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☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
(
d
)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30,
2025
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
(
d
)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number:
0-15204
NATIONAL BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia
54-1375874
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
101 Hubbard Street
Blacksburg
,
Virginia
24062-9002
(Address of principal executive offices) (Zip Code)
(
540
)
951-6300
(Registrant’s telephone number, including area code)
(Not applicable)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.25 per share
NKSH
Nasdaq
Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Yes
☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Yes
☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Outstanding shares of common stock at August 13, 2025
Preferred stock,
no
par value,
5,000,000
shares authorized;
no
ne issued and outstanding
$
-
$
-
Common stock of $
1.25
par value and additional paid in capital. Authorized
10,000,000
shares; issued and outstanding
6,366,001
(including
5,028
unvested) shares as of June 30, 2025 and 6,363,371 (including 4,961 unvested) shares as of December 31, 2024
21,925
21,831
Retained earnings
197,223
196,343
Accumulated other comprehensive loss, net
(
50,412
)
(
61,765
)
Total stockholders' equity
168,736
156,409
Total liabilities and stockholders' equity
$
1,806,610
$
1,811,636
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended June 30, 2025 and 2024
(Unaudited)
Three months ended June 30,
(in thousands)
2025
2024
Net Income (Loss)
$
2,289
$
(
307
)
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $
1,000
and
($
40
) for the periods ended June 30, 2025 and 2024, respectively
Consolidate
d Statements of Comprehensive Income (Loss)
Six Months Ended June 30, 2025 and 2024
(Unaudited)
For the Six Months Ended June 30,
(in thousands)
2025
2024
Net Income
$
5,525
$
1,867
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $
3,017
and
($
927
) for the periods ended June 30, 2025 and 2024, respectively
11,353
(
3,488
)
Other comprehensive income (loss), net of tax
11,353
(
3,488
)
Total Comprehensive Income (Loss)
$
16,878
$
(
1,621
)
See accompanying notes to consolidated financial statements.
Note 1: General and Summary of Significant Accounting Policies
The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (the “Bank” or “NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. All intercompany accounts and transactions between the Company and its subsidiaries have been eliminated. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of the Company’s management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.
Application of the principles of GAAP and practices within the banking industry require management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statement; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses on loans and acquisition accounting.
The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of results of operations for the full year or any other interim period. The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”). The Company’s significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the Company's 2024 Form 10-K. All amounts and disclosures included in this quarterly report as of December 31, 2024, were derived from the Company’s audited consolidated financial statements. Certain items in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications had no effect on prior year net income or stockholders’ equity. The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at
www.nationalbankshares.com
.
Risks and Uncertainties
The Company is closely monitoring risks that may impact its business, including inflation, along with U.S. monetary policy maneuvers to manage inflation. Inflation and U.S. monetary policy maneuvers to reduce it may impact the Company’s customers’ demand for banking services and ability to qualify for and/or repay loans. These risks could adversely affect the Company’s business, financial condition, results of operations, cash flows, credit risk, asset valuations and capital position.
Recently Adopted Accounting Developments
ASU 2023-09
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 was effective for the Company on January 1, 2025 and applies to annual periods beginning after December 15, 2024. Adoption of ASU 2023-09 is not expected to have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements
ASU 2024-03
In
November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public
companies
to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
Note 2: Business Combination
On June 1, 2024 (the “Acquisition Date”), the Company completed its acquisition of Frontier Community Bank ("FCB"), a Virginia chartered commercial bank headquartered in Waynesboro, Virginia, in accordance with the definitive merger agreement entered on January 23, 2024, by and among the Company, the Bank and FCB. Upon completion of the merger, FCB merged with and into the Bank. Each share of FCB common stock was converted into either $
14.48
in cash or
0.4250
shares of the Company’s common stock, with FCB shareholders having the ability to elect the merger consideration to be received, subject to the allocation and proration procedures set forth in the FCB Merger Agreement. The Company issued
464,855
shares of common stock and paid cash consideration of $
2,050
to former FCB shareholders in the acquisition. As a result of the transaction, the Bank expanded its operations into the Waynesboro, Staunton and Lynchburg, Virginia markets.
The acquisition of FCB was accounted for as a business combination using the acquisition method of accounting. Assets acquired, liabilities assumed, and consideration paid were recorded at estimated fair value on the Acquisition Date. The excess of the purchase price over the fair value of the net assets was recorded as provisional goodwill and represents the benefit from the transaction that is not otherwise quantifiable, including expected management and operational synergies and intangible assets that do not qualify for separate recognition. The Company does not expect that any portion of goodwill will be deductible. Please refer to the Company’s 2024 Form 10-K, Note 22: Business Combination for additional information of the acquisition of FCB.
The following table presents the calculation of the purchase price and the fair value of the identifiable assets and liabilities as of the Acquisition Date.
June 1, 2024
As Recorded by FCB
Estimated Fair Value Adjustments
Estimated Fair Values as Recorded by NBI
Purchase Price Consideration:
Stock consideration
(1)
$
14,299
Cash consideration
(2)
2,050
Total purchase price consideration
$
16,349
Identifiable assets:
Cash and cash equivalents
$
8,993
$
(
59
)
$
8,934
Securities
9,325
(
5
)
9,320
Loans, gross, purchased performing
115,589
(
7,720
)
107,869
Loans, gross, purchased credit deteriorated
11,157
(
822
)
10,335
Loans in process
539
–
539
Deferred fees and costs on loans
34
(
34
)
–
Allowance for credit losses on loans
(
881
)
881
–
Premises and equipment
3,003
449
3,452
Core deposit intangible
–
2,100
2,100
Other assets
4,998
966
5,964
Total identifiable assets acquired
$
152,757
$
(
4,244
)
$
148,513
Identifiable Liabilities
Deposits
$
130,323
$
(
606
)
$
129,717
Borrowings
5,250
(
20
)
5,230
Other liabilities
1,960
131
2,091
Total identifiable liabilities assumed
$
137,533
$
(
495
)
$
137,038
Fair value of net assets acquired
$
11,475
Goodwill
(3)
$
4,874
(1)
The Company issued
464,855
shares of its common stock valued at $
30.76
per share, which was the closing price of the Company’s common stock on May 31, 2024, the last day of trading prior to the consummation of the acquisition.
(2)
Cash consideration was paid for shareholder elections, fractional shares and to settle outstanding vested stock options. The merger agreement provided for up to
10
% of consideration to be paid in cash of $
14.48
per FCB common share, at the shareholders’ election. Payments for shareholder elections and fractional shares totaled $
1,769
. Outstanding and vested options were settled at the difference between $
14.48
and the strike price and totaled $
281
.
(3)
The Company kept the measurement of goodwill open until December 31, 2024 in order to reflect any adjustments to the fair value of assets acquired and liabilities assumed that arose during the Company’s final review procedures.
The Company recorded a small measurement period adjustment to goodwill between the acquisition date and December 31, 2024. For more information, please refer to
the Company’s 2024 Form 10-K, Note 17: Goodwill and Other Intangibles.
Loans include acquired loans and originated loans. Acquired loans are presented at their outstanding principal balance, net of the remaining purchase discount of
$
6,949
as of June 30, 2025
and $
7,564
as of
December 31, 2024. Originated loans as of June 30, 2025 and December 31, 2024 are presented at amortized cost, net of deferred fees and costs. The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated.
June 30,
December 31,
2025
2024
Real estate construction
$
44,529
$
50,798
Consumer real estate
317,949
307,855
Commercial real estate
494,755
478,078
Commercial non real estate
51,383
51,844
Public sector and IDA
56,347
57,171
Consumer non real estate
46,172
42,867
Gross loans
$
1,011,135
$
988,613
Less deferred fees and costs
(
438
)
(
663
)
Loans, net of deferred fees and costs
$
1,010,697
$
987,950
Allowance for credit losses on loans
(
10,422
)
(
10,262
)
Total loans, net
$
1,000,275
$
977,688
Accrued interest receivable of
$
3,382
at June 30, 2025 and
$
3,299
at December 31, 2024 is not included in total loans above.
Past Due and Nonaccrual Loans
The following tables present the aging of past due loans, by loan pool, as of the dates indicated.
Activity in the ACLL for the Six Months Ended June 30, 2024
Real Estate
Construction
Consumer
Real Estate
Commercial
Real Estate
Commercial
Non Real
Estate
Public
Sector and
IDA
Consumer
Non Real
Estate
Unallocated
Total
Balance, December 31, 2023
$
408
$
3,162
$
3,576
$
682
$
333
$
583
$
350
$
9,094
Charge-offs
-
-
-
(
20
)
-
(
157
)
-
(
177
)
Recoveries
-
-
29
3
-
71
-
103
Provision for (recovery of) credit losses
131
376
594
79
(
10
)
87
50
1,307
Merger adjustment
(1)
10
97
55
4
-
9
-
175
Balance, June 30, 2024
$
549
$
3,635
$
4,254
$
748
$
323
$
593
$
400
$
10,502
Activity in the ACLL for the Year Ended December 31, 2024
Real Estate
Construction
Consumer
Real Estate
Commercial
Real Estate
Commercial
Non Real
Estate
Public
Sector and
IDA
Consumer
Non Real
Estate
Unallocated
Total
Balance, December 31, 2023
$
408
$
3,162
$
3,576
$
682
$
333
$
583
$
350
$
9,094
Charge-offs
-
-
-
(
166
)
-
(
353
)
-
(
519
)
Recoveries
-
-
53
79
-
138
-
270
Provision for (recovery of) credit losses
(
70
)
667
615
56
3
271
(
300
)
1,242
Merger adjustment
(1)
10
97
55
4
-
9
-
175
Balance, December 31, 2024
$
348
$
3,926
$
4,299
$
655
$
336
$
648
$
50
$
10,262
(1)
Adjustment for PCD acquired loans.
The following tables present information about the ACLL for individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.
ACLL by Segment and Evaluation Method
June 30, 2025
Real Estate Construction
Consumer Real Estate
Commercial Real Estate
Commercial Non Real Estate
Public Sector and IDA
Consumer Non Real Estate
Unallocated
Total
Individually evaluated
$
–
$
28
$
113
$
–
$
–
$
–
$
–
$
141
Collectively evaluated
366
3,904
4,318
624
323
736
10
10,281
Total
$
366
$
3,932
$
4,431
$
624
$
323
$
736
$
10
$
10,422
ACLL by Segment and Evaluation Method
December 31, 2024
Real Estate
Construction
Consumer Real Estate
Commercial Real Estate
Commercial Non Real Estate
Public
Sector and
IDA
Consumer Non Real Estate
Unallocated
Total
Individually evaluated
$
-
$
31
$
49
$
-
$
-
$
-
$
-
$
80
Collectively evaluated
348
3,895
4,250
655
336
648
50
10,182
Total
$
348
$
3,926
$
4,299
$
655
$
336
$
648
$
50
$
10,262
The following tables present information about individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.
Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually evaluated. The Company measures the ACLL on collateral dependent loans based upon the fair value of the collateral. Fair value of the collateral is adjusted for liquidation costs/discounts. If the fair value of the collateral falls below the amortized cost of the loan, the shortfall is recognized in the ACLL. If the fair value of the collateral exceeds the amortized cost, no ACLL is required.
As of June 30, 2025 and December 31, 2024, three of the Company’s individually evaluated loans were collateral dependent and secured by real estate. The following table provides detail on collateral dependent loans as of the dates indicated:
June 30, 2025
December 31, 2024
Balance
Related
Allowance
Balance
Related
Allowance
Commercial Real Estate
Commercial real estate, owner occupied
$
8,224
$
-
$
8,387
$
-
Commercial real estate, other
682
-
872
-
Total Loans
$
8,906
$
-
$
9,259
$
-
Credit Quality
The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, payment history, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. General descriptions of risk ratings are as follows:
•
Pass: loans with acceptable credit quality are rated pass.
•
Special mention: loans with potential weakness due to challenging economic or financial conditions are rated special mention.
•
Classified: loans with well-defined weaknesses that heighten the risk of default are rated classified.
The following tables present the amortized cost basis of the loan portfolio by year of origination, loan class and credit quality as of
June 30, 2025 and December 31, 2024, and gross charge-offs by year of origination for the six months ended June 30, 2025 and the year ended December 31, 2024
.
Gross Charge Offs by Origination Year for the Twelve Monts Ended December 31, 2024
Revolving
Loans
Converted
Prior
2020
2021
2022
2023
2024
Revolving
to Term
Total
Commercial and industrial
$
125
$
-
$
-
$
-
$
-
$
22
$
19
$
-
$
166
Credit cards
-
-
-
-
-
-
53
-
53
Automobile
-
-
6
14
16
11
-
-
47
Other Consumer
-
4
15
19
94
121
-
-
253
Total YTD gross charge-offs
$
125
$
4
$
21
$
33
$
110
$
154
$
72
$
-
$
519
Loan Modifications to Borrowers Experiencing Financial Difficulty
On the date a loan is modified, the Company assesses whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan is risk rated special mention or classified, as determined appropriate. If the loan exceeds $
400
, if it is placed in nonaccrual, or if foreclosure is probable, the loan is individually evaluated for the ACLL.
During the three and six months ended June 30, 2025, no loans were modified for borrowers experiencing financial difficulty. Two loans were modified for borrowers experiencing financial difficulty during the first three months of 2024. One of these loans was modified a second time during the three month period ended June 30, 2024.
The following table presents information as of June 30, 2024 about loans modified for borrowers experiencing financial difficulty during the six months ended June 30, 2024.
June 30, 2024
Amortized
Cost Basis
% of
Class
Type of
Modification
Financial Effect
Commercial Real Estate
Commercial real estate owner-occupied
$
6,396
5.57
%
Interest only
payments
6
months of interest only payments, re-amortization of the balance to contractual maturity
Commercial Non real estate
Commercial and industrial
$
7
0.01
%
Term extension
Renewal of single-payment note for an additional
3
months
The Company closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty. As of June 30, 2024, the loans were in current status and individually evaluated. There were no modified loans to borrowers experiencing financial difficulty that had a payment default during the three or six months ended June 30, 2025 and 2024 and that were modified in the twelve months prior. Default occurs when a payment is 90 days past due, the loan is fully or partially charged off or the Company forecloses on the collateral.
Consumer Real Estate Loans In Process of Foreclosure
As of June 30, 2025
, the Company had
no
loans in process of foreclosure. As of
December 31, 2024
, three consumer real estate loans totaling $
37
were in process of foreclosure.
ACL for Unfunded Commitments
The following tables present the balance and activity in the ACL for unfunded commitments for the six months ended June 30, 2025 and 2024:
Allowance for Credit Losses on Unfunded Commitments
The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses as of the dates indicated are summarized as follows:
June 30, 2025
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
U.S. government agencies and corporations
$
333,254
$
-
$
29,833
$
303,421
States and political subdivisions
177,782
-
29,546
148,236
Mortgage-backed securities
136,704
26
4,192
132,538
Corporate debt securities
6,509
-
683
5,826
Total securities available for sale
$
654,249
$
26
$
64,254
$
590,021
December 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
U.S. government agencies and corporations
$
351,136
$
-
$
40,012
$
311,124
States and political subdivisions
178,106
-
32,372
145,734
Mortgage-backed securities
143,747
24
5,473
138,298
Corporate debt securities
6,507
-
764
5,743
U.S. treasury
1,000
-
1
999
Total securities available for sale
$
680,496
$
24
$
78,622
$
601,898
The following tables present information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous loss position, as of the dates indicated.
Less Than 12 Months
12 Months or More
June 30, 2025
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
U.S. government agencies and corporations
$
-
$
-
$
303,421
$
29,833
State and political subdivisions
-
-
148,236
29,546
Mortgage-backed securities
7,838
19
104,397
4,173
Corporate debt securities
-
-
5,826
683
Total temporarily impaired securities
$
7,838
$
19
$
561,880
$
64,235
Less Than 12 Months
12 Months or More
December 31, 2024
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
U.S. government agencies and corporations
$
-
$
-
$
311,124
$
40,012
State and political subdivisions
885
118
144,849
32,254
Mortgage-backed securities
5,336
28
115,011
5,445
Corporate debt securities
-
-
5,743
764
U.S. treasury
-
-
999
1
Total temporarily impaired securities
$
6,221
$
146
$
577,726
$
78,476
The Company evaluates securities available for sale that are in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.
At June 30, 2025, the Company had
537
securities with a fair value of
$
569,718
in an unrealized loss position. The Company reviews securities in an unrealized loss position to evaluate credit risk. The Company considers payment history, risk ratings from external parties, financial statements for municipal and corporate securities, public statements from issuers and other available credible published sources in evaluating credit risk. No credit losses were found and no ACL on securities available for sale was recorded as of June 30, 2025 or December 31, 2024. The unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions. The Company does not have the intent to sell any of these securities and believes that it is more likely
than not that the Company will not have to sell any such securities before a recovery of cost. The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the cost basis of the investments. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.
The amortized cost and fair value of securities available for sale at June 30, 2025, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities included in these totals are categorized by final maturity.
June 30, 2025
Amortized Cost
Fair Value
Available for Sale:
Due in one year or less
$
28,007
$
27,804
Due after one year through five years
223,195
211,373
Due after five years through ten years
230,691
199,529
Due after ten years
172,356
151,315
Total securities available for sale
$
654,249
$
590,021
Accrued interest
receivable on securities, included in accrued interest receivable on the Consolidated Balance Sheets, totaled
$
3,031
at June 30, 2025 and
$
3,170
at December 31, 2024.
The deferred tax asset for the net unrealized loss on securities available for sale was
$
13,488
as of June 30, 2025 and
$
16,505
as of December 31, 2024. The deferred tax asset is included in other assets on the Consolidated Balance Sheets.
Realized Securities Gains and Losses
There were no sales of securities during the six months ended June 30, 2025 and 2024.
Restricted Stock.
The Company held restricted stock of $
1,848
as of
June 30, 2025 and December 31, 2024, included in other assets on the Consolidated Balance Sheets. As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. The Company purchases stock from or sells stock back to the correspondents based on their calculations. The stock is held by member institutions only and is not actively traded.
Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling
$
502,760
at June 30, 2025. The Company’s management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at June 30, 2025
, did not determine any impairment.
Note 5: Defined Benefit Plan
The following table presents components of net periodic benefit cost (income) for the periods indicated:
The service cost component of net periodic benefit cost is included in salaries and employee benefits expense in the Consolidated Statements of Income. All other components are included in other operating expense in the Consolidated Statements of Income.
Note 6: Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of the observable inputs and minimize the use of the unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:
Level 1 –
Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –
Valuation is based on observable inputs including:
•
quoted prices in active markets for similar assets and liabilities,
•
quoted prices for identical or similar assets and liabilities in less active markets,
•
inputs other than quoted prices that are observable, and
•
model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –
Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
Fair value is best determined by quoted market prices. However, in cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements.
Financial Instruments Measured at Fair Value on a Recurring Basis
Securities Available for Sale
Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated.
The Company’s securities portfolio is valued using Level 2 inputs. The Company relies on an independent third party vendor to provide market valuations. The inputs used to determine value include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio. Level 2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any, may impact securities fair value, deferred tax assets or liabilities, or expense.
Financial Instruments Measured at Fair Value on a Non-Recurring Basis
Certain financial instruments are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis.
No
nonrecurring fair value adjustments were recorded on loans held for sale at
June 30, 2025 or December 31, 2024.
Collateral Dependent Loans
Collateral dependent loans are measured on a non-recurring basis for the ACLL. If the fair value of the collateral is lower than the loan’s amortized cost basis, the shortfall is recognized in the ACLL. When repayment is expected from the operation of the collateral, fair value is estimated as the present value of expected cash flows from the operation of the collateral. When repayment is expected from the sale of the collateral, fair value is estimated using measurement techniques discussed below and discounted by the estimated cost to sell. The ACLL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
For loans secured by real estate, fair value of collateral is determined by the “as-is” value of appraisals or third party evaluations that are less than 24 months of age. Appraisals are prepared by independent, licensed appraisers. Appraisals are based upon observable market data analyzed through an income or sales valuation approach. Valuation falls within Level 2 categorization. The Company may further discount appraisals for marketing strategies, which results in Level 3 categorization.
The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).
As of June 30, 2025
, three commercial real estate loans totaling $
8,906
were collateral dependent. Valuation was based upon outside appraisals (Level 2). None of the measurements resulted in a specific allocation. As of December 31, 2024, three commercial real estate loans totaling $
9,259
were measured under the fair value of collateral method using third party appraisals (Level 2). None of the measurements resulted in a specific allocation.
Fair Value Summary
The following presents the recorded amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of the dates indicated. Fair values are estimated using the exit price notion.
Unrealized holding loss on available for sale securities, net of
tax of ($
927
)
(
3,488
)
-
(
3,488
)
Balance at June 30, 2024
$
(
66,044
)
$
(
2,310
)
$
(
68,354
)
Balance at December 31, 2024
$
(
62,093
)
$
328
$
(
61,765
)
Unrealized holding gain on available for sale securities, net of
tax of $
3,017
11,353
-
11,353
Balance at June 30, 2025
$
(
50,740
)
$
328
$
(
50,412
)
Note 8: Revenue Recognition
Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams such as service charges on deposit accounts, other service charges and fees, credit and debit card fees, trust income, and annuity and insurance commissions are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance. Noninterest revenue streams within the scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ATM fees are generated when a Company cardholder uses a non-Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.
Other Service Charges and Fees
Other service charges include safe deposit box rental fees, check ordering charges, ATM fees to holders of cards issued by other banks and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges, ATM fees to holders of cards issued by other banks and other service charges are transaction based and therefore, the Company’s performance obligation is satisfied and related revenue recognized at a point in time.
Credit and Debit Card Fees
Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa and MasterCard. Merchant services income mainly represents commission fees based upon merchant processing volume. The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. In compliance with Topic 606, credit and debit card fee income is presented net of associated expense.
Trust Income
Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Estate
management fees are based upon the size of the estate. A partial fee is recognized half-way through the estate administration and the remainder of the fee is recognized when remaining assets are distributed and the estate is closed.
Insurance and Investment
Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue.
Investment income consists of recurring revenue streams such as commissions from sales of mutual funds, annuities and other investments. Commissions from the sale of mutual funds, annuities and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated.
Three Months Ended June 30,
Noninterest Income
2025
2024
In-scope of Topic 606:
Service charges on deposit accounts
$
735
$
678
Other service charges and fees
72
87
Credit and debit card fees, net
366
423
Trust income
578
513
Insurance and Investment
(1)
170
126
Noninterest Income (in-scope of Topic 606)
$
1,921
$
1,827
Noninterest Income (out-of-scope of Topic 606)
358
440
Total noninterest income
$
2,279
$
2,267
Six Months Ended June 30,
Noninterest Income
2025
2024
In-scope of Topic 606:
Service charges on deposit accounts
$
1,433
$
1,311
Other service charges and fees
156
169
Credit and debit card fees, net
783
797
Trust income
1,157
1,016
Insurance and Investment
(1)
524
432
Noninterest Income (in-scope of Topic 606)
$
4,053
$
3,725
Noninterest Income (out-of-scope of Topic 606)
786
757
Total noninterest income
$
4,839
$
4,482
(1)
Included within other income in the Consolidated Statements of Income
The Company’s leases are recorded under ASC Topic 842, “Leases”. The Company categorizes leases as short-term, operating or finance leases. Leases with terms of 12 months or less are designated as short-term and are not capitalized. Operating and finance leases are capitalized as right-of-use assets and lease liabilities. Right-of-use assets, included in other assets, represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Lease liabilities, included in other liabilities, represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The Company does not separate non-lease components from lease components within a single contract. Counterparties for the Company’s lease contracts are external to the Company and not related parties.
On June 1, 2024, the Company’s acquisition of FCB added two long-term branch leases. At the Acquisition Date, the leases were remeasured using the Company’s incremental borrowing rate and remaining lease terms, resulting in an increase of $
548
to the right of use asset and the lease liability.
Lease payments
Short-term lease payments are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Operating and finance lease payments may be fixed for the term of the lease or variable. If the escalation factor for a variable lease payment is known, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability.
Options to Extend, Residual Value Guarantees, Restrictions and Covenants
Certain of the Company’s operating leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about leases as of the dates and for the periods indicated:
June 30,
December 31,
2025
2024
Lease liability
$
1,676
$
1,523
Right-of-use asset
$
1,471
$
1,305
Weighted average remaining lease term (in years)
4.57
4.76
Weighted average discount rate
3.91
%
3.87
%
For the Three Months Ended June 30,
Lease Expense
2025
2024
Operating lease expense
$
104
$
99
Short-term lease expense
-
6
Total lease expense
$
104
$
105
Cash paid for amounts included in lease liabilities
$
112
$
104
Right-of-use assets obtained in exchange for operating lease liabilities commencing
during the period
$
354
$
548
For the Six Months Ended June 30,
Lease Expense
2025
2024
Operating lease expense
$
210
$
188
Short-term lease expense
-
11
Total lease expense
$
210
$
199
Cash paid for amounts included in lease liabilities
$
224
$
199
Right-of-use assets obtained in exchange for operating lease
liabilities commencing during the period
The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability:
Undiscounted Cash Flow for the Period
As of
June 30, 2025
Twelve months ending June 30, 2026
$
431
Twelve months ending June 30, 2027
395
Twelve months ending June 30, 2028
381
Twelve months ending June 30, 2029
303
Twelve months ending June 30, 2030
180
Thereafter
128
Total undiscounted cash flows
$
1,818
Less: discount
(
142
)
Lease liability
$
1,676
Note 10: Stock Based Compensation
The Company’s 2023 Stock Incentive Plan (“the Plan”) provides for the grant of various forms of stock-based compensation awards that may be settled in, or based upon the value of, the Company’s common stock. The maximum number of shares available for issuance under the Plan is
120,000
shares. The restricted stock has voting rights and rights to dividends, which are paid upon vest date. For further information on the Plan, please refer to the Company’s 2024 Form 10-K.
Restricted Stock
Awards
Under the Plan, restricted stock awards (“RSAs”) were granted to non-employee directors as part of the semi-annual retainer and restricted stock units ("RSUs") were granted to certain executives. The RSAs and RSUs were valued at the closing stock price on the grant date and expensed over a
one-year
vesting period. Stock based compensation expense charged against income was
$
51
and $
94
for the three and six months ended June 30, 2025
and $
33
and $
65
for the three and six months ended
June 30, 2024. As of June 30, 2025
, expense of $
93
related to the nonvested RSAs and RSUs is expected to be recognized over the coming 12 months. A summary of changes in the Company’s nonvested RSAs under the Plan for the
six months ended June 30, 2025 follows:
Shares
Weighted-Average
Grant-Date
Fair Value
Nonvested at January 1, 2025
4,961
$
30.98
Granted
2,630
26.59
Vested and released
(
2,563
)
30.00
Nonvested at June 30, 2025
5,028
$
29.18
Note 11: Net Income (Loss) Per Common Share
The factors used in the computation of net income (loss) per common share for the periods indicated are presented below:
For the Three Months Ended June 30,
2025
2024
Net Income
(Numerator)
Common Shares Weighted Average Outstanding (Denominator)
Per Share
Net Loss
(Numerator)
Common Shares Weighted Average Outstanding (Denominator)
Common Shares Weighted Average Outstanding (Denominator)
Per
Share
Net Income
(Numerator)
Common Shares Weighted Average Outstanding (Denominator)
Per
Share
Basic net income per common share
$
5,525
6,358,665
$
0.87
$
1,867
5,958,953
$
0.31
Dilutive shares
(1)
2,325
2,084
Diluted net income per common share
$
5,525
6,360,990
$
0.87
$
1,867
5,961,037
$
0.31
(1)
Dilutive shares are associated with RSAs. RSAs are disregarded in the computation of diluted net income per share if they are determined to be anti-dilutive. There were no anti-dilutive RSAs for the
three and six months ended June 30, 2025 and the six months ended June 30, 2024
. RSAs were anti-dilutive for the three months ended June 30, 2024.
Note 12 – Goodwill and Other Intangibles
Core deposit intangible amortization expense was
$
95
and
$
192
for the three and six months ended June 30, 2025
. Core deposit intangible amortization expense was $
35
for the three and six months ended June 30, 2024. The following table provides information on the significant components of goodwill and other acquired intangible assets during the
six months ended June 30, 2025.
Beginning Balance
Additions
Measurement Period Adjustment
Accumulated Amortization
Ending Balance
Goodwill
$
10,718
$
-
$
-
$
-
$
10,718
Core deposit intangible
$
1,863
$
-
$
-
$
(
192
)
$
1,671
As of June 30, 2025, estimated future remaining amortization of the core deposit intangible within the years ending December 31, is as follows:
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
$ in thousands, except per share data
The purpose of this discussion and analysis is to provide information about the financial condition and results of operations of the Company. Please refer to the financial statements and other information included in this report as well as the Company’s 2024 Form 10-K for an understanding of the following discussion and analysis. References in the following discussion and analysis to “we” or “us” refer to the Company unless the context indicates that the reference is to the Bank.
We make forward-looking statements in this Form 10-Q that are subject to significant risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon management’s views and assumptions as of the date of this report. 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.
These forward-looking statements are based upon or are affected by factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, effects of or changes in:
•
inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments,
•
the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged,
•
the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses,
•
general and local economic conditions,
•
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation (“FDIC”), and the impact of any policies or programs implemented pursuant to financial reform legislation,
•
unanticipated increases in the level of unemployment in the Company’s market,
•
the quality or composition of the loan and/or investment portfolios,
•
demand for loan products,
•
deposit flows,
•
competition,
•
demand for financial services in the Company’s market,
•
the real estate market in the Company’s market,
•
laws, regulations and policies impacting financial institutions,
•
technological risks and developments, and cyber-threats, attacks or events,
•
the Company’s technology initiatives,
•
geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts,
•
the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events,
•
the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment,
•
performance by the Company’s counterparties or vendors,
•
applicable accounting principles, policies and guidelines, and
•
risks associated with mergers, acquisitions, and other expansion activities.
These risks and uncertainties should be considered in evaluating the forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which speak only as of the date of this report. This discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A of the Company's 2024 Form 10-K.
NBI is a financial holding company that was organized in 1986 under the laws of Virginia and is registered under the Bank Holding Company Act of 1956. NBI common stock is listed on the Nasdaq Capital Market and is traded under the symbol “NKSH.”
NBI has two wholly-owned subsidiaries; the National Bank of Blacksburg ("NBB") and National Bankshares Financial Services, Inc. ("NBFS"). NBB is a community bank and does business as National Bank from 28 office locations and one loan production office. NBB is the source of nearly all of the Company’s revenue. NBFS does business as National Bankshares Investment Services and National Bankshares Insurance Services. Income from NBFS is not significant at this time, nor is it expected to be so in the near future.
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. Although the economics of the Company’s transactions may not change, the timing of events that would impact the transactions could change.
Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. The Company has designated the following policies as critical: those governing the allowance for credit losses, goodwill, the pension plan, core deposit intangibles and loans acquired in a business combination. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. For information on the Company's critical accounting policies, please refer to the Company’s 2024 Form 10-K, Note 1: Summary of Significant Accounting Policies.
Acquisition of Frontier Community Bank
On June 1, 2024, the Company and the Bank acquired FCB, a Virginia chartered commercial bank headquartered in Waynesboro, Virginia. FCB’s balances and results of operations are included in the Company’s consolidated results beginning on June 1, 2024.
Non-GAAP Financial Measures
This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP. Details on non-GAAP measures follow.
Net Interest Margin
The Company uses the net interest margin (non-GAAP) to measure profitability of interest generating activities, as a percentage of total interest-earning assets. The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis. The portion of interest income that is nontaxable is grossed up to the tax equivalent by adding the tax benefit based on a tax rate of 21%. Annualized FTE net interest income is divided by total average earning assets to calculate the net interest margin. The following tables present the reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, for the periods indicated.
The efficiency ratio is computed by dividing noninterest expense by the sum of FTE net interest income and noninterest income, excluding certain items the Company’s management deems unusual or non-recurring. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. The components of the efficiency ratio calculation for the periods indicated are summarized in the following table.
Three Months Ended June 30,
Efficiency Ratio
2025
2024
Noninterest expense (GAAP)
$
10,583
$
10,127
Less: merger-related expense
-
(2,257
)
Less: conversion expense
(1)
(1,977
)
(173
)
Adjusted noninterest expense (non-GAAP)
$
8,606
$
7,697
Noninterest income (GAAP)
$
2,279
$
2,267
Net interest income, FTE (non-GAAP)
11,235
8,920
Total income for efficiency ratio (non-GAAP)
$
13,514
$
11,187
Efficiency ratio
63.68
%
68.80
%
Six Months Ended June 30,
Efficiency Ratio
2025
2024
Noninterest expense (GAAP)
$
19,215
$
17,889
Less: merger-related expense
-
(2,741
)
Less: conversion expense
(1)
(2,023
)
(173
)
Adjusted noninterest expense (non-GAAP)
$
17,192
$
14,975
Noninterest income (GAAP)
$
4,839
$
4,482
Net interest income, FTE (non-GAAP)
21,723
17,395
Total income for efficiency ratio (non-GAAP)
$
26,562
$
21,877
Efficiency ratio (non-GAAP)
64.72
%
68.45
%
(1)
Conversion expense stems from a core system upgrade that will provide greater efficiency and product offerings.
Adjusted Return on Average Assets and Adjusted Return on Average Equity
The adjusted return on average assets and adjusted return on average equity are measures of profitability, calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively. Significant income or expenses that are unusual or not expected to recur during the year are not annualized, in order to reduce distortion within the ratios. The tables below present the reconciliation of adjusted annualized net income, which is not a measurement under GAAP, for the periods indicated.
Key to understanding the Company’s results of operations and financial position is the acquisition of FCB in 2024, the impact of the interest rate environment and the system conversion completed during the second quarter of 2025 that will enhance efficiency and product offerings.
The acquisition of FCB on June 1, 2024 expanded the Company's footprint into desirable markets and increased its growth potential. The acquisition added to the balance sheet $118,743 in loans, $129,717 in deposits and $14,299 in equity. The Company also recorded merger expenses detailed under Non-GAAP above.
The Federal Reserve's 100 basis point interest rate cut between September and December of 2024 eased deposit pricing pressure beginning in the fourth quarter of 2024 and continued to positively influence results in 2025. The interest rate environment continues at a level that allows adjustable rate loans to reprice higher than their previous rates.
The Company completed the system conversion of both the acquired bank and the legacy bank during the second quarter of 2025, with related expenses presented in Conversion Expense on the Consolidated Statements of Income. The system conversion positions the Company for further growth. The following table presents the Company’s key performance indicators for the periods indicated.
Three Months Ended June 30,
2025
2024
Net Income (Loss)
$
2,289
$
(307
)
Return on average assets
0.51
%
(0.07
)%
Adjusted return on average assets
(1)
0.77
%
0.46
%
Return on average equity
5.50
%
(0.90
)%
Adjusted return on average equity
(1)
8.37
%
5.68
%
Basic net income (loss) per common share
$
0.36
$
(0.05
)
Diluted net income (loss) per common share
$
0.36
$
(0.05
)
Net interest margin
(1)
2.56
%
2.13
%
Efficiency ratio
(1)
63.68
%
68.80
%
Six Months Ended June 30,
Summary Key Performance Indicators
2025
2024
Net Income
$
5,525
$
1,867
Return on average assets
0.61
%
0.22
%
Adjusted return on average assets
(1)
0.69
%
0.42
%
Return on average equity
6.80
%
2.74
%
Adjusted return on average equity
(1)
7.69
%
5.22
%
Basic net income per common share
$
0.87
$
0.31
Diluted net income per common share
$
0.87
$
0.31
Net interest margin
(1)
2.49
%
2.10
%
Efficiency ratio
(1)
64.72
%
68.45
%
(1)
See “Non-GAAP Financial Measures” above.
Net income for the three and six months ended June 30, 2025 increased when compared with the comparable periods of 2024, due to net interest margin expansion and merger related expenses in 2024. The net interest margin as well as key noninterest income and expense items are discussed below.
Net Interest Income
The following tables present interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net interest margin for the periods indicated.
Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.
(2)
Included in interest income are loan fees of $113 and $60 for the three months ended June 30, 2025 and 2024, respectively. Also included in interest income is accretion of discounts on acquired loans of $363 and $111 for the three months ended June 30, 2025 and 2024, respectively.
(3)
Nonaccrual loans are included in average balances for yield computations.
(4)
Includes loans held for sale.
(5)
Daily averages are shown at amortized cost.
(6)
Included in interest expense is amortization of premium on acquired time deposits of $43 and $57 for the three months ended June 30, 2025 and 2024, respectively.
Six Months Ended June 30,
2025
2024
($ in thousands)
Average
Balance
Interest
Average
Yield/Rate
Average
Balance
Interest
Average
Yield/Rate
Interest-earning assets:
Loans
(1)(2)(3)(4)(5)
$
1,001,763
$
26,696
5.37
%
$
881,304
$
21,834
4.98
%
Taxable securities
(5)
605,170
7,585
2.53
%
630,290
8,467
2.70
%
Nontaxable securities
(1)(5)
62,905
913
2.93
%
63,999
920
2.89
%
Federal funds sold
229
5
4.40
%
446
10
4.51
%
Interest-bearing deposits
92,458
2,017
4.40
%
86,385
2,358
5.49
%
Total interest-earning assets
$
1,762,525
$
37,216
4.26
%
$
1,662,424
$
33,589
4.06
%
Interest-bearing liabilities:
Interest-bearing demand deposits
$
862,213
$
9,023
2.11
%
$
832,682
$
10,259
2.48
%
Savings deposits
143,727
101
0.14
%
139,966
111
0.16
%
Time deposits
(6)
336,085
6,369
3.82
%
283,485
5,822
4.13
%
Borrowings
-
-
-
115
2
3.50
%
Total interest-bearing liabilities
$
1,342,025
$
15,493
2.33
%
$
1,256,248
$
16,194
2.59
%
Net interest income and interest
rate spread
$
21,723
1.93
%
$
17,395
1.47
%
Net interest margin
2.49
%
2.10
%
(1)
Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.
(2)
Included in interest income are loan fees of $199 and $115 for the six months ended June 30, 2025 and 2024, respectively. Also included in interest income is accretion of discounts on acquired loans of $615 and $111 for the six months ended June 30, 2025 and 2024, respectively.
Nonaccrual loans are included in average balances for yield computations.
(4)
Includes loans held for sale.
(5)
Daily averages are shown at amortized cost.
(6)
Included in interest expense is amortization of premium on acquired time deposits of $101 and $57 for the six months ended June 30, 2025 and 2024, respectively.
When the three and six month periods ended June 30, 2025 and 2024 are compared, the yield on earning assets increased and the cost of interest bearing liabilities decreased, improving the net interest margin. The Federal Reserve's interest rate cuts between September and December 2024 immediately reduced expense for deposits with pricing based on the prime interest rate. Current interest rates are still at a level that will allow improved interest income as loans continue to reach repricing dates.
Noninterest Income
Three Months Ended June 30,
Change
2025
2024
Dollars
Percent
Service charges on deposits
$
735
$
678
$
57
8.41
%
Other service charges and fees
72
87
(15
)
(17.24
)%
Credit and debit card fees, net
366
423
(57
)
(13.48
)%
Trust income
578
513
65
12.67
%
BOLI income
297
269
28
10.41
%
Gain on sale of mortgage loans held for sale
54
58
(4
)
(6.90
)%
Other income
177
239
(62
)
(25.94
)%
Total noninterest income
$
2,279
$
2,267
$
12
0.53
%
Six Months Ended June 30,
Change
2025
2024
Dollars
Percent
Service charges on deposits
$
1,433
$
1,311
$
122
9.31
%
Other service charges and fees
156
169
(13
)
(7.69
)%
Credit and debit card fees, net
783
797
(14
)
(1.76
)%
Trust income
1,157
1,016
141
13.88
%
BOLI income
589
527
62
11.76
%
Gain on sale of mortgage loans held for sale
79
82
(3
)
(3.66
)%
Other income
642
580
62
10.69
%
Total noninterest income
$
4,839
$
4,482
$
357
7.97
%
Service charges on deposit accounts increased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024, due to higher levels of deposits.
Credit and debit card fees, net, decreased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024, due to higher processing fees.
Trust income increased due to higher assets under management, when the three and six months ended June 30, 2025 are compared with the comparable period of 2024.
BOLI income increased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024 due to income from policies acquired from FCB.
Other income includes revenue from investment and insurance sales, adjustments to partnership basis and other miscellaneous components. Insurance income and a vendor incentive payment account for the increase when the six months ended June 30, 2025 is compared with the comparable period of 2024.
Noninterest expense increased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024. Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024, reflecting the addition of FCB employees.
Occupancy, furniture and fixtures expense increased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024 due to additional assets acquired from FCB and higher maintenance costs.
Data processing expense decreased when the three months ended June 30, 2025 are compared with the comparable period of 2024, reflecting savings from the system conversion. Data processing expense increased when the six months ended June 30, 2025 is compared with the comparable period of 2024 due to the expense of maintaining the legacy system for FCB until system conversion in May 2025.
FDIC assessment increased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024 due to a larger assessment base.
Professional services include legal, audit and consulting expenses, which increased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024 due to higher legal expense.
During 2024, the Company recorded expenses associated with its acquisition of FCB, including legal and consulting fees.
Conversion expense primarily includes payments made to the former core system vendor to exit the contracts as well as other expenses associated with the conversion.
Other operating expenses increased when the three and six months ended June 30, 2025 are compared with the comparable periods of 2024. The category of other operating expenses includes expense for marketing and business development, supplies, non-service pension cost and charitable donations, among others. Included in various categories of noninterest expense are expenses to manage cybersecurity risk. The cost of these measures was $100 for the three months ended June 30, 2025 and $94 for the three months ended June 30, 2024. For the six months ended June 30, 2025, total cybersecurity expense was $141 compared to $184 for the six months ended June 30, 2024. The Company places high priority on cybersecurity. The decrease in expense reflects renegotiation of contracts and licensing.
The Company’s income tax expense was $362 for the three months ended June 30, 2025 compared to an income tax benefit of $178 for the same period in 2024.The Company's income tax expense was $1,028 for the six months ended June 30, 2025 and effective tax rate was 15.69%. For the six months ended June 30, 2024, the Company’s income tax expense was $341 and effective tax rate was 15.44%. A large portion of merger related expense was not tax deductible, impacting the Company’s effective tax rate for 2024.
Asset Quality
Key indicators of the Company’s asset quality are presented in the following table.
June 30,
December 31,
2025
2024
2024
Nonaccrual loans
$
2,111
$
2,507
$
2,222
Loans past due 90 days or more, and still accruing
21
234
548
ACLL to loans net of deferred fees and costs
1.03
%
1.06
%
1.04
%
Net charge-off ratio
0.03
%
0.02
%
0.03
%
Ratio of nonperforming loans to loans, net of
deferred fees and costs
0.21
%
0.25
%
0.22
%
Ratio of ACLL to nonperforming loans
493.70
%
418.91
%
461.84
%
For information on the Company’s policies on the ACLL, please refer to the Company’s 2024 Form 10-K, Note 1: Summary of Significant Accounting Policies.
The Company’s risk analysis as of June 30, 2025 determined an ACLL of $10,422, or 1.03% of loans net of deferred fees and costs. This compares with an allowance of $10,262 as of December 31, 2024, or 1.04% of loans. To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of loans evaluated collectively.
Individually Evaluated Loans
As of June 30, 2025, individually evaluated loans were $10,849. Three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $141.
As of December 31, 2024, individually evaluated loans were $10,521. Three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $80.
Collectively Evaluated Loans
Collectively evaluated loans totaled $1,000,286, with an ACLL of $10,281 as of June 30, 2025. As of December 31, 2024, collectively evaluated loans totaled $978,092, with an allowance of $10,182.
Collectively evaluated loans are divided into classes based upon risk characteristics. Utilizing historical loss information and peer data, the Company calculates probability of default ("PD") and loss given default ("LGD") for each class, which is adjusted for a reasonable and supportable forecast. Cash flow projections based on each loan’s contractual terms are modified by the adjusted PD and LGD for its class. Loan classes are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.
Reasonable and Supportable Forecast
The Company applies national unemployment forecasts to project cash flows. The Company determined that 12 months represents a reasonable and supportable forecast period as of June 30, 2025, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied as of June 30, 2025 projects that unemployment will slightly increase over the next 12 months at a lower level than the forecast applied as of December 31, 2024. The lower unemployment forecast decreased the required level of the ACLL when June 30, 2025 is compared with December 31, 2024.
Qualitative Factors: Economic
The Company sources economic data pertinent to its market from the most recently available publications, including business and personal bankruptcy filings, the residential vacancy rate and the inventory of new and existing homes.
Higher bankruptcy filings indicate heightened credit risk and increase the ACLL, while lower bankruptcy filings have a beneficial impact on credit risk. Compared with data available as of December 31, 2024, business and personal bankruptcies filings decreased.
Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market. Higher levels increase credit risk. The residential vacancy rate available as of June 30, 2025 increased compared to the
data incorporated into the December 31, 2024 calculation, resulting in a higher allocation. Housing inventory increased when June 30, 2025 is compared with December 31, 2024, resulting in a higher allocation.
Qualitative Factors: Asset Quality Indicators
Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. Accruing loans past due 30-89 days were 0.50% of total loans as of June 30, 2025, an increase from 0.30% as of December 31, 2024. The increase is primarily due to certain loans awaiting renewal. Management expects the renewals to be approved and removed them from the allocation population.
Qualitative Factors: Other Considerations
The Company considers other factors that impact credit risk, including the interest rate environment, the competitive, legal and regulatory environments, changes in lending policies and loan review, changes in lending management, and high risk loans.
The interest rate environment impacts variable rate loans. The Company allocates additional reserve each time the Federal Reserve increases rates, under the expectation that higher payments may increase credit risk. After the rate increase has been in effect for one year, the allocation may be removed if management deems that the impact of the change has become integrated to the portfolio. As of June 30, 2025, no allocation was included for interest rate changes, unchanged from December 31, 2024.
The competitive, legal and regulatory environments were evaluated for changes that would affect credit risk. Higher competition for loans increases credit risk, while lower competition decreases credit risk. Competition remained at similar levels to those at December 31, 2024. The legal and regulatory environments also remain in a similar posture to December 31, 2024.
Lending policies, loan review procedures and management’s experience influence credit risk. Policies and procedures remain similar to those at December 31, 2024. The Company maintained an allocation to account for integration of FCB lenders.
Levels of high risk loans are considered in the determination of the level of the ACLL. A decrease in the level of high risk loans within a class decreases the required allocation for the loan class, and an increase in the level of high risk loans within a class increases the required allocation for the loan class. Total high risk loans increased from the level at December 31, 2024.
Unallocated Surplus
The unallocated surplus as of June 30, 2025 was $10, or 0.10% in excess of the calculated requirement. The unallocated surplus at December 31, 2024 was $50, or 0.49% in excess of the calculated requirement. The surplus provides some mitigation of uncertainty about events that may exist at the reporting date but that are not known to the Company and may impact credit risk.
Conclusion
The calculation of the appropriate level for the ACLL incorporates analysis of multiple factors and requires management’s prudent and informed judgment. Based on analysis of historical indicators, asset quality and economic factors, management believes the level of the ACLL is reasonable for the credit risk in the loan portfolio as of June 30, 2025.
ACL on Unfunded Commitments
The ACL on unfunded commitments was $241, or 0.14 % of unfunded commitments as of June 30, 2025. The ACL on unfunded commitments was $251, or 0.14% as of December 31, 2024.
Provision for (Recovery of) Credit Losses
The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance. The adequacy of the ACLL is reviewed quarterly and adjustments are made as determined necessary. The Company recorded a provision for credit losses on loans of $322 and a recovery of credit losses on unfunded commitments of $10 for the six months ended June 30, 2025, compared with a provision for credit losses on loans of $1,307 and a recovery of $15 for unfunded commitments for the six months ended June 30, 2024. For the three month period ended June 30, 2025, the Company recorded a provision for credit losses on loans of $45 and a recovery of credit losses on unfunded commitments of $9. For the three month period ended June 30, 2024, the Company recorded a provision for credit losses on loans of $1,302, which included $1,290 for loans acquired on June 1, 2024.
Loan Modifications
In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons. Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements. Modifications to consumer loans generally involve short-term payment extensions to accommodate specific, temporary circumstances. Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants.
The Company reviews each modification to determine whether the borrower is experiencing financial difficulty, including indicators of default, bankruptcy, going concern, insufficient projected cash flows and inability to obtain financing from other sources.
Please refer to Note 3: Loans and Allowance for Credit Losses in Part I, Item 1 of this report for more information on loans modified for borrowers experiencing financial difficulty.
During the three and six months ended June 30, 2025 and 2024, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty. During the three months ended June 30, 2025, the Company modified 173 loans totaling $17,750. During the six months ended June 30, 2025, the Company modified 368 loans totaling $41,855. During the three and six months ended June 30, 2024, the Company provided 216 modifications to loans totaling $21,704 and 432 modifications totaling $43,936.
Key Assets and Liabilities
NBI’s key assets and liabilities and their change from December 31, 2024 are shown in the following table.
June 30,
December 31,
Change
2025
2024
Dollars
Percent
Interest-bearing deposits
$
83,051
$
94,254
$
(11,203
)
(11.89
)%
Securities available for sale, at fair value
590,021
601,898
(11,877
)
(1.97
)%
Loans, net
1,000,275
977,688
22,587
2.31
%
Total assets
1,806,610
1,811,635
(5,025
)
(0.28
)%
Deposits
1,627,675
1,644,752
(17,077
)
(1.04
)%
Average Balances
Year-to-date daily averages for the major balance sheet categories are as follows:
June 30,
December 31,
Change
2025
2024
Dollars
Percent
Assets
Interest-bearing deposits
$
92,458
$
76,211
$
16,247
21.32
%
Securities available for sale, at fair value
596,989
610,298
(13,309
)
(2.18
)%
Loans, net
991,099
928,293
62,806
6.77
%
Total assets
1,817,524
1,744,440
73,084
4.19
%
Liabilities and stockholders’ equity
Noninterest-bearing demand deposits
$
299,820
$
290,038
$
9,782
3.37
%
Interest-bearing demand deposits
862,213
838,526
23,687
2.82
%
Savings deposits
143,727
141,148
2,579
1.83
%
Time deposits
336,085
313,401
22,684
7.24
%
Stockholders’ equity
163,857
147,474
16,383
11.11
%
Higher customer deposits resulted in increased investment in interest bearing deposit assets. Changes in securities, loans, deposits and stockholders’ equity are discussed below.
The Company's securities are designated as available for sale and as such, are reported at fair value. The following table presents information on securities available for sale as of the dates indicated:
June 30,
December 31,
Change
2025
2024
Dollars
Percent
Amortized cost
$
654,249
$
680,496
$
(26,247
)
(3.86
)%
Unrealized loss, net
(64,228
)
(78,598
)
14,370
18.28
%
Securities available for sale, at fair value
$
590,021
$
601,898
$
(11,877
)
(1.97
)%
The unrealized loss in the Company’s investment portfolio is due to interest rate risk. The fair value of bonds moves inversely to interest rate changes and expectations of interest rate changes. Most of the Company’s securities were purchased during periods prior to the Federal Reserve’s interest rate increases that began in March of 2022. The Company’s analysis of the securities portfolio determined no identifiable credit risk as of June 30, 2025 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies of the Company's 2024 Form 10-K and Note 4: Securities in Part I, Item 1 of this report for additional information on the securities portfolio.
Loans
June 30,
December 31,
Change
2025
2024
Dollars
Percent
Real estate construction
$
44,529
$
50,798
$
(6,269
)
(12.34
)%
Consumer real estate
317,949
307,855
10,094
3.28
%
Commercial real estate
494,755
478,078
16,677
3.49
%
Commercial non real estate
51,383
51,844
(461
)
(0.89
)%
Public sector and IDA
56,347
57,171
(824
)
(1.44
)%
Consumer non real estate
46,172
42,867
3,305
7.71
%
Less: deferred fees and costs
(438
)
(663
)
225
(33.94
)%
Loans, net of deferred fees and costs
$
1,010,697
$
987,950
$
22,747
2.30
%
The increase from December 31, 2024 is the result of organic growth. The Company is positioned to make every loan that meets its underwriting standards.
Deposits
June 30,
December 31,
Change
2025
2024
Dollars
Percent
Noninterest-bearing demand deposits
$
306,427
$
290,088
$
16,339
5.63
%
Interest-bearing demand deposits
852,405
864,753
(12,348
)
(1.43
)%
Savings deposits
140,285
143,109
(2,824
)
(1.97
)%
Time deposits
328,558
346,802
(18,244
)
(5.26
)%
Total deposits
$
1,627,675
$
1,644,752
$
(17,077
)
(1.04
)%
The Company’s depositors within its market area are diverse, including individuals, businesses and municipalities. The Company does not have any brokered deposits. Depositors are insured up to the FDIC maximum of $250 thousand. Municipal deposits, which account for approximately 24% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 24% are uninsured.
The increase in stockholders’ equity reflects an improvement in the unrealized losses on securities available for sale and net income during the period.
The Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $3 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements. NBB is subject to various capital requirements administered by banking agencies, including an additional capital conservation buffer in order to make capital distributions or discretionary bonus payments. Risk-based capital ratios are calculated in compliance with OCC rules based on the Basel III Capital Rules. Capital ratios for NBB are shown in the following tables.
June 30, 2025
December 31, 2024
Regulatory
Capital
Minimum
Ratios
Regulatory Capital
Minimum Ratios
with Capital
Conservation
Buffer
Common Equity Tier I Capital Ratio
16.13
%
15.28
%
4.50
%
7.00
%
Tier I Capital Ratio
16.13
%
15.28
%
6.00
%
8.50
%
Total Capital Ratio
17.02
%
16.14
%
8.00
%
10.50
%
Leverage Ratio
10.49
%
10.25
%
4.00
%
4.00
%
Liquidity
Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost. Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits. The Company has diverse liquidity sources, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing, short-term borrowing, and FHLB advances.
As of June 30, 2025, the Company had $292,916 of borrowing capacity from the FHLB and the Company had $173,226 of available capacity at the Federal Reserve Bank discount window. As of June 30, 2025, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.
The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters. Portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased/decreased liquidity from public funds deposits or discount window borrowings results in increased/decreased liquidity from pledging requirements. The Company monitors public funds pledging requirements and unpledged available for sale securities accessible for liquidity needs.
Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve Bank discount window. As of June 30, 2025, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve Bank discount window.
The Company monitors factors that may increase its liquidity needs. Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments and loan growth. As of June 30, 2025, the Company’s liquidity is sufficient to meet projected trends.
To monitor and estimate liquidity levels, the Company performs stress testing under varying assumptions on credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows. The Company’s Contingency Funding Plan sets forth avenues for rectifying liquidity shortfalls. As of June 30, 2025, the analysis indicated adequate liquidity under the tested scenarios.
The Company utilizes several other strategies to maintain sufficient liquidity. Loan and deposit growth are managed to keep the loan to deposit ratio within the Company’s internally-set target range. As of June 30, 2025, the loan to deposit ratio was 62.09%. The investment strategy takes into consideration the term of the investment, and securities in the available for sale portfolio are laddered based upon projected funding needs.
Off-Balance Sheet Arrangements
In the normal course of business, NBB extends lines of credit and letters of credit to its customers. Depending on their needs, customers may draw upon lines of credit at any time in any amount up to a pre-approved limit. Financial letters of credit guarantee payments to facilitate customer purchases. Performance letters of credit guarantee payment if the customer fails to complete a specific obligation.
While it would be possible for customers to fully draw on approved lines of credit and for beneficiaries to call all letters of credit, historically this has not occurred. In the event of a sudden and substantial draw on these lines, the Company would be able to access multiple options, including its lines of credit with correspondents, raising additional deposits, or selling securities available for sale or loans. The Company estimates an ACL on unfunded loan commitments under the current expected credit losses model.
The Company sells mortgages on the secondary market. Our agreement with the purchaser provides for strict underwriting and documentation requirements. Violation of the representations and warranties of the agreement would entitle the purchaser to recourse provisions. The Company has determined that its risk in this area is not significant because of the low volume of secondary market mortgage loans and high underwriting standards. The Company estimates a potential loss reserve for recourse provisions that is not material as of June 30, 2025. To date, no recourse provisions have been invoked. If funds were needed, the Company would access the same sources as noted above for funding lines and letters of credit. There were no material changes in off-balance sheet arrangements during the three and six months ended June 30, 2025.
Contractual Obligations
The Company had no finance lease or purchase obligations and no long-term debt at June 30, 2025.
Item 3. Quantitative a
nd Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls an
d Procedures
The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2025 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the three months ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.
Part I
I - OTHER INFORMATION
Item 1. Legal P
roceedings
There are no pending or threatened legal proceedings to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject that, in the opinion of management, may materially impact the financial condition of the Company.
Item 1A. Ris
k Factors
Please refer to the “Risk Factors” previously disclosed in Item 1A of the Company's 2024 Form 10-K and the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” in Part I. Item 2 of this Form 10-Q.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
During the fiscal quarter ended June 30, 2025
, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934)
adopted
or
terminated
a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).
The following materials from National Bankshares, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2025 are formatted in iXBRL (Inline Extensible Business Reporting Language), furnished herewith: (i) Consolidated Balance Sheets at June 30, 2025 and December 31, 2024; (ii) Consolidated Statements of Income (Loss) for the three and six months ended June 30, 2025 and 2024; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2025 and 2024; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2025 and 2024; (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024; and (vi) Notes to Consolidated Financial Statements.
Filed herewith
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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