the experience, ability and depth of lending management and staff;
and
8)
Changes in the level of policy exceptions.

The Company utilizes a loss migration model, which uses loan level attributes to
track the movement of loans through various risk classifications in order to
estimate the percentage of losses likely in the portfolio. If economic
conditions improve or worsen, the Company could experience changes in the
required ALLL. It is possible that asset quality metrics could decline in the
future if there are further challenges to the economic recovery, including a
resurgence in COVID-19 cases or the emergence of variants of the COVID-19 virus.

The relationship of the ALLL to total loans and nonaccrual loans appears below
(dollars in thousands):

                             June 30, 2022         December 31, 2021        June 30, 2021
Total loans                $          960,192     $         1,061,211     $        1,166,161
Nonaccrual loans           $              511     $               495     $               17
Allowance for loan
losses                     $            5,503     $             5,984     $            5,522
Nonaccrual loans to
total loans                              0.05 %                  0.05 %                 0.00 %
ALLL to total loans                      0.57 %                  0.56 %                 0.47 %
ALLL to nonaccrual loans              1076.91 %               1208.89 %             32482.35 %


The ALLL as a percentage of loans was 0.57% as of June 30, 2022, 0.56% as of
December 31, 2021, and 0.47% as of June 30, 2021. The ALLL as a percentage of
gross loans, excluding the impact of the acquired loans and fair value mark (a
non-GAAP financial measure), would have been 0.91% as of June 30, 2022, compared
to 0.88% as of June 30, 2021. The total of the ALLL and the fair value mark as a
percentage of gross loans (a non-GAAP financial measure) amounted to 2.39% as of
June 30, 2022, compared to 2.23% as of June 30, 2021. The fair value mark that
was allocated to the acquired loans was $21.3 million as of the Effective Date,
with a remaining balance of $17.5 million as of June 30, 2022. Refer to

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the Reconciliation of Non-GAAP Measures table in the Non-GAAP Presentations section for a reconciliation of GAAP and non-GAAP ALLL as a percentage of loans.

A recovery of provision for loan losses totaling $69 thousand and a provision
for loan losses totaling $210 thousand was recorded in the six months ended June
30, 2022 and 2021, respectively. The following is a summary of the changes in
the ALLL for the six months ended June 30, 2022 and 2021 (dollars in thousands):

                                           2022        2021

Provision for loan losses, January 1st $5,984 $5,455
Landfills

                                  (664 )      (397 )
Recoveries                                    252         254

Allowance for (recovery of) loan losses (69 ) 210 Allowance for loan losses, June 30th $5,503 $5,522



For additional insight into management's approach and methodology in estimating
the ALLL, please refer to the earlier discussion of "Allowance for Loan Losses"
in Note 5 of the Notes to Consolidated Financial Statements. In addition, Note 5
includes details regarding the rollforward of the allowance by loan portfolio
segments. The rollforward tables indicate the activity for loans that are
charged-off, amounts received from borrowers as recoveries of previously
charged-off loan balances, and the allocation by loan portfolio segment of the
provision made during the period. The events that can positively impact the
amount of allowance in a given loan segment include any one or all of the
following: the recovery of a previously charged-off loan balance; the decline in
the amount of classified or delinquent loans in a loan segment from the previous
period, which most commonly occurs when these loans are repaid or are
foreclosed; or when there are improvements in the ratios used to estimate the
probability of loan losses. Improvements to the ratios could include lower
historical loss rates, improvements to any of the qualitative factors mentioned
above, or reduced loss expectations for individually-classified loans.

Management reviews the ALLL on a quarterly basis to ensure that it is adequate based on the calculated probable losses inherent in the portfolio. Management believes that the ALLL has been adequately funded at June 30, 2022 and recognizes that the ALLL may increase throughout the year as economic conditions may continue to deteriorate for the foreseeable future.

Premises and equipment

The Company's premises and equipment, net of depreciation, as of June 30, 2022
totaled $19.2 million compared to $25.1 million as of December 31, 2021 and
$25.4 million as of June 30, 2021, decreasing due to the sale of two buildings
during the current quarter. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line method
based on the estimated useful lives of assets. Expenditures for repairs and
maintenance are charged to expense as incurred. The costs of major renewals and
betterments are capitalized and depreciated over their estimated useful lives.
Upon disposition, assets and related accumulated depreciation are removed from
the books, and any resulting gain or loss is charged to income.

Of the June 30, 2022the Company occupied sixteen full-service banking establishments across Albemarle, Fauquier and Prince William counties and cities of Charlotteville, richmond, Manassas and Winchester, Virginia. The Company also operates a drive-through service at 301 Water Street East,
Charlottesville, Virginia.

The five-story office building at 404 People Place, Charlottesville, Virginia,
located in Albemarle County, also serves as the Company's corporate
headquarters, operations center, and offices of both Masonry Capital and Sturman
Wealth Advisors. VNB Trust & Estate Services is located at 103 Third Street, SE,
Charlottesville, Virginia.

Both the Arlington Boulevard facility in Charlottesville and the People Place
facility in Albemarle County also contain office space that is currently under
lease to tenants.

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Leases

As of June 30, 2022, the Company has recorded $7.3 million of right-of-use
assets and $6.9 million of lease liabilities, in accordance with ASU 2016-02
"Leases" (Topic 842). As of December 31, 2021, $7.6 million of right-of-use
assets and $7.1 million of lease liabilities were included on the balance sheet.
Right-of-use assets are assets that represent the Company's right to use, or
control the use of, a specified asset for the lease term, offset by the lease
liability, which is the Company's obligation to make lease payments arising from
a lease, measured on a discounted basis.

Deposits

Deposit accounts represent the Company's primary source of funds and are
comprised of demand deposits, interest-bearing checking, money market, and
savings accounts as well as time deposits. These deposits have been provided
predominantly by individuals, businesses and charitable organizations in the
Commonwealth of Virginia.

Total deposits as of June 30, 2022 were $1.6 billion, a decrease of $197 million
compared to December 31, 2021, and a decrease of $30.6 million compared to June
30, 2021 (dollars in thousands).

                              June 30, 2022               December 31, 2021               June 30, 2021
                                          % of                          % of                          % of
                          Balance         Total         Balance         Total         Balance         Total
No cost and low cost deposits:
Noninterest demand
deposits                $   512,889          32.1 %   $   522,281          29.1 %   $   449,483          27.6 %
Interest checking
accounts                    399,930          25.0 %       446,314          24.8 %       431,556          26.5 %
Money market and
savings deposit
accounts                    535,958          33.5 %       665,530          37.1 %       577,414          35.4 %

Total noninterest and
low cost deposit
accounts                  1,448,777          90.6 %     1,634,125          91.0 %     1,458,453          89.5 %

Time deposit
accounts:
Certificates of
deposit                     144,913           9.1 %       155,901           8.7 %       162,217          10.0 %
CDARS deposits                5,208           0.3 %         6,144           0.3 %         8,778           0.5 %
Total certificates of
deposit and other
time deposits               150,121           9.4 %       162,045           9.0 %       170,995          10.5 %

Total deposit account
balances                $ 1,598,898         100.0 %   $ 1,796,170         100.0 %   $ 1,629,448         100.0 %



Noninterest-bearing demand deposits on June 30, 2022 were $512.9 million,
representing 32.1% of total deposits. Interest-bearing transaction, money
market, and savings accounts totaled $935.9 million, and represented 58.5% of
total deposits at June 30, 2022. Collectively, noninterest-bearing and
interest-bearing transaction and money market accounts represented 90.6% of
total deposit accounts at June 30, 2022. These account types are an excellent
source of low-cost funding for the Company.

The Company also offers insured cash sweep deposit products. ICS® deposit
balances of $28.8 million and $128.6 million are included in the interest
checking accounts and the money market and savings deposit accounts balances,
respectively, in the table above, as of June 30, 2022. As of December 31, 2021,
ICS® deposit balances of $39.2 million and $225.9 million are included in the
interest checking accounts and the money market and savings deposit account
balances, respectively. All ICS accounts consist of reciprocal balances for the
Company's customers.

The remaining 9.4% of total deposits consisted of certificates of deposit and
other time deposit accounts totaling $150.1 million at June 30, 2022. Included
in these deposit totals are CDARSTM, whereby depositors can obtain FDIC deposit
insurance on account balances of up to $50 million. CDARSTM deposits totaled
$5.2 million as of June 30, 2022 and $6.1 million as of December 31, 2021, all
of which were reciprocal balances for the Company's customers.

                                       43
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Loans

Borrowings, consisting primarily of FHLB advances and federal funds purchased,
are additional sources of funds for the Company. The level of these borrowings
is determined by various factors, including customer demand and the Company's
ability to earn a favorable spread on the funds obtained.

The Company has a collateral dependent line of credit with the FHLB, with no
outstanding borrowings as of June 30, 2022 or December 31, 2021. The Company has
an off-balance sheet letter of credit in the amount of $60 million as of June
30, 2022 and December 31, 2021, issued in favor of the Commonwealth of Virginia
Department of the Treasury to secure public fund depository accounts. This
letter of credit is secured by commercial mortgages.

Additional borrowing arrangements maintained by the Company include formal
federal funds lines with five major regional correspondent banks and the Federal
Reserve discount window. The Company had no outstanding balances on these lines
or facilities as of June 30, 2022, December 31, 2021 or June 30, 2021.

Junior subordinated debt

In 2006, a subsidiary of Fauquier, Fauquier Statutory Trust II, privately issued
$4.0 million face amount of the trust's Floating Rate Capital Securities in a
pooled capital securities offering. Simultaneously, the trust used the proceeds
of that sale to purchase $4.0 million principal amount of the Fauquier's
Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036. As of
June 30, 2022 and December 31, 2021, total capital securities were $3.4 million,
as adjusted to fair value as of the date of the Merger. The interest rate on the
capital security resets every three months at 1.70% above the then current
three-month LIBOR and is paid quarterly. Management is in communication with the
issuer regarding the alternative reference rate that will apply after the
discontinuance of LIBOR.

The Trust II issuance of capital securities and the respective subordinated
debentures are callable at any time. The subordinated debentures are an
unsecured obligation of the Company and are junior in right of payment to all
present and future senior indebtedness of the Company. The capital securities
are guaranteed by the Company on a subordinated basis.


Capital and regulatory capital ratios

The following table shows the changes in the Company’s shareholders’ equity since December 31, 2021 at June 30, 2022 (dollars in thousands):

Equity, December 31, 2021                              $ 161,987
Net income                                                10,609
Other comprehensive loss                                 (35,484 )
Cash dividends declared                                   (3,193 )
Equity increase due to expensing of stock options             83

Increase in equity due to the expense of restricted shares 214 Equity, June 30, 2022

                                  $ 134,216



The Basel III capital rules require banks and bank holding companies to comply
with the following minimum capital ratios: (i) a ratio of common equity Tier 1
capital to risk-weighted assets of at least 4.5%, plus a 2.5% "capital
conservation buffer" (effectively resulting in a minimum ratio of common equity
Tier 1 to risk-weighted assets of at least 7%); (ii) a ratio of Tier 1 capital
to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation
buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%); (iii)
a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5%
capital conservation buffer (effectively resulting in a minimum total capital
ratio of 10.5%); and (iv) a leverage ratio of 4%, calculated as the ratio of
Tier 1 capital to balance sheet exposures plus certain off-balance sheet
exposures (computed as the average for each quarter of the month-end ratios for
the quarter).

The Company's Tier 1, common equity Tier 1, total capital to risk-weighted
assets, and leverage ratios were 15.95%, 15.95%, 16.50% and 8.79%, respectively,
as of June 30, 2022, thus exceeding the minimum requirements. The Bank's Tier 1,
common equity Tier 1, total capital to risk-weighted assets, and leverage ratios
were 15.69%, 15.69%, 16.24% and 8.65%, respectively, as of June 30, 2022, also
exceeding the minimum requirements.

                                       44
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As of June 30, 2022, the Bank exceeded all of the following minimum capital
ratios in order to be considered "well capitalized" under the PCA regulations,
as revised: (i) a common equity Tier 1 capital ratio of at least 6.5%; (ii) a
Tier 1 capital to risk-weighted assets ratio of at least 8.0%; (iii) a total
capital to risk-weighted assets ratio of at least 10.0%; and (iv) a leverage
ratio of at least 5.0%.


RESULTS OF OPERATIONS

Non-GAAP presentations

The accounting and reporting policies of the Company conform to GAAP and
prevailing practices in the banking industry. However, certain non-GAAP measures
are used by management to supplement the evaluation of the Company's
performance. These include adjusted ROAA, adjusted ROAE, adjusted net income,
adjusted earnings per share, adjusted ALLL to total loans, tangible book value
per share and the following fully-taxable equivalent measures: net interest
income-FTE, efficiency ratio-FTE and net interest margin-FTE. Interest on
tax-exempt loans and securities is presented on a taxable-equivalent basis
(which converts the income on loans and investments for which no income taxes
are paid to the equivalent yield as if income taxes were paid) using the federal
corporate income tax rate of 21 percent that was applicable for all periods
presented.

Management believes that the use of these non-GAAP measures provides meaningful
information about operating performance by enhancing comparability with other
financial periods, other financial institutions, and between different sources
of interest income. The non-GAAP measures used by management enhance
comparability by excluding the effects of (1) items that do not reflect ongoing
operating performance, (2) items that do not reflect the implicit percentage of
the ALLL to total loans, such as the impact of fair value adjustment, (3)
balances of intangible assets, including goodwill, that vary significantly
between institutions, and (4) tax benefits that are not consistent across
different opportunities for investment. These non-GAAP financial measures should
not be considered an alternative to GAAP-basis financial statements, and other
banks and bank holding companies may define or calculate these or similar
measures differently. Net income is discussed in Management's Discussion and
Analysis on a GAAP basis unless noted as "non-GAAP."



                                       45
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A reconciliation of the non-GAAP financial measures used by the Company to assess and measure the performance of the Company to the most directly comparable GAAP financial measures is set forth below (in thousands of dollars):

                                     As of or for the Three Months Ended           For the Six Months Ended
                                      June 30,                June 30,            June 30,           June 30,
                                        2022                    2021                2022               2021
Performance measures
Return on average assets
("ROAA")                                       1.27 %                  0.03 %           1.15 %             0.24 %
Impact of merger and merger
related expenses, net of tax                   0.00 %                  0.99 %           0.00 %             0.69 %
ROAA, excluding merger and
merger related expenses
(non-GAAP)                                     1.27 %                  1.02 %           1.15 %             0.93 %

Return on average equity
("ROAE")                                      16.20 %                  0.37 %          14.26 %             2.76 %
Impact of merger and merger
related expenses, net of tax                   0.00 %                 11.51 %           0.00 %             7.90 %
ROAE, excluding merger and
merger related expenses
(non-GAAP)                                    16.20 %                 11.88 %          14.26 %            10.66 %

Net income                        $           5,685       $             147     $     10,609       $      1,652
Impact of merger and merger
related expenses, net of tax                      -                   4,553                -              4,722
Net income, excluding merger
and merger related expenses
(non-GAAP)                        $           5,685       $           4,700 

$10,609 $6,374

Net income per share, diluted     $            1.06       $            0.03     $       1.98       $       0.41
Impact of merger and merger
related expenses, net of tax                      -                    0.86                -               0.92
Net income per share, excluding
merger and merger related
expenses (non-GAAP), diluted      $            1.06       $            0.89     $       1.98       $       1.33

Fully tax-equivalent measures
Net interest income               $          12,461       $          13,151     $     23,886       $     19,125
Fully tax-equivalent adjustment                  82                      73              163                120
Net interest income (FTE)         $          12,543       $          13,224     $     24,049       $     19,245

Efficiency ratio                               58.6 %                  99.5 %           60.0 %             90.0 %
Fully tax-equivalent adjustment                -0.3 %                  -0.4 %            0.1 %             -0.5 %
Efficiency ratio (FTE)                         58.3 %                  99.1 %           60.1 %             89.5 %

Net interest margin                            3.00 %                  3.03 %           2.76 %             2.98 %
Fully tax-equivalent adjustment                0.02 %                  0.02 %           0.02 %             0.02 %
Net interest margin (FTE)                      3.02 %                  3.05 %           2.78 %             3.00 %

Other financial measures
ALLL to total loans                            0.57 %                  0.47 %
Impact of acquired loans and
fair value mark                                0.34 %                  0.41 %
ALLL to total loans, excluding
acquired loans and fair value
mark (non-GAAP)                                0.91 %                  0.88 %

ALLL to total loans                            0.57 %                  0.47 %
Fair value mark to total loans                 1.82 %                  1.76 %
ALLL + fair value mark to total
loans (non-GAAP)                               2.39 %                  2.23 %

Book value per share              $           25.20       $           29.89
Impact of intangible assets                   (2.96 )                 (3.29 )
Tangible book value per share
(non-GAAP)                        $           22.24       $           26.60

Total equity                      $         134,216       $         158,602
Impact of intangible assets                 (15,785 )               (17,477 )
Tangible equity                   $         118,431       $         141,125



Net income

Net income for the three months ended June 30, 2022 was $5.7 million, a $5.5
million increase compared to net income reported for the three months ended June
30, 2021. Net income per diluted share was $1.06 for the quarter ended June 30,
2022 compared to $0.03 per diluted share for the same quarter in the prior year.

Net income for the six months ended June 30, 2022 was $10.6 million, compared to
$1.6 million for the six months ended June 30, 2021. Net income per diluted
share was $1.98 for the six months ended June 30, 2022,compared to $0.41 per
diluted share for the same period in the prior year.

                                       46
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Net interest income

Net interest income (FTE) for the three months ended June 30, 2022 was $12.5
million, a $681 thousand decrease compared to net interest income (FTE) of $13.2
million for the three months ended June 30, 2021. Net interest income (FTE)
decreased primarily due to the decreased volume of loans, declining from an
average of $1.2 billion in the three months ended June 30, 2021 to $984.9
million in the three months ended June 30, 2022, negatively impacting interest
income by $2.5 million. The fair value accretion on Acquired Loans positively
impacted net interest income by 12 bps during the three months ended June 30,
2022. The increase in volume of securities held, from an average balance of
$270.2 million for the three months ended June 30, 2021 to $391.2 million for
the three months ended June 30, 2022, positively impacted net interest income by
$567 thousand, and the increase in yield earned on such securities increased
from 1.68% to 2.16% for the periods noted, positively impacted net interest
income by $411 thousand. FFS and interest bearing deposits in other banks
contributed an additional $281 thousand and $183 thousand, respectively, to net
interest income (FTE) for the three months ended June 30, 2022 compared to the
three months ended June 30, 2021. Net interest income (FTE) was positively
impacted by the $276 thousand decrease in interest expense, as described below.

Net interest income (FTE) for the six months ended June 30, 2022 was $24.0
million, a $4.8 million increase compared to net interest income (FTE) of $19.2
million for the six months ended June 30, 2021. Net interest income (FTE)
increased primarily due to the increased volume of loans as a result of the
Merger, increasing from an average of $910.0 million in the six months ended
June 30, 2021 to $1.0 billion in the six months ended June 30, 2022. This
increase in volume of loans positively impacted interest income by $1.9 million.
The increase in yield on loans, increasing from 4.20% for the six months ended
June 30, 2021 to 4.28% for the six months ended June 30, 2022 positively
impacted net interest income by $489 thousand. The fair value accretion on
Acquired Loans positively impacted net interest income by 24 bps during the six
months ended June 30, 2022. The increase in volume of securities held, from an
average balance of $222.0 million for the six months ended June 30, 2021 to
$352.5 million for the six months ended June 30, 2022, positively impacted net
interest income by $1.2 million, and the increase in yield earned on such
securities increased from 1.65% to 2.03% for the periods noted, positively
impacting net interest income by $531 thousand. FFS and interest bearing
deposits in other banks contributed and additional $291 thousand and $290
thousand, respectively, to net interest income (FTE) for the six months ended
June 30, 2022 compared to the six months ended June 30, 2021. Net interest
income (FTE) was positively impacted by the $49 thousand decrease in interest
expense, as described below.

Net interest margin (FTE) is the ratio of net interest income (FTE) to average
earning assets for the period. The level of interest rates, together with the
volume and mix of earning assets and interest-bearing liabilities, impact net
interest income (FTE) and net interest margin (FTE). The net interest margin
(FTE) of 3.02% for the three months ended June 30, 2022 was 3 bps lower than the
3.05% for the three months ended June 30, 2021. The net interest margin (FTE) of
2.78% for the six months ended June 30, 2022 was 22 bps lower than the 3.00% for
the six months ended June 30, 2021. Refer to the Reconcilement of Non-GAAP
Measures table within the Non-GAAP presentations section for a reconcilement of
GAAP to non-GAAP net interest margin.

Interest expense decreased $276 thousand for the three months ended June 30,
2022 compared to the same period in the prior year, due to decreased volume of
deposits, as average interest-bearing deposits decreased $54.2 million for the
period noted, positively impacting interest expense by $44 thousand, coupled
with lower rates paid on deposits, positively impacting interest expense by $173
thousand. The rate paid on interest-bearing deposits averaged 24 bps in the
three months ended June 30, 2022, compared to 30 bps for the three months ended
June 30, 2021. Also during the three months ended June 30, 2021, the Bank had
average outstanding borrowing with the FHLB of $43.0 million, with an interest
expense of $59 thousand. No such borrowings were outstanding during the three
month period ending June 30, 2022.

Interest expense decreased $49 thousand for the six months ended June 30, 2022
compared to the same period in the prior year, primarily due to the elimination
of borrowings from the FHLB, which caused a decline in interest expense period
over period of $95 thousand. The impact to interest expense from the increase in
the volume of interest-bearing deposits, increasing interest expense by $448
thousand, was completely offset by the decline in rates paid on deposits,
decreasing interest expense by $451 thousand when comparing the six months ended
June 30, 2021 to the six months ended June 30, 2022.


                                       47
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The following tables detail the average balance sheet, including an analysis of
net interest income (FTE) for earning assets and interest-bearing liabilities,
for the three and six months ended June 30, 2022 and 2021. These tables also
include rate/volume analyses for these same periods (dollars in thousands).

     Consolidated Average Balance Sheet and Analysis of Net Interest Income
                                                  For the Three Months Ended
                                      June 30, 2022                         June 30, 2021                 Change in Interest Income/ Expense
                            Average     Interest     Average      Average     Interest     Average       Change Due to : 4          Total
                            Balance      Income/    Yield/Cost    Balance      Income/    Yield/Cost    Volume        Rate        Increase/
                                         Expense                               Expense                                            (Decrease)
ASSETS
Interest Earning Assets:
Securities:
Taxable Securities           $325,833      $1,726        2.12%     $211,827        $792        1.50%        $526        $408               $934

Tax-exempt securities 1 65,352,390 2.39% 58,398

         346        2.37%          41           3                 44
Total Securities 1            391,185       2,116        2.16%      270,225       1,138        1.68%         567         411                978
Loans:
Real Estate                   847,661       8,988        4.25%      997,446      10,175        4.09%     (1,576)         389            (1,187)
Commercial                     86,394         995        4.62%      144,209       1,967        5.47%       (700)       (272)              (972)
Consumer                       50,828         627        4.95%       72,468         867        4.80%       (266)          26              (240)
   Total Loans                984,883      10,610        4.32%    1,214,123      13,009        4.30%     (2,542)         143            (2,399)
Fed Funds Sold                150,393         302        0.81%      106,934          21        0.08%          12         269                281
Other interest-bearing
deposits                      142,010         219        0.62%      149,056          36        0.10%         (2)         185                183

Total performing assets 1,668,471 13,247 3.18% 1,740,338

      14,204        3.27%     (1,965)       1,008              (957)
Less: Allowance for Loan
Losses                        (5,866)                               (5,732)
Total Non-Earning Assets      133,526                               124,287
Total Assets               $1,796,131                            $1,858,893

LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest Bearing
Liabilities:
Interest Bearing
Deposits:
Interest Checking            $411,374         $58        0.06%     $437,611         $93        0.09%        $(5)       $(30)              $(35)
Money Market and Savings
Deposits                      550,883         440        0.32%      561,940         455        0.32%         (9)         (6)               (15)
Time Deposits                 152,695         157        0.41%      169,556         324        0.77%        (30)       (137)              (167)
Total Interest-Bearing
Deposits                    1,114,952         655        0.24%    1,169,107         872        0.30%        (44)       (173)              (217)
Borrowings                          -           -            -       43,030          59        0.55%        (59)           -               (59)
Junior subordinated debt        3,383          49        5.81%        3,334          49            -           -           -                  -
Total Interest-Bearing
Liabilities                 1,118,335         704        0.25%    1,215,471         980        0.32%       (103)       (173)              (276)
Non-Interest-Bearing
Liabilities:
Demand deposits               527,008                               471,078
Other liabilities              10,067                                14,109
Total Liabilities           1,655,410                             1,700,658
Shareholders' Equity          140,721                               158,235
Total Liabilities &
Shareholders' Equity       $1,796,131                            $1,858,893
Net Interest Income
(FTE)                                     $12,543                               $13,224                 $(1,862)      $1,181             $(681)
Interest Rate Spread 2                                   2.93%                                 2.95%
Cost of Funds                                            0.17%                                 0.23%
Interest Expense as a
Percentage of Average
  Earning Assets                                         0.17%                                 0.23%
Net Interest Margin
(FTE) 3                                                  3.02%                                 3.05%



(1)
Tax-exempt income for investment securities has been adjusted to a fully
tax-equivalent basis (FTE), using a Federal income tax rate of 21%. Refer to the
Reconcilement of Non-GAAP Measures table within the Non-GAAP Presentations
earlier in this section.
(2)
Interest spread is the average yield earned on earning assets less the average
rate paid on interest-bearing liabilities.
(3)
Net interest margin (FTE) is net interest income expressed as a percentage of
average earning assets.
(4)
The impact on the net interest income (FTE) resulting from changes in average
balances and average rates is shown for the period indicated. The change in
interest due to both volume and rate has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the
change in each.

                                       48
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     Consolidated Average Balance Sheet and Analysis of Net Interest Income

                                                   For the Six Months Ended
                                      June 30, 2022                         June 30, 2021                 Change in Interest Income/ Expense
                            Average     Interest     Average      Average     Interest     Average       Change Due to : 4          Total
                            Balance      Income/    Yield/Cost    Balance      Income/    Yield/Cost    Volume        Rate        Increase/
                                         Expense                               Expense                                            (Decrease)
ASSETS
Interest Earning Assets:
Securities:
Taxable Securities           $287,241      $2,800        1.95%     $176,151      $1,264        1.44%        $979        $557             $1,536

Tax-exempt securities 1 65,249,775 2.38% 45,818

         569        2.48%         232        (26)                206
Total Securities 1            352,490       3,575        2.03%      221,969       1,833        1.65%       1,211         531              1,742
Loans:
Real Estate                   866,863      18,082        4.21%      679,951      14,282        4.24%       3,899        (99)              3,800
Commercial                     89,944       2,084        4.67%      166,941       3,156        3.81%     (1,676)         604            (1,072)
Consumer                       51,302       1,213        4.77%       63,148       1,509        4.82%       (280)        (16)              (296)
   Total Loans              1,008,109      21,379        4.28%      910,040      18,947        4.20%       1,943         489              2,432
Fed Funds Sold                151,429         363        0.48%       87,276          72        0.17%          81         210                291
Other interest-bearing
deposits                      235,418         356        0.30%       74,475          66        0.18%         219          71                290

Total performing assets 1,747,446 25,673 2.96% 1,293,760

      20,918        3.26%       3,454       1,301              4,755
Less: Allowance for Loan
Losses                        (5,946)                               (5,624)
Total Non-Earning Assets      124,851                                84,069
Total Assets               $1,866,351                            $1,372,205

LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest Bearing
Liabilities:
Interest Bearing
Deposits:
Interest Checking            $416,393        $119        0.06%     $291,025        $119        0.08%         $42       $(42)                 $0
Money Market and Savings
Deposits                      603,259       1,055        0.35%      422,048         806        0.39%         322        (73)                249
Time Deposits                 155,544         352        0.46%      134,355         604        0.91%          84       (336)              (252)
Total Interest-Bearing
Deposits                    1,175,196       1,526        0.26%      847,428       1,529        0.36%         448       (451)                (3)
Borrowings                          -           -            -       36,551          95        0.52%        (95)           -               (95)
Junior subordinated debt        3,377          98        5.85%        1,255          49            -          64        (15)                 49
Total Interest-Bearing
Liabilities                 1,178,573       1,624        0.28%      885,234       1,673        0.38%         417       (466)               (49)
Non-Interest-Bearing
Liabilities:
Demand deposits               527,049                               363,709
Other liabilities              10,704                                 2,877
Total Liabilities           1,716,326                             1,251,820
Shareholders' Equity          150,025                               120,385
Total Liabilities &
Shareholders' Equity       $1,866,351                            $1,372,205
Net Interest Income
(FTE)                                     $24,049                               $19,245                   $3,037      $1,767             $4,804
Interest Rate Spread 2                                   2.68%                                 2.88%
Cost of Funds                                            0.19%                                 0.27%
Interest Expense as a
Percentage of Average
  Earning Assets                                         0.38%                                 0.26%
Net Interest Margin
(FTE) 3                                                  2.78%                                 3.00%


(1)
Tax-exempt income for investment securities has been adjusted to a fully
tax-equivalent basis (FTE), using a Federal income tax rate of 21%. Refer to the
Reconcilement of Non-GAAP Measures table within the Non-GAAP Presentations
earlier in this section.
(2)
Interest spread is the average yield earned on earning assets less the average
rate paid on interest-bearing liabilities.
(3)
Net interest margin (FTE) is net interest income expressed as a percentage of
average earning assets.
(4)
The impact on the net interest income (FTE) resulting from changes in average
balances and average rates is shown for the period indicated. The change in
interest due to both volume and rate has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the
change in each.

                                       49
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Allowance for loan losses

A recovery of provision for loan losses of $217 thousand was recognized during
the three months ended June 30, 2022 compared to $141 thousand recognized during
the three months ended June 30, 2021. A recovery of provision for loan losses of
$69 thousand was recognized during the six months ended June 30, 2022 compared
to a provision for loan losses recognized of $210 thousand during the six months
ended June 30, 2021. The period-end ALLL as a percentage of total loans was
0.57% as of June 30, 2022, 0.56% as of December 31, 2021 and 0.47% as of June
30, 2021.

Further discussion of management's assessment of the ALLL is provided earlier in
the report and in Note 5 - Allowance for Loan Losses, found in the Notes to the
Consolidated Financial Statements. In management's opinion, the allowance was
adequately provided for at June 30, 2022. The ALLL calculation, provision for
loan losses, asset quality and collateral values may be significantly impacted
by deterioration in economic conditions. We have downgraded, then upgraded
slightly, the qualitative factors pertaining to economic conditions within our
ALLL methodology; should economic conditions worsen, we could experience further
increases in our required ALLL and record additional provision for loan loss
exposure.

Noninterest income

Components of non-interest income for the three months ended June 30, 2022
and 2021 are shown below (in thousands of dollars):

                                      For the Three Months Ended              Variance
                                     June 30,            June 30,
                                       2022                2021             $           %
Noninterest income:
Wealth management fees             $         572       $         980     $  (408 )     -41.6 %
Advisory and brokerage income                210                 359        (149 )     -41.5 %
Deposit account fees                         458                 426          32         7.5 %
Debit/credit card and ATM fees               779                 599         180        30.1 %
Bank owned life insurance income             246                 199          47        23.6 %
Gains on sale of assets                    1,113                   -       1,113       100.0 %
Other                                        268                 357         (89 )     -24.9 %
Total noninterest income           $       3,646       $       2,920     $   726        24.9 %



Noninterest income for the three months ended June 30, 2022 of $3.6 million was
$726 thousand or 24.9% higher than the amount recorded for the three months
ended June 30, 2021. Noninterest income increased predominantly due to the gain
on the sale of two buildings in the amount of $1.1 million, offset by a decrease
in wealth management fees of $408 thousand due to a reduction in accounts.

Components of non-interest income for the six months ended June 30, 2022 and 2021 are shown below (in thousands of dollars):

                                      For the Six Months Ended               Variance
                                     June 30,           June 30,
                                       2022               2021            $           %
Noninterest income:
Wealth management fees             $      1,129       $      1,309     $  (180 )      -13.8 %
Advisory and brokerage income               426                550        (124 )      -22.5 %
Deposit account fees                        923                586         337         57.5 %
Debit/credit card and ATM fees            1,486                753         733         97.3 %
Bank owned life insurance income            457                306         151         49.3 %
Resolution of commercial dispute          2,400                  -       2,400          N/A
Gain on sale of assets                    1,113                 27       1,086       4022.2 %
Other                                       499                428          71         16.6 %
Total noninterest income           $      8,433       $      3,959     $ 4,474        113.0 %



Noninterest income for the six months ended June 30, 2022 of $8.4 million was
$4.5 million or 113.0% higher than the amount recorded for the six months ended
June 30, 2021. Noninterest income increased predominantly due to the receipt and
recognition of a $2.4 million one-time payment to resolve a commercial dispute,
the $1.1 million gain on the sale of two buildings and an increase of $733
thousand of plastics income due to increased number of retail accounts as a
result of the Merger.

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Non-interest expenses

Components of non-interest expense for the three months ended June 30, 2022
and 2021 are shown below (in thousands of dollars):

                                           For the Three Months Ended                Variance
                                         June 30,             June 30,
                                           2022                 2021             $             %
Noninterest expense:
Salaries and employee benefits         $       4,086       $        4,741     $   (655 )       -13.8 %
Net occupancy                                  1,282                1,109          173          15.6 %
Equipment                                        254                  340          (86 )       -25.3 %
Bank franchise tax                               304                  429         (125 )       -29.1 %
Computer software                                357                  216          141          65.3 %
Data processing                                  699                  994         (295 )       -29.7 %
FDIC deposit insurance assessment                125                  182          (57 )       -31.3 %
Marketing, advertising and promotion             259                  232           27          11.6 %
Merger and merger-related expenses                 -                5,874       (5,874 )      -100.0 %
Plastics expense                                  92                   73           19          26.0 %
Professional fees                                404                  510         (106 )       -20.8 %
Core deposit intangible amortization             427                  428           (1 )        -0.2 %
Other                                          1,153                  865          288          33.3 %
Total noninterest expense              $       9,442       $       15,993     $ (6,551 )       -41.0 %



Noninterest expense for the quarter ended June 30, 2022 of $9.4 million was $6.6
million or 41.0% lower than the quarter ended June 30, 2021. This decrease is
due to merger and merger-related expenses incurred during the six months ended
June 30, 2021 of $5.9 million, a reduction in salaries and employee benefits of
$655 thousand as a result of reduced headcount and a $295 thousand reduction in
data processing costs as a result of efficiencies gained in connection with the
Merger.

Components of non-interest expense for the six months ended June 30, 2022 and 2021 are shown below (in thousands of dollars):

                                           For the Six Months Ended                 Variance
                                         June 30,            June 30,
                                           2022                2021             $             %
Noninterest expense:
Salaries and employee benefits         $       8,817       $       7,143     $  1,674          23.4 %
Net occupancy                                  2,479               1,604          875          54.6 %
Equipment                                        537                 456           81          17.8 %
Bank franchise tax                               608                 602            6           1.0 %
Computer software                                620                 383          237          61.9 %
Data processing                                1,437               1,283          154          12.0 %
FDIC deposit insurance assessment                351                 245          106          43.3 %
Marketing, advertising and promotion             526                 369          157          42.5 %
Merger and merger-related expenses                 -               6,152       (6,152 )      -100.0 %
Plastics expense                                 231                 115          116         100.9 %
Professional fees                                741                 687           54           7.9 %
Core deposit intangible amortization             866                 428          438         102.3 %
Other                                          2,324               1,307        1,017          77.8 %
Total noninterest expense              $      19,537       $      20,774     $ (1,237 )        -6.0 %



Noninterest expense for the six months ended June 30, 2022 of $19.5 million was
$1.2 million or 6.0% lower than the six months ended June 30, 2021. This
decrease is due to merger and merger-related expenses incurred during the six
months ended June 30, 2021 of $6.2 million, offset by increases the following
areas due to the Merger being effective April 1, 2021: 1) salaries and employee
benefits increased $1.7 million, 2) net occupancy increased $875 thousand, and
3) core deposit intangible amortization increased $438 thousand. In addition,
the Company incurred $685 thousand in expenses in the first quarter of 2022,
included in noninterest expense, related to the one-time payment to resolve a
commercial dispute noted in the Noninterest income section earlier.


                                       51
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The efficiency ratio (FTE) of 58.3% for the three months ended June 30, 2022
compared favorably to the 99.1% for the same quarter of 2021, due to the
increase in noninterest income and the decrease in noninterest expense, as
described above. The efficiency ratio (FTE) of 60.1 for the six months ended
June 30, 2022 also compared favorably to the 89.5% for the six months ended June
30, 2021 for the same reasons. Refer to the Reconcilement of Non-GAAP Measures
table within the Non-GAAP presentations section for a reconcilement of GAAP to
non-GAAP efficiency ratio.

Provision for Income Taxes

For the three months ended June 30, 2022 and 2021, the Company provided $1.2
million and $72 thousand for Federal income taxes, respectively, resulting in
effective income tax rates of 17.4% and 32.9%, respectively. The effective
income tax rate for the three months ended June 30, 2022 was lower than the
prior year, due to the recognition of low-income housing tax credits in the
current period and the inflated effective rate in 2021 due to the
non-deductibility of certain merger and merger-related expenses. For the six
months ended June 30, 2022 and 2021, the Company provided $2.2 million and $448
thousand for Federal income taxes, respectively, resulting in effective income
tax rates of 17.4% and 21.9%, respectively. For all periods, the effective
income tax rate differed from the U.S. statutory rate of 21% due to the effect
of tax-exempt income from life insurance policies and municipal bonds.

OTHER SIGNIFICANT EVENTS

None

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