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What changed in NATIONAL BANKSHARES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NATIONAL BANKSHARES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+321 added−313 removedSource: 10-K (2024-03-19) vs 10-K (2023-03-10)

Top changes in NATIONAL BANKSHARES INC's 2023 10-K

321 paragraphs added · 313 removed · 208 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

50 edited+16 added−8 removed77 unchanged
Biggest changeThe revised proposed rule would apply to all banks, among other institutions, with at least $1 billion in average total consolidated assets for which it would go beyond the existing Interagency Guidance on Sound Incentive Compensation Policies to (i) prohibit certain types and features of incentive-based compensation arrangements for senior executive officers, (ii) require incentive-based compensation arrangements to adhere to certain basic principles to avoid a presumption of encouraging inappropriate risk, (iii) require appropriate board or committee oversight, (iv) establish minimum recordkeeping, and (v) mandate disclosures to the appropriate federal banking agency.
Biggest changeThe revised proposed rule would apply to all banks, among other institutions, with at least $1 billion in average total consolidated assets for which it would go beyond the existing Interagency Guidance on Sound Incentive Compensation Policies to (i) prohibit certain types and features of incentive-based compensation arrangements for senior executive officers, (ii) require incentive-based compensation arrangements to adhere to certain basic principles to avoid a presumption of encouraging inappropriate risk, (iii) require appropriate board or committee oversight, (iv) establish minimum recordkeeping, and (v) mandate disclosures to the appropriate federal banking agency. 8 Table of Contents The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements.
The following table presents the required minimum ratios along with the required minimum ratios including the capital conservation buffer: Regulatory Capital Ratios Minimum Ratio Minimum Ratio With Capital Conservation Buffer Total Capital to Risk Weighted Assets 8.000 % 10.50 % Tier 1 Capital to Risk Weighted Assets 6.00 % 8.50 % Common Equity Tier 1 Capital to Risk Weighted Assets 4.50 % 7.00 % Tier 1 Capital to Average Assets (Leverage Ratio) 4.00 % 4.00 % Risk-weighted assets are assets on the balance sheet as well as certain off-balance sheet items, such as standby letters of credit, to which weights between 0% and 1250% are applied, according to the risk of the asset type.
The following table presents the required minimum ratios along with the required minimum ratios including the capital conservation buffer: Regulatory Capital Ratios Minimum Ratio Minimum Ratio With Capital Conservation Buffer Total Capital to Risk Weighted Assets 8.00 % 10.50 % Tier 1 Capital to Risk Weighted Assets 6.00 % 8.50 % Common Equity Tier 1 Capital to Risk Weighted Assets 4.50 % 7.00 % Tier 1 Capital to Average Assets (Leverage Ratio) 4.00 % 4.00 % Risk-weighted assets are assets on the balance sheet as well as certain off-balance sheet items, such as standby letters of credit, to which weights between 0% and 1250% are applied, according to the risk of the asset type.
Common Equity Tier 1 Capital (“CET1”) is capital according to the balance sheet, adjusted for goodwill and intangible assets and other prescribed adjustments. At NBB’s election, CET1 is also adjusted to exclude accumulated other comprehensive (loss) income. Tier 1 Capital is CET1 adjusted for additional capital deductions.
Common Equity Tier 1 Capital (“CET1”) is capital according to the balance sheet, adjusted for goodwill and intangible assets and other prescribed adjustments. At NBB’s election, CET1 is also adjusted to exclude accumulated other comprehensive loss. Tier 1 Capital is CET1 adjusted for additional capital deductions.
Privacy Legislation . Several recent laws, including the Right to Financial Privacy Act and the GBLA, and related regulations issued by the federal bank regulatory agencies, also provide new protections against the transfer and use of customer information by financial institutions.
Several recent laws, including the Right to Financial Privacy Act and the GBLA, and related regulations issued by the federal bank regulatory agencies, also provide new protections against the transfer and use of customer information by financial institutions.
The Bank Holding Company Act. Under the BHCA, a bank holding company is generally prohibited from engaging in nonbanking activities unless the Federal Reserve has found those activities to be incidental to banking.
Under the BHCA, a bank holding company is generally prohibited from engaging in nonbanking activities unless the Federal Reserve has found those activities to be incidental to banking.
NBB exceeded the thresholds to be considered well capitalized as of December 31, 2022. Pursuant to the EGRRCPA, regulators have provided for an optional, simplified measure of capital adequacy, the CBLR framework, for qualifying community banking organizations with consolidated assets of less than $10 billion. Banks that qualify, including NBB, may opt in to the CBLR framework.
NBB exceeded the thresholds to be considered well capitalized as of December 31, 2023. Pursuant to the EGRRCPA, regulators have provided for an optional, simplified measure of capital adequacy, the CBLR framework, for qualifying community banking organizations with consolidated assets of less than $10 billion. Banks that qualify, including NBB, may opt in to the CBLR framework.
In 2001, National Bankshares Financial Services, Inc. was formed in Virginia as a wholly-owned subsidiary of NBI. NBFS offers non-deposit investment products and insurance products for sale to the public. NBFS works cooperatively with Infinex Investments, Inc. to provide investments and with Bankers Insurance, LLC for insurance products. NBFS does not significantly contribute to NBI’s net income.
In 2001, National Bankshares Financial Services, Inc. was formed in Virginia as a wholly-owned subsidiary of NBI. NBFS offers non-deposit investment products and insurance products for sale to the public. NBFS works cooperatively with Osaic, Inc. to provide investments and with Bankers Insurance, LLC for insurance products. NBFS does not significantly contribute to NBI’s net income.
National Bankshares, Inc.: Treasurer and Chief Financial Officer (“CFO”), January 2009 to May 2022. 2009 Lara E. Ramsey 54 National Bankshares, Inc.: Corporate Secretary, June 2016 to Present. The National Bank of Blacksburg: Executive Vice President and Chief Operating Officer, May 2022 to present; Senior Vice President/Administration, January 2018 – May 2022.
National Bankshares, Inc.: Treasurer and Chief Financial Officer (“CFO”), January 2009 to May 2022. 2009 Lara E. Ramsey 55 National Bankshares, Inc.: Corporate Secretary, June 2016 to Present. The National Bank of Blacksburg: Executive Vice President and Chief Operating Officer, May 2022 to present; Senior Vice President/Administration, January 2018 – May 2022.
Name Age Offices and Positions Held Year Elected an Officer F. Brad Denardo 70 National Bankshares, Inc.: Chairman, President and Chief Executive Officer (“CEO”), May 2019 to Present; President and CEO, September 2017 – May 2019; Executive Vice President, April 2008 – August 2017.
Name Age Offices and Positions Held Year Elected an Officer F. Brad Denardo 71 National Bankshares, Inc.: Chairman, President and Chief Executive Officer (“CEO”), May 2019 to Present; President and CEO, September 2017 – May 2019; Executive Vice President, April 2008 – August 2017.
National Bankshares, Inc.: Senior Vice President/Administration, June 2011 – December 2017. National Bankshares, Inc.: Vice President/Human Resources, January 2001 – June 2011. 2016 Paul M. Mylum 56 The National Bank of Blacksburg: Executive Vice President/Chief Lending Officer, November 2019 to Present. The National Bank of Blacksburg: Senior Vice President/Chief Lending Officer, August 2016 – November 2019.
National Bankshares, Inc.: Senior Vice President/Administration, June 2011 – December 2017. National Bankshares, Inc.: Vice President/Human Resources, January 2001 – June 2011. 2016 Paul M. Mylum 57 The National Bank of Blacksburg: Executive Vice President/Chief Lending Officer, November 2019 to Present. The National Bank of Blacksburg: Senior Vice President/Chief Lending Officer, August 2016 – November 2019.
The National Bank of Blacksburg: Senior Vice President/Loans, August 2012 – August 2016. 2012 Lora M. Jones 45 National Bankshares, Inc.: Treasurer and Chief Financial Officer (“CFO”), May 2022 to Present.
The National Bank of Blacksburg: Senior Vice President/Loans, August 2012 – August 2016. 2012 Lora M. Jones 46 National Bankshares, Inc.: Treasurer and Chief Financial Officer (“CFO”), May 2022 to Present.
Section 956 of the Dodd-Frank Act requires the federal banking agencies and the Securities and Exchange Commission to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity.
Section 956 of the Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity.
Skeens 56 The National Bank of Blacksburg: Senior Vice President/Senior Operations, Risk and Technology Officer, May 2022 to present; Senior Vice President/Operations and Risk Management and CFO, January 2009 – May 2022; Senior Vice President/Operations and Risk Management, February 2008 – January 2009; Vice President/Operations and Risk Management, April 2004 – February 2008.
Skeens 57 The National Bank of Blacksburg: Senior Vice President/Senior Operations, Risk and Technology Officer, May 2022 to present; Senior Vice President/Operations and Risk Management and CFO, January 2009 – May 2022; Senior Vice President/Operations and Risk Management, February 2008 – January 2009; Vice President/Operations and Risk Management, April 2004 – February 2008.
Certain provisions of Regulation Z require creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. 7 Table of Contents Anti-Money Laundering Laws and Regulations.
Certain provisions of Regulation Z require creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Anti-Money Laundering Laws and Regulations.
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. 5 Table of Contents The Economic Growth, Regulatory Reform and Consumer Protection Act of 2018.
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. The Economic Growth, Regulatory Reform and Consumer Protection Act of 2018.
The OCC and FDIC have authority to limit dividends paid by NBB if the payments are determined to be an unsafe and unsound banking practice. Any payment of dividends that depletes the bank’s capital base could be deemed to be an unsafe and unsound banking practice. Branching.
The OCC and FDIC have authority to limit dividends paid by NBB if the payments are determined to be an unsafe and unsound banking practice. Any payment of dividends that depletes the bank’s capital base could be deemed to be an unsafe and unsound banking practice. 7 Table of Contents Branching.
It impacts all companies with securities registered under the Securities Exchange Act of 1934, including NBI. SOX creates increased responsibility for chief executive officers and chief financial officers with respect to the content of filings with the Securities and Exchange Commission.
It impacts all companies with securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”), including NBI. SOX creates increased responsibility for chief executive officers and chief financial officers with respect to the content of filings with the Securities and Exchange Commission (the “SEC”).
If the Company fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties. 8 Table of Contents On November 18, 2021, the federal bank regulatory agencies issued a final rule, effective April 1, 2022, imposing new notification requirements for cybersecurity incidents.
If the Company fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties. On November 18, 2021, the federal bank regulatory agencies issued a final rule, effective April 1, 2022, imposing new notification requirements for cybersecurity incidents.
Total Capital is Tier 1 Capital increased for the allowance for loan losses and adjusted for other items. The Leverage Ratio is the ratio of Tier 1 Capital to total average assets, less goodwill and intangibles and certain deferred tax assets. As of December 31, 2022, NBB’s capital ratios exceeded the above minimum ratios including the capital conservation buffer.
Total Capital is Tier 1 Capital increased for the allowance for credit losses and adjusted for other items. The Leverage Ratio is the ratio of Tier 1 Capital to total average assets, less goodwill and intangibles and certain deferred tax assets. As of December 31, 2023, NBB’s capital ratios exceeded the above minimum ratios including the capital conservation buffer.
As of December 31, 2022, the Company had not been made aware of any instances of non-compliance with the final guidance.
As of December 31, 2023, the Company had not been made aware of any instances of non-compliance with the final guidance.
NBI is a financial holding company that currently engages in insurance agency activities and provides financial, investment or economic advising services. 4 Table of Contents The Virginia Banking Act. The Virginia Banking Act requires all Virginia bank holding companies to register with the Virginia State Corporation Commission (the “Commission”).
NBI is a financial holding company that currently engages in insurance agency activities and provides financial, investment or economic advising services. The Virginia Banking Act. The Virginia Banking Act requires all Virginia bank holding companies to register with the Virginia State Corporation Commission (the “Commission”).
Section 404 of SOX and related Securities and Exchange Commission rules focused increased scrutiny by internal and external auditors on NBI’s systems of internal controls over financial reporting, which is designed to ensure that those internal controls are effective in both design and operation.
Section 404 of SOX and related SEC rules focused increased scrutiny by internal and external auditors on NBI’s systems of internal controls over financial reporting, which is designed to ensure that those internal controls are effective in both design and operation.
Business and consumer debit and credit cards are available. NBB offers other miscellaneous services normally provided by commercial banks, such as letters of credit, night depository, safe deposit boxes, utility payment services and automatic funds transfer. NBB conducts a general trust business that has wealth management, trust and estate services for individual and business customers.
NBB offers other miscellaneous services normally provided by commercial banks, such as letters of credit, night depository, safe deposit boxes, utility payment services and automatic funds transfer. NBB conducts a general trust business that has wealth management, trust and estate services for individual and business customers.
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are made available on its website as soon as is practical after the material is electronically filed with the Securities and Exchange Commission (“SEC”).
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are made available on its website as soon as is practical after the material is electronically filed with the SEC.
The National Bank of Blacksburg: Senior Vice President/CFO and Cashier, May 2022 to Present; Vice President/Controller, May 2014 – May 2022; Corporate Analysis Officer June 2011 – May 2014. 2011 Bobby D. Sanders, II 43 The National Bank of Blacksburg: Senior Vice President/Chief Credit Officer, March 2022 to Present. 2022
The National Bank of Blacksburg: Senior Vice President/CFO and Cashier, May 2022 to Present; Vice President/Controller, May 2014 – May 2022; Corporate Analysis Officer June 2011 – May 2014. 2011 Bobby D. Sanders, II 44 The National Bank of Blacksburg: Senior Vice President/Chief Credit Officer, March 2022 to Present. 2022 10 Table of Contents
The Dodd-Frank Act provisions are extensive and have required the Company and the Bank to deploy resources to comply with them. Source of Strength. Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement.
The Dodd-Frank Act provisions are extensive and have required the Company and the Bank to deploy resources to comply with them. 5 Table of Contents Source of Strength. Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks.
Under this requirement, the Company is expected to commit resources and capital to support NBB, including at times when the Company may not be in a financial position to provide such resources.
The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, the Company is expected to commit resources and capital to support NBB, including at times when the Company may not be in a financial position to provide such resources.
After giving primary regulators an opportunity to first take action, the FDIC may initiate an enforcement action against any depository institution it determines is engaging in unsafe or unsound actions or which is in an unsound condition, and the FDIC may terminate that institution’s deposit insurance.
After giving primary regulators an opportunity to first take action, the FDIC may initiate an enforcement action against any depository institution it determines is engaging in unsafe or unsound actions or which is in an unsound condition, and the FDIC may terminate that institution’s deposit insurance. NBB has no knowledge of any matter that would threaten its FDIC insurance coverage.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, enacted a listing rule that became effective in 2023 requiring that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
As of December 31, 2022, NBB had 227 full time equivalent employees and NBFS had 4 full time equivalent employees. NBB performs services and charges commensurate fees to NBI and NBFS.
As of December 31, 2023, NBB had 222 full time equivalent employees and NBFS had 3 full time equivalent employees. NBB performs services and charges commensurate fees to NBI and NBFS.
A significant portion of NBI’s income is derived from dividends paid by NBB. As a national bank, NBB may not pay dividends from its capital, and it may not pay dividends if the bank would become undercapitalized, as defined by regulation, after paying the dividend.
As a national bank, NBB may not pay dividends from its capital, and it may not pay dividends if the bank would become undercapitalized, as defined by regulation, after paying the dividend.
The Federal Reserve is authorized to examine NBI and its subsidiaries. With some limited exceptions, the BHCA requires a bank holding company to obtain prior approval from the Federal Reserve before acquiring or merging with a bank or before acquiring more than 5% of the voting shares of a bank unless it already controls a majority of shares.
With some limited exceptions, the BHCA requires a bank holding company to obtain prior approval from the Federal Reserve before acquiring or merging with a bank or before acquiring more than 5% of the voting shares of a bank unless it already controls a majority of shares. 4 Table of Contents The Bank Holding Company Act.
As conditions change in the national and international economy and in the money markets, the Federal Reserve’s actions, particularly with regard to interest rates, and the effects of fiscal policies can impact loan demand, deposit levels and earnings at NBB. It is not possible to accurately predict the effects on NBI of economic and interest rate changes.
As conditions change in the national and international economy and in the money markets, the Federal Reserve’s actions, particularly with regard to interest rates, and the effects of fiscal policies can impact loan demand, deposit levels and earnings at NBB.
Percentage of Total Operating Revenue For the Year Ended December 31, Revenue Component 2022 2021 Interest and Fees on Loans 54.80 % 65.38 % Interest on Investments 23.20 % 18.52 % Noninterest Income 19.84 % 15.78 % 3 Table of Contents Market Area The Company serves customers through its offices in southwest and central Virginia.
Percentage of Total Operating Revenue For the Year Ended December 31, Revenue Component 2023 2022 Interest and Fees on Loans 57.08 % 54.80 % Interest on Investments 26.29 % 23.20 % Noninterest Income 13.72 % 19.84 % Market Area The Company serves customers through its offices in southwest and central Virginia.
The CBLR framework eliminates the requirement to comply with capital ratios disclosed above and, instead, requires the disclosure of a single leverage ratio, with a minimum requirement of 9%. The Bank has not opted in to the CBLR framework at this time.
The CBLR framework eliminates the requirement to comply with capital ratios disclosed above and, instead, requires the disclosure of a single leverage ratio, with a minimum requirement of 9%. The Bank has not opted in to the CBLR framework at this time. Limits on Dividend Payments. A significant portion of NBI’s income is derived from dividends paid by NBB.
The spread between the interest paid on deposits and that which is charged on loans is the most important component of the bank’s earnings. In addition, interest earned on investments held by NBI and NBB has a significant effect on earnings. U.S. fiscal policy, including deficits requiring increased governmental borrowing also can affect interest rates.
In addition, interest earned on investments held by NBI and NBB has a significant effect on earnings. U.S. fiscal policy, including deficits requiring increased governmental borrowing also can affect interest rates.
At December 31, 2022, NBB had total assets of $1,674,446 and total deposits of $1,558,106. NBB’s net income for 2022 was $23,435, which produced a return on average assets of 1.38% and a return on average equity of 16.74%. Refer to Note 11 of Notes to Consolidated Financial Statements for NBB’s risk-based capital ratios. National Bankshares Financial Services, Inc.
As of December 31, 2023, NBB had total assets of $1,652,052 and total deposits of $1,515,589. NBB’s net income for 2023 was $16,821, which produced a return on average assets of 1.04% and a return on average equity of 14.60%. Refer to Note 11 of Notes to Consolidated Financial Statements for NBB’s risk-based capital ratios. National Bankshares Financial Services, Inc.
These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer. Consumer Laws and Regulations. There are a number of laws and regulations that regulate banks’ consumer loan and deposit transactions.
These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.
Underwriting and documentation requirements are tailored to the unique characteristics and inherent risks of each loan category. Deposit products offered by the Bank include interest-bearing and non-interest bearing demand deposit accounts, money market deposit accounts, savings accounts, certificates of deposit, health savings accounts and individual retirement accounts. Deposit accounts are offered to both individuals and commercial businesses.
Deposit products offered by the Bank include interest-bearing and non-interest bearing demand deposit accounts, money market deposit accounts, savings accounts, certificates of deposit, health savings accounts and individual retirement accounts. Deposit accounts are offered to both individuals and commercial businesses. Business and consumer debit and credit cards are available.
The SEC maintains an internet site ( http://www.sec.gov ) that contains reports, proxy, and information statements, and other information the Company files electronically with the SEC. 9 Table of Contents Executive Officers of the Company The following is a list of names and ages of all executive officers of the Company; their terms of office as officers; the positions and offices within the Company held by each officer; and each person’s principal occupation or employment during the past five years.
Executive Officers of the Company The following is a list of names and ages of all executive officers of the Company; their terms of office as officers; the positions and offices within the Company held by each officer; and each person’s principal occupation or employment during the past five years.
The Company’s proxy materials for the 2023 annual meeting of stockholders are also posted on a separate website at www.investorvote.com/NKSH . Access through the Company’s websites to the Company’s filings is free of charge.
The Company’s proxy materials for the 2024 annual meeting of stockholders are also posted on a separate website at www.investorvote.com/NKSH . Access through the Company’s websites to the Company’s filings is free of charge. The SEC maintains an internet site ( http://www.sec.gov ) that contains reports, proxy, and information statements, and other information the Company files electronically with the SEC.
The Basel III Capital Rules require NBB to comply with minimum capital ratios plus a “capital conservation buffer” designed to absorb losses during periods of economic stress.
Capital Requirements. NBB is subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Act (the “Basel III Capital Rules”) as applied by the OCC. The Basel III Capital Rules require NBB to comply with minimum capital ratios plus a “capital conservation buffer” designed to absorb losses during periods of economic stress.
The loans were provided through participating financial institutions, such as the Bank, that processed loan applications and service the loans. Monetary Policy The monetary and interest rate policies of the Federal Reserve, as well as general economic conditions, affect the business and earnings of NBI. NBB and other banks are particularly sensitive to interest rate fluctuations.
Monetary Policy The monetary and interest rate policies of the Federal Reserve, as well as general economic conditions, affect the business and earnings of NBI. NBB and other banks are particularly sensitive to interest rate fluctuations. The spread between the interest paid on deposits and that which is charged on loans is the most important component of the bank’s earnings.
Other Legislative and Regulatory Concerns Federal and state laws and regulations are regularly proposed that could affect the regulation of financial institutions.
It is not possible to accurately predict the effects on NBI of economic and interest rate changes. 9 Table of Contents Other Legislative and Regulatory Concerns Federal and state laws and regulations are regularly proposed that could affect the regulation of financial institutions.
Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act (the “ CARES Act ” ). In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 and the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law on December 27, 2020.
In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 and the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law on December 27, 2020. Among other things, the CARES Act created, and the CAA extended, the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”).
Operating Revenue The following table displays components that contributed 15% or more of the Company’s total operating revenue.
The Company expects to complete the Merger in the second quarter of 2024. 3 Table of Contents Operating Revenue The following table displays components that contributed 15% or more of the Company’s total operating revenue for the years indicated.
Twenty-five branches are located throughout southwest Virginia, and three loan production offices are located in Roanoke, Charlottesville, and Staunton, Virginia. NBB offers telephone, mobile and internet banking and it operates 22 automated teller machines (“ATMs”) in its service area. The Bank’s primary source of revenue stems from lending activities. The Bank focuses lending on small and mid-sized businesses and individuals.
Twenty-four banking locations are located throughout southwest Virginia, and three loan production offices are located in Roanoke, Charlottesville, and Staunton, Virginia. Construction on a branch in Roanoke, Virginia is underway, with a planned completion date during the fourth quarter of 2024. NBB offers telephone, mobile and internet banking and it operates 22 automated teller machines (“ATMs”) in its service area.
In March 2022, the SEC proposed rules that would require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance. The Company’s systems and those of its customers and third-party service providers are under constant threat.
Cybersecurity of this Form 10-K for a discussion of the Company’s cybersecurity risk management, strategy and governance. The Company’s systems and those of its customers and third-party service providers are under constant threat.
Among other things, the CARES Act created, and the CAA extended, the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”). Under the PPP, money was authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt.
Under the PPP, money was authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt. The loans were provided through participating financial institutions, such as the Bank, that processed loan applications and service the loans.
Loan types include commercial and agricultural, commercial real estate, construction for commercial and residential properties, residential real estate, home equity and various consumer loan products. The Bank believes its prudent lending policies align its underwriting and portfolio management with its risk tolerance and income strategies.
The Bank’s primary source of revenue stems from lending activities. The Bank focuses lending on small and mid-sized businesses and individuals. Loan types include commercial and agricultural, commercial real estate, construction for commercial and residential properties, residential real estate, home equity and various consumer loan products.
Removed
In May 2022, the federal bank regulatory agencies jointly issued a proposed rule intended to strengthen and modernize the CRA regulatory framework.
Added
The Bank believes its prudent lending policies align its underwriting and portfolio management with its risk tolerance and income strategies. Underwriting and documentation requirements are tailored to the unique characteristics and inherent risks of each loan category.
Removed
If implemented, the rule would, among other things, (i) expand access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry, including internet and mobile banking, (iii) provide greater clarity, consistency and transparency in the application of the regulations and (iv) tailor performance standards to account for differences in bank size, business model, and local conditions.
Added
Proposed Acquisition of Frontier Community Bank On January 23, 2024, the Company, the Bank and Frontier Community Bank, a Virginia chartered commercial bank headquartered in Waynesboro, Virginia (“Frontier”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Frontier will merge with and into the Bank (the “Merger”).
Removed
NBB has no knowledge of any matter that would threaten its FDIC insurance coverage. 6 Table of Contents Capital Requirements. NBB is subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Act (the “Basel III Capital Rules”) as applied by the OCC.
Added
Under the terms of the Merger Agreement, upon completion of the proposed Merger, each outstanding share of Frontier’s common stock will be exchanged, at the election of each Frontier shareholder for either (i) $14.48 in cash, or (ii) 0.4250 shares of the Company’s common stock, plus cash in lieu of any fractional shares, provided that 90% of Frontier’s common stock will be exchanged for the Company’s common stock and 10% of Frontier’s common stock will be exchanged for cash.
Removed
In December 2017, the Basel Committee on Banking Supervision published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
Added
If Frontier shareholders elect stock in excess of the 90% limit, then the stock elections will be prorated and converted to cash elections to the extent necessary to reduce the stock elections to the 90% limit; provided, however, that the Company has the right to increase the limit so that greater than 90% of Frontier’s common stock will be exchanged for the Company’s common stock and the remaining percentage of Frontier’s common stock will be exchanged for cash.
Removed
Among other things, these standards revise the standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital.
Added
Completion of the transaction remains subject to certain conditions, including approval of the transaction by appropriate federal and state banking regulatory agencies and approval of the transaction by the shareholders of Frontier.
Removed
Under the current capital rules, operational risk capital requirements and a capital floor apply only to “advanced approaches” institutions, and not to the Company or the Bank. The impact of Basel IV on the Company and the Bank will depend on the manner in which it is implemented by the federal bank regulatory agencies. Limits on Dividend Payments.
Added
The Federal Reserve is authorized to examine NBI and its subsidiaries.
Removed
The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements.
Added
On October 24, 2023, the federal bank regulatory agencies issued a final rule to modernize their respective CRA regulations. The revised rules substantially alter the methodology for assessing compliance with the CRA, with material aspects taking effect January 1, 2026 and revised data reporting requirements taking effect January 1, 2027.
Removed
In February 2023, The Nasdaq Stock Market, LLC posted its initial rule filing with the SEC to implement this directive. The final rule will require us to adopt a clawback policy that is compliant with the new listing standard within 60 days after such standard becomes effective. Cybersecurity . In March 2015, federal regulators issued two related statements regarding cybersecurity.
Added
Among other things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible CRA activities.
Added
The final rules are likely to make it more challenging and/or costly for the Bank to receive a rating of at least “satisfactory” on its CRA evaluation. Privacy Legislation .
Added
In October 2023, the CFPB proposed a new rule that would require a provider of payment accounts or products, such as the Bank, to make certain data available to consumers upon request regarding the products or services they obtain from the provider.
Added
The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products and services.
Added
For banks with over $850 million and less than $50 billion in total assets, such as the Bank, compliance would be required approximately two and one-half years after adoption of the final rule. 6 Table of Contents Consumer Laws and Regulations. There are a number of laws and regulations that regulate banks’ consumer loan and deposit transactions.
Added
The Company has adopted a clawback policy compliant with such rule, a copy of which is attached as Exhibit 97.1 to this Form 10-K. Cybersecurity . In March 2015, federal regulators issued two related statements regarding cybersecurity.
Added
In July 2023, the SEC issued a final rule to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Exchange Act.
Added
Specifically, the final rule requires current reporting about material cybersecurity incidents, periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risk, management’s role in implementing cybersecurity policies and procedures, and the board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk. See Item 1C.
Added
Please see Item 1C, Cybersecurity, in this Form 10-K for a discussion of the Company’s cybersecurity risk management strategy and governance. Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act (the “ CARES Act ” ).

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

43 edited+49 added−32 removed48 unchanged
Biggest changeThe Bank has a moderate concentration of credit exposure in commercial real estate, and loans with this type of collateral are viewed as having more risk of default. As of December 31, 2022, the Bank had approximately $437,888 in loans secured by commercial real estate, representing approximately 51.3% of total loans outstanding at that date.
Biggest changeIn the event the Company forecloses on a loan that is collateralized with property having reduced market value, the Company may suffer a recovery loss. The Bank has a moderate concentration of credit exposure in commercial real estate, and loans with this type of collateral are viewed as having more risk of default.
Because of policy technicalities, litigation may not result in a favorable outcome for the Company. Litigation will result in additional legal expense. OPERATIONAL RISK The Company is dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect the Company ’ s operations and prospects.
Because of policy technicalities, litigation may not result in a favorable outcome for the Company and litigation will result in additional legal expense. OPERATIONAL RISK The Company is dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect the Company ’ s operations and prospects.
Political, economic and social risks in the U.S. and the rest of the world could affect financial markets and affect fiscal policy, which could negatively affect our investment portfolio and earnings.
Political, economic and social risks in the U.S. and the rest of the world could negatively affect the financial markets. Political, economic and social risks in the U.S. and the rest of the world could affect financial markets and affect fiscal policy, which could negatively affect our investment portfolio and earnings.
The direction and speed of interest rate changes affect our net interest margin and net interest income. In the short term, rising interest rates may negatively affect our net interest income if our interest-bearing liabilities (generally deposits) reprice sooner than our interest-earning assets (generally loans).
The direction and speed of interest rate changes affects our net interest margin and net interest income. In the short term, rising interest rates may negatively affect our net interest income if our interest-bearing liabilities (generally deposits) reprice sooner than our interest-earning assets (generally loans).
Notably, guidance issued in June 2016 requires a change in the calculation of credit reserves from using an incurred loss model to using the current expected credit losses model (“CECL”), effective January 1, 2023. To implement the standard, the Company incurred costs related to documentation, technology, training and increased audit expenses to validate the model.
Notably, guidance issued in June 2016 required a change in the calculation of credit reserves from using an incurred loss model to using the current expected credit losses model (“CECL”), effective January 1, 2023. To implement the standard, the Company incurred costs related to documentation, technology, training and increased audit expenses to validate the model.
Likewise, revisions or rescission of existing laws and regulations already implemented may result in additional compliance costs, at least in the short term or, if done imprudently, could ultimately create economic risks negatively affecting our revenues. Intense oversight by regulators could result in stricter requirements and higher overhead costs.
Likewise, revisions or rescission of existing laws and regulations already implemented may result in additional compliance costs, at least in the short term or, if done imprudently, could ultimately create economic risks negatively affecting our revenues. 14 Table of Contents Intense oversight by regulators could result in stricter requirements and higher overhead costs.
To the extent that these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to the Company, the Company would likely experience increased compliance costs and other compliance-related risks. LEGAL RISK The Company is subject to claims and litigation pertaining to fiduciary responsibility.
To the extent that these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to the Company, the Company would likely experience increased compliance costs and other compliance-related risks. 15 Table of Contents LEGAL RISK The Company is subject to claims and litigation pertaining to fiduciary responsibility.
Accordingly, use of such third parties creates an unavoidable inherent risk to the Company’s business operations. 14 Table of Contents The Company ’ s ability to operate profitably may be dependent on its ability to integrate or introduce various technologies into its operations.
Accordingly, use of such third parties creates an unavoidable inherent risk to the Company’s business operations. The Company ’ s ability to operate profitably may be dependent on its ability to integrate or introduce various technologies into its operations.
The deterioration of the borrowers’ businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on the Company’s financial condition and results of operations. 10 Table of Contents The allowance for loan losses may not be adequate to cover actual losses.
The deterioration of the borrowers’ businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on the Company’s financial condition and results of operations. The allowance for credit losses may not be adequate to cover actual losses.
As a financial institution, we are vulnerable to and are the target of cybersecurity attacks that attempt to access our digital technology systems, disarm and/or bypass system safeguards, access customer data and ultimately increase the risk of economic and reputational loss.
As a financial institution, we are vulnerable to and are the target of cybersecurity attacks that attempt to access our digital technology systems, disarm and/or bypass system safeguards, access customer data and ultimately increase the risk of economic and reputational loss. The Company believes its cybersecurity risk management program reasonably addresses the risk from cybersecurity attacks.
While management believes that the allowance for loan losses is adequate to cover current probable losses, it cannot make assurances that it will not further increase the allowance for loan losses or that regulators will not require it to increase this allowance. Either occurrence could adversely affect earnings.
The Company also outsources independent loan review. While management believes that the ACLL is adequate to cover current estimated losses, it cannot make assurances that it will not further increase the ACLL or that regulators will not require it to increase this allowance. Either occurrence could adversely affect earnings.
In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including generation of new loans.
In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including generation of new loans. There can be no assurance that the Company will avoid increases in nonperforming loans in the future.
Federal and state legislatures and regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change.
As a result, political and social attention to the issue of climate change has increased. Federal and state legislatures and regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change.
Nonperforming assets take significant time to resolve and adversely affect the Company ’ s results of operations and financial condition. The Company’s nonperforming assets adversely affect its net income in various ways. The Company does not record interest income on nonaccrual loans, which adversely affects its income and increases credit administration costs.
The Company’s nonperforming assets adversely affect its net income in various ways. The Company does not record interest income on nonaccrual loans, which adversely affects its income and increases credit administration costs.
In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of the Company’s loans may be more or less valuable than anticipated at the time the loans were made.
As a result of any of these factors, the real estate securing some of the Company’s loans may be more or less valuable than anticipated at the time the loans were made.
In the event of a natural disaster, acts of war or terrorism, public health issues or other adverse external events, our business, services, asset quality, financial condition and results of operations could be adversely affected.
Although the Company has business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. In the event of a natural disaster, acts of war or terrorism, public health issues or other adverse external events, our business, services, asset quality, financial condition and results of operations could be adversely affected.
The allowance for loan losses requires management to make significant estimates that affect the consolidated financial statements. Due to the inherent nature of these estimates, management cannot provide assurance that it will not significantly increase the allowance for loan losses, which could materially and adversely affect earnings.
The ACLL requires management to make significant estimates that affect the consolidated financial statements. Due to the inherent nature of these estimates, management cannot provide assurance that it will not significantly increase the ACLL, which could materially and adversely affect earnings. A decline in the condition of the local real estate market could negatively affect our business.
An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on the Company’s financial condition.
An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on the Company’s financial condition. 11 Table of Contents Nonperforming assets take significant time to resolve and adversely affect the Company ’ s results of operations and financial condition.
The Company is a financial holding company and a bank holding company that conducts substantially all of its operations through NBB. As a result, the Company’s ability to make dividend payments on its common stock depends primarily on certain federal regulatory considerations and the receipt of dividends and other distributions from NBB.
As a result, the Company’s ability to make dividend payments on its common stock depends primarily on certain federal regulatory considerations and the receipt of dividends and other distributions from NBB. There are various regulatory restrictions on the ability of NBB to pay dividends or make other payments to the Company.
Although the Company has historically paid a cash dividend to the holders of its common stock, holders of the common stock are not entitled to receive dividends, and regulatory or economic factors may cause the Company’s Board of Directors to consider, among other things, the reduction of dividends paid on the Company’s common stock. 15 Table of Contents Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company ’ s business.
Although the Company has historically paid a cash dividend to the holders of its common stock, holders of the common stock are not entitled to receive dividends, and regulatory or economic factors may cause the Company’s Board of Directors to consider, among other things, the reduction of dividends paid on the Company’s common stock.
There can be no assurance that the Company will avoid increases in nonperforming loans in the future. 11 Table of Contents The Company relies upon independent appraisals to determine the value of the real estate which secures a significant portion of its loans, and the values indicated by such appraisals may not be realizable if the Company is forced to foreclose upon such loans.
The Company relies upon independent appraisals to determine the value of the real estate which secures a significant portion of its loans, and the values indicated by such appraisals may not be realizable if the Company is forced to foreclose upon such loans. A significant portion of the Company’s loan portfolio consists of loans secured by real estate.
Such events also could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue or cause us to incur additional expenses. 16 Table of Contents Although the Company has business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.
Such events also could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue or cause us to incur additional expenses.
Any financial liability or reputation damage could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations. GENERAL RISK We are subject to risks associated with proxy contests and other actions of activist shareholders.
Any financial liability or reputation damage could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.
These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market areas in which the Company operates negatively impact this important customer sector, the Company’s results of operations and financial condition may be adversely affected.
If general economic conditions in the market areas in which the Company operates negatively impact this important customer sector, the Company’s results of operations and financial condition may be adversely affected.
A decline in the condition of the local real estate market could negatively affect our business. The Company offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, residential mortgages, home equity loans and lines of credit, consumer and other loans.
The Company offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, residential mortgages, home equity loans and lines of credit, consumer and other loans. Many of these loans are secured by real estate (both residential and commercial).
The real estate consists primarily of multi-family housing, non-owner-operated properties and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans.
As of December 31, 2023, the Bank had approximately $419,130 in loans secured by commercial real estate, representing approximately 48.9% of total loans outstanding at that date. The real estate consists primarily of multi-family housing, non-owner-operated properties and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans.
The allowance for loan losses is based on prior experience as well as an evaluation of risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating, and other outside forces and conditions, including changes in interest rates, all of which are beyond the Company’s control; and these losses may exceed current estimates.
The amount of future losses is susceptible to changes in economic, operating, and other outside forces and conditions, including changes in interest rates, all of which are beyond the Company’s control; and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review the Company’s loans and ACLL.
Any failure, interruption or breach in security of these systems could result in failures or disruptions of our internet banking, deposit, loan and other systems.
CYBERSECURITY RISK Our information systems may experience an interruption or security breach. We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions of our internet banking, deposit, loan and other systems.
A significant portion of the Company’s loan portfolio consists of loans secured by real estate. The Company relies upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment which adversely affect the reliability of their appraisals.
The Company relies upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment which adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease.
The Company has invested in industry-accepted technologies, and annually reviews its processes and practices that are designed to protect its networks, computers and data from damage or unauthorized access.
The Company has invested in industry-accepted technologies, and annually reviews its processes and practices that are designed to protect its networks, computers and data from damage or unauthorized access. Despite these security measures, a cyber breach of any kind could compromise systems and the information stored there could be accessed, damaged or disclosed.
In accordance with GAAP, an allowance for loan losses is maintained to provide for probable loan losses. The allowance for loan losses may not be adequate to cover actual credit losses, and future provisions for credit losses could materially and adversely affect operating results.
In accordance with generally accepted accounting principles in the United States (“GAAP”), the Company maintains an allowance for credit losses on loans (“ACLL”). The ACLL may not be adequate to cover actual credit losses, and future provisions for credit losses could materially and adversely affect operating results.
If federal or state support for public colleges and universities wanes, our business may be adversely affected from declines in university programs, capital projects, employment, enrollment, sporting and cultural events, and other related factors. If the economy suffers a recession, our credit risk will increase and there could be greater loan losses.
Two major employers in the Company’s market area are Virginia Tech and Radford University, both state-supported institutions. If federal or state support for public colleges and universities wanes, our business may be adversely affected from declines in university programs, capital projects, employment, enrollment, sporting and cultural events, and other related factors.
If the economy suffers a recession, it is likely to result in a higher rate of business closures and increased job losses in the region in which we do business. These factors would increase the likelihood that more of our customers would become delinquent or default on their loans.
If the economy suffers a recession, our credit risk will increase and there could be greater loan losses. If the economy suffers a recession, it is likely to result in a higher rate of business closures and increased job losses in the region in which we do business.
These tools include digital technology safeguards, internal policies and procedures, and employee training. The Company believes its cybersecurity risk management program reasonably addresses the risk from cybersecurity attacks. However, it is not possible to fully eliminate exposure. We may experience human error or have unknown susceptibilities that allow our systems to become victim to a highly-sophisticated cyber-attack.
However, it is not possible to fully eliminate exposure. We may experience human error or have unknown susceptibilities that allow our systems to become victim to a highly-sophisticated cyber-attack.
Sales of substantial amounts of common stock in the market, or the potential for large amounts of sales in the market, could cause the price of the Company’s common stock to decline, or reduce the Company’s ability to raise capital through future sales of common stock.
Sales of substantial amounts of common stock in the market, or the potential for large amounts of sales in the market, could cause the price of the Company’s common stock to decline, or reduce the Company’s ability to raise capital through future sales of common stock. 17 Table of Contents Natural disasters, acts of war or terrorism, the impact of public health issues and other adverse external events could detrimentally affect our financial condition and results of operations.
Many of these loans are secured by real estate (both residential and commercial). As of December 31, 2022, 83.6% of all loans were secured by mortgages on real property. Substantially all of the Company’s real property collateral is located in its market area.
As of December 31, 2023, 83.5% of all loans were secured by mortgages on real property. Substantially all of the Company’s real property collateral is located in its market area. If there is a decline in real estate values, especially in the Company’s market area, the collateral for loans would deteriorate and provide significantly less security to the Company.
The transition from LIBOR could create additional cost and risk, with potential to adversely impact the Company’s financial condition and results of operations. 12 Table of Contents INTEREST RATE RISK When market interest rates change, our net interest income can be negatively affected in the short term.
The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations. INTEREST RATE RISK When market interest rates change, our net interest income can be negatively affected in the short term.
Any one or more of these developments could have a material adverse effect on our business, financial condition and results of operations. The economic impact of the COVID-19 pandemic and measures intended to reduce the spread of the virus could adversely affect our business, financial condition, and operations.
Any one or more of these developments could have a material adverse effect on our business, financial condition and results. Item 1B. Unresolved Staff Comments There are no unresolved staff comments.
A higher level of loan defaults could result in higher loan losses, which could adversely affect our result of operations and financial condition. Political, economic and social risks in the U.S. and the rest of the world could negatively affect the financial markets.
These factors would increase the likelihood that more of our customers would become delinquent or default on their loans. A higher level of loan defaults could result in higher loan losses, which could adversely affect our result of operations and financial condition.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company ’ s business. The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment.
Falling interest rates may negatively affect our net interest income if our interest-earning assets reprice sooner than our interest-bearing liabilities. LIQUIDITY RISK The Company ’ s liquidity needs could adversely affect results of operations and financial condition. The Company’s primary sources of funds are deposits and loan repayments.
Falling interest rates may negatively affect our net interest income if our interest-earning assets reprice sooner than our interest-bearing liabilities. 12 Table of Contents LIQUIDITY RISK Liquidity could be impaired by an inability to access the capital markets or an unforeseen outflow of cash. Liquidity is essential to the Company’s business.
Adoption increased our credit reserves and reduced capital. Post adoption, other impacts to profit and loss and various financial metrics will also result. The Company ’ s ability to pay dividends depends upon the results of operations of its subsidiaries.
The Company ’ s ability to pay dividends depends upon the results of operations of its subsidiaries. The Company is a financial holding company and a bank holding company that conducts substantially all of its operations through NBB.
Item 1A. Risk Factors CREDIT RISK Focus on lending to small to mid-sized community-based businesses may increase our credit risk. Most of the Company’s commercial business and commercial real estate loans are made to small business or middle market customers.
Most of the Company’s commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.
Removed
Federal regulatory agencies, as an integral part of their examination process, review the Company’s loans and allowance for loan losses. The Company also outsources independent loan review.
Added
Item 1A. Risk Factors An investment in the Company’s common stock involves certain risks, including those described below. In addition to the other information set forth in this Form 10-K, investors in the Company’s securities should carefully consider the factors discussed below.
Removed
If there is a decline in real estate values, especially in the Company’s market area, the collateral for loans would deteriorate and provide significantly less security to the Company. In the event the Company forecloses on a loan that is collateralized with property having reduced market value, the Company may suffer a recovery loss.
Added
These factors, either alone or taken together, could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, capital position, and prospects.
Removed
The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations. Transition away from the London Interbank Offered Rate ("LIBOR") to another benchmark rate could adversely affect operations.
Added
One or more of these could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline. CREDIT RISK Focus on lending to small to mid-sized community-based businesses may increase our credit risk.
Removed
The administrator of LIBOR announced that the most commonly used U.S. dollar LIBOR settings would cease to be published or cease to be representative after June 30, 2023. Management cannot predict whether or when LIBOR will actually cease to be available or what impact such a transition may have on the Company’s business, financial condition and results of operations.
Added
The ACLL is based on available relevant information about the collectability of cash flows, including historical losses, reasonable and supportable forecasts of economic conditions, and current economic and portfolio conditions.
Removed
The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace LIBOR with a benchmark rate based on the Secured Overnight Funding Rate (“SOFR”) for contracts governed by U.S. law that have no or ineffective fallbacks.
Added
Access to funding sources in amounts adequate to finance the Company’s activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally.
Removed
Although governmental authorities have endeavored to facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level, and volatility of LIBOR or other interest rates, or the value of LIBOR-based securities will not be adversely affected.
Added
Factors that could reduce the Company’s access to liquidity sources include a downturn in the economy, difficult credit markets or the liquidity needs of our depositors.
Removed
There continues to be substantial uncertainty as to the ultimate effects of the LIBOR transition, including with respect to the acceptance and use of SOFR and other benchmark rates. The Company has a small number of loans, purchased through participation with larger banks, with attributes that are either directly or indirectly dependent on LIBOR.
Added
A substantial majority of the Company’s liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days’ notice, while a substantial portion of our assets are loans, which cannot be called or sold in the same time frame.
Removed
Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR.
Added
The Company may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason.
Removed
While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans.
Added
The Company’s access to deposits may be negatively impacted by, among other factors, changes in interest rates which could promote increased competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options.
Removed
The ability of borrowers to repay loans can be adversely affected by a number of factors, including, but not limited to, changes in economic conditions, reductions in real estate values or markets, availability of, and/or access to, sources of refinancing, business closings or lay-offs, and natural disasters.
Added
Additionally, negative news about the Company or the banking industry in general could negatively impact market and/or customer perceptions of the Company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
Additionally, deposit levels may be affected by a number of factors, including, but not limited to, rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to customers on alternative investments and general economic conditions.
Added
Furthermore, as many regional banking organizations experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance coverage, move deposits to banks deemed “too big to fail” or remove deposits from the banking system entirely.
Removed
Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations.
Added
As of December 31, 2023, approximately 44.34% of the Company’s deposits were uninsured. Uninsured deposits include municipal deposits, which have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 20% are uninsured. We rely on deposits for liquidity.
Removed
Such sources include Federal Home Loan Bank of Atlanta (“FHLB”) advances, sales of securities and loans, federal funds lines of credit from correspondent banks and borrowings from the Federal Reserve Discount Window, as well as additional out-of-market time deposits and brokered deposits.
Added
A failure to maintain adequate liquidity could have a material adverse effect on the Company’s business, financial condition and results of operations. Unrealized losses in the Company ’ s securities portfolio could affect liquidity. As market interest rates have increased, the Company has experienced significant unrealized losses on our available for sale securities portfolio.
Removed
While the Company believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if the Company continues to grow and experiences increasing loan demand.
Added
Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive loss in the Company’s consolidated balance sheets and reduce the level of our book capital and tangible common equity. However, such unrealized losses do not affect the Company’s regulatory capital ratios.
Removed
The Company may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate. CYBERSECURITY RISK Our information systems may experience an interruption or security breach. We rely heavily on communications and information systems to conduct our business.
Added
The Company actively monitors the available for sale securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes. Furthermore, the Company believes it is unlikely that we would be required to sell any such securities before recovery of their amortized cost bases, which may be at maturity.
Removed
Despite these security measures, the Company’s computer systems experienced two cyber-intrusions, one in May 2016 and one in January 2017, in which certain customer information was compromised, but which did not cause interruption to the Company’s normal operations. No losses were incurred by customers. The Company has implemented additional security measures since the breaches.
Added
Nonetheless, the Company’s access to liquidity sources could be affected by unrealized losses if securities must be sold at a loss; tangible capital ratios continue to decline from an increase in unrealized losses or realized credit losses; the Federal Home Loan Bank of Atlanta or other funding sources reduce capacity; or bank regulators impose restrictions on us that impact the level of interest rates we may pay on deposits or our ability to access brokered deposits.
Removed
A breach of any kind could compromise systems and the information stored there could be accessed, damaged or disclosed.
Added
Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits. Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.
Removed
The Company experienced two cyber-intrusions, one in May 2016 and one in January 2017, in which certain customer information was compromised. The Company has strengthened its multi-faceted approach to reduce the exposure of our systems to cyber-intrusions, enhance our defenses against hackers and protect customer accounts and information relevant to customer accounts from unauthorized access.
Added
The closures of Silicon Valley Bank and Signature Bank in March 2023, and First Republic Bank in May 2023, and concerns about similar future events, have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks. More recently, concerns about commercial real estate concentrations at regional and community banks have exacerbated this volatility.
Removed
There are various regulatory restrictions on the ability of NBB to pay dividends or make other payments to the Company.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeFor additional information, please see Note 6 of Notes to Consolidated Financial Statements. 17 Table of Contents
Biggest changeFor additional information, please see Note 6 and Note 19 of Notes to Consolidated Financial Statements.
As of December 31, 2022, there were no mortgages or liens against any properties. We believe that existing facilities are adequate for current needs and to meet anticipated growth. A list of all branch and ATM locations is available on our website at www.nbbank.com. Information contained on our website is not part of this report.
As of December 31, 2023, there were no mortgages or liens against any properties. We believe that existing facilities are adequate for current needs and to meet anticipated growth. A list of all branch and ATM locations is available on our website at www.nbbank.com . Information contained on our website is not part of this report.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 18 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18 Item 6. [Reserved] 18 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation s 19 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 19 Part II Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19 Item 6. [Reserved] 19 Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn May 2022, NBI’s Board of Directors approved the repurchase of up to 250,000 shares of the Company’s common stock. The authorization extends from June 1, 2022 to May 31, 2023.
Biggest changeIn May 2023, NBI’s Board of Directors approved the repurchase of up to 250,000 shares of the Company’s common stock. The authorization extends from June 1, 2023 to May 31, 2024. During 2023, the Company did not repurchase any shares.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Information and Dividends NBI’s common stock is traded on the Nasdaq Capital Market under the symbol “NKSH.” As of December 31, 2022, there were 549 record stockholders of NBI common stock.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Information and Dividends NBI’s common stock is traded on the Nasdaq Capital Market under the symbol “NKSH.” As of December 31, 2023, there were 544 record stockholders of NBI common stock.
The Company’s share repurchase program does not obligate it to acquire any specific number of shares or any shares at all. During 2021, the Company repurchased 368,083 shares under prior repurchase authorizations.
The Company’s share repurchase program does not obligate it to acquire any specific number of shares or any shares at all. During 2022, the Company repurchased 174,250 shares under prior repurchase authorizations.
Removed
During 2022, the Company repurchased 174,250 shares, of which 73,793 shares were repurchased under a prior repurchase plan in effect from June 1, 2021 to May 31, 2022 and 100,457 shares were repurchased under the plan that became effective June 1, 2022. The Company may yet repurchase 149,543 shares under the program.
Removed
Purchases of Equity Securities by the Issuer Share repurchase activity during the fourth quarter of 2022 was as follows: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Number of Shares that May Yet Be Purchased Under the Program October 1, 2022 – October 31, 2022 3,500 $ 35.76 3,500 213,631 November 1, 2022 – November 30, 2022 29,400 38.28 29,400 184,231 December 1, 2022 – December 31, 2022 34,688 39.32 34,688 149,543 Total during fourth quarter 2022 67,588 $ 38.68 67,588

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDecember 31, 2022 2021 Net interest income, GAAP $ 47,026 $ 41,889 FTE adjustment 919 961 Net interest income, FTE $ 47,945 $ 42,850 23 Table of Contents Analysis of Changes in Interest Income and Interest Expense The following table sets forth, for the years indicated, a summary of the changes in interest income and interest expense resulting from changes in average asset and liability balances (volume) and changes in average interest rates (rate). 2022 Over 2021 Changes Due To Rates (2) Volume (2) Net Dollar Change Interest income: (1) Loans $ (2,631 ) $ 1,969 $ (662 ) Taxable securities 2,340 2,488 4,828 Nontaxable securities (126 ) (143 ) (269 ) Interest-bearing deposits 1,257 (74 ) 1,183 Increase in income on interest-earning assets $ 840 $ 4,240 $ 5,080 Interest expense: Interest-bearing demand deposits $ (175 ) $ 312 $ 137 Savings deposits (47 ) 21 (26 ) Time deposits (102 ) (24 ) (126 ) Increase (decrease) in expense of interest-bearing liabilities $ (324 ) $ 309 $ (15 ) Increase in net interest income $ 1,164 $ 3,931 $ 5,095 (1) FTE basis using a Federal income tax rate of 21%.
Biggest changeDecember 31, 2023 2022 Net interest income, GAAP $ 37,283 $ 47,026 FTE adjustment 890 919 Net interest income, FTE $ 38,173 $ 47,945 Analysis of Changes in Interest Income and Interest Expense The following table sets forth a summary of the changes in interest income and interest expense resulting from changes in average asset and liability balances (volume) and changes in average interest rates (rate), when the year ended December 31, 2023 is compared with the year ended December 31, 2022, and the year ended December 31, 2022 is compared with the year ended December 31, 2021. 2023 Over 2022 2022 Over 2021 Increase (Decrease) Due to Changes in: Increase (Decrease) Due to Changes in: Rates (2) Volume (2) Net Dollar Change Rates (2) Volume (2) Net Dollar Change Interest income: (1) Loans $ 3,981 $ 760 $ 4,741 $ (2,631 ) $ 1,969 $ (662 ) Taxable securities 4,081 (333 ) 3,748 2,340 2,488 4,828 Nontaxable securities (124 ) (299 ) (423 ) (126 ) (143 ) (269 ) Interest-bearing deposits 1,773 (1,144 ) 629 1,257 (74 ) 1,183 Interest income on interest-earning assets $ 9,711 $ (1,016 ) $ 8,695 $ 840 $ 4,240 $ 5,080 Interest expense: Interest-bearing demand deposits $ 13,005 $ (284 ) $ 12,721 $ (175 ) $ 312 $ 137 Savings deposits 613 (15 ) 598 (47 ) 21 (26 ) Time deposits 4,599 249 4,848 (102 ) (24 ) (126 ) Short-term borrowings - 300 300 - - - Interest expense on interest-bearing liabilities $ 18,217 $ 250 $ 18,467 $ (324 ) $ 309 $ (15 ) Net interest income $ (8,506 ) $ (1,266 ) $ (9,772 ) $ 1,164 $ 3,931 $ 5,095 (1) FTE basis using a Federal income tax rate of 21%.
The Company’s securities and loans are subject to credit and interest rate risk, and its deposits are subject to interest rate risk. Management considers credit risk when a loan is granted and monitors credit risk after the loan is granted. The Company maintains an allowance for loan losses to absorb losses in the collection of its loans.
The Company’s securities and loans are subject to credit and interest rate risk, and its deposits are subject to interest rate risk. Management considers credit risk when a loan is granted and monitors credit risk after the loan is granted. The Company maintains an allowance for credit losses to absorb losses in the collection of its loans.
The unrealized loss in the Company’s investment portfolio is due to interest rate risk, the result of increases in the Federal Reserve’s target interest rate during 2022. The Company’s Asset Liability Management Committee is closely monitoring all of the Company’s financial assets and liabilities in order to manage interest rate risk.
The unrealized loss in the Company’s investment portfolio is due to interest rate risk, the result of increases in the Federal Reserve’s target interest rate during 2022 and 2023. The Company’s Asset Liability Management Committee is closely monitoring all of the Company’s financial assets and liabilities in order to manage interest rate risk.
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 December 31, 2022, the analysis indicated adequate liquidity under the tested scenarios.
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 December 31, 2023, the analysis indicated adequate liquidity under the tested scenarios.
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 three policies as critical, including those governing the allowance for loan losses, goodwill and the pension plan.
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 three policies as critical, including those governing the allowance for credit losses, goodwill and the pension plan.
The frequency and/or magnitude of future changes in market interest rates and legislative changes are difficult to predict and may have a greater short-term impact on net interest income than adjustments by management. Please refer to the section titled “Analysis of Changes In Interest Income and Interest Expense” for further information related to rate and volume changes.
The frequency and/or magnitude of future changes in market interest are difficult to predict and may have a greater short-term impact on net interest income than adjustments by management. Please refer to the section titled “Analysis of Changes In Interest Income and Interest Expense” for further information related to rate and volume changes.
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 December 31, 2022, the Company’s liquidity is sufficient to meet projected trends.
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 December 31, 2023, the Company’s liquidity is sufficient to meet projected trends.
When delinquency status or other information indicates that the borrower will not repay the loan, the Company considers collateral value based upon a current appraisal or internal evaluation. Any loan amount in excess of collateral value is charged off and the collateral is taken into OREO. F.
When delinquency status or other information indicates that the borrower will not repay the loan, the Company considers collateral value based upon a current appraisal or internal evaluation. Any loan amount in excess of collateral value is charged off and the collateral is taken into OREO. E.
These forward-looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon our management’s views and assumptions as of the date of this report.
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 our management’s views and assumptions as of the date of this report.
As of December 31, 2022, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve discount window. The Company monitors factors that may increase its liquidity needs.
As of December 31, 2023, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve discount window. The Company monitors factors that may increase its liquidity needs.
Loans include loans held in portfolio and loans held for sale. (2) Interest on nontaxable loans and securities is computed on an FTE basis using a Federal income tax rate of 21%. (3) Net loan fees included in interest income in 2022 were $230.
Loans include loans held in portfolio and loans held for sale. (2) Interest on nontaxable loans and securities is computed on an FTE basis using a Federal income tax rate of 21%. (3) Net loan fees included in interest income in 2023 were $214. Net loan fees included in interest income in 2022 were $230.
Management does not plan any future involvement in high risk derivative products. The Company’s investments in mortgage-backed securities are primarily through the Government National Mortgage Association and Federal National Mortgage Association. See Note 3 of Notes to Consolidated Financial Statements for additional information relating to securities.
Management does not plan any future involvement in high risk derivative products. The Company’s investments in mortgage-backed securities are primarily through the Government National Mortgage Association and Federal National Mortgage Association. See Note 3 of Notes to Consolidated Financial Statements for information on securities.
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.
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 and presented below.
Allocation of the Allowance for Loan Losses The allowance for loan losses has been allocated according to the amount deemed necessary to provide for anticipated losses within the categories of loans as of the dates indicated. Loans are presented net of unearned income and net deferred fees and costs.
Allocation of the Allowance for Credit Losses on Loans The allowance for credit losses on loans has been allocated according to the amount deemed necessary to provide for anticipated losses within the categories of loans as of the dates indicated. Loans are presented net of unearned income and net deferred fees and costs.
Maturities and Interest Rate Sensitivities The following table presents maturities and interest rate sensitivities for total loans, loans with predetermined interest rates and loans with adjustable interest rates. Predetermined interest rates do not adjust throughout the life of the loan. Loans are presented on a gross basis.
Maturities and Interest Rate Sensitivities The following table presents maturities and interest rate sensitivities for total loans, loans with predetermined interest rates and loans with adjustable interest rates as of the dates indicated. Predetermined interest rates do not adjust throughout the life of the loan. Loans are presented on a gross basis.
The table below presents our significant contractual obligations, except for pension and other postretirement benefit plans, which are included in Note 8 of Notes to Consolidated Financial Statements.
The table below presents our significant contractual obligations as of the dates indicated, except for pension and other postretirement benefit plans, which are included in Note 8 of Notes to Consolidated Financial Statements.
The primary source of funds used to support the Company’s interest-earning assets is deposits. When the interest rate environment changes, the Company assesses competition for deposits in determining changes to its offering rates. The net interest margin for the year ended December 31, 2022 improved when compared with the year ended December 31, 2021.
The primary source of funds used to support the Company’s interest-earning assets is deposits. When the interest rate environment changes, the Company assesses competition for deposits in determining changes to its offering rates. The net interest margin for the year ended December 31, 2023 decreased when compared with the year ended December 31, 2022.
Commercial non real estate loans include agricultural loans, operating capital lines and loans secured by capital assets. Public sector and industrial development authority (“IDA”) loans are extended to municipalities. Consumer non-real estate loans include automobile loans, personal loans, credit cards and consumer overdrafts. A.
Commercial non-real estate loans include agricultural loans, operating capital lines and loans secured by capital assets. Public sector and industrial development authority (“IDA”) loans are extended to municipalities. Consumer non-real estate loans include automobile loans, personal loans, credit cards and consumer overdrafts. 28 Table of Contents A.
See Note 9 of Notes to Consolidated Financial Statements for information relating to income taxes. 26 Table of Contents Balance Sheet The following provides information on the Company’s financial position as of December 31, 2022 and December 31, 2021. Loans The Company’s loan categorization reflects its approach to loan portfolio management and includes six groups.
See Note 9 of Notes to Consolidated Financial Statements for information relating to income taxes. Balance Sheet The following provides information on the Company’s financial position as of December 31, 2023 and December 31, 2022. Loans The Company’s loan categorization reflects its approach to loan portfolio management and includes six groups.
Treasury, the OCC, the Federal Reserve, the CFPB and the 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 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 ● the impact of the COVID-19 pandemic, including the adverse impact on our business and operations and on our customers.
Treasury, the OCC, the Federal Reserve, the CFPB and the 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 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.
The derivatives are recorded within other assets and other liabilities. Please refer to Note 1 of Notes to Consolidated Financial Statements for information on derivative valuation. The Company is not a party to derivatives with off-balance sheet risks such as futures, forwards, swaps, and options.
Please refer to Note 1 of Notes to Consolidated Financial Statements for information on derivative valuation. The Company is not a party to derivatives with off-balance sheet risks such as futures, forwards, swaps, and options.
See Note 5 of Notes to Consolidated Financial Statements for information relating to the allowance for loan losses. See Note 14 of Notes to Consolidated Financial Statements for information relating to concentrations of credit risk. The effects of changing interest rates are primarily managed through adjustments to the loan portfolio and deposit base, to the extent competitive factors allow.
See Note 14 of Notes to Consolidated Financial Statements for information relating to concentrations of credit risk. 34 Table of Contents The effects of changing interest rates are primarily managed through adjustments to the loan portfolio and deposit base, to the extent competitive factors allow.
Based on analysis of historical indicators, asset quality and economic factors, management believes the level of allowance for loan losses is reasonable for the credit risk in the loan portfolio as of December 31, 2022.
Based on analysis of historical indicators, asset quality and economic factors, management believes the level of ACLL is reasonable for the credit risk in the loan portfolio as of December 31, 2023.
Please refer to Note 5 of Notes to Consolidated Financial Statements for further information on collectively evaluated loans, individually evaluated impaired loans and the unallocated portion of the allowance for loan losses. G.
Please refer to Note 5 of Notes to Consolidated Financial Statements for further information on collectively evaluated loans, individually evaluated impaired loans and the unallocated portion of the allowance for credit losses on loans. 32 Table of Contents G.
The surplus provides some mitigation of current economic uncertainty that may impact credit risk. 30 Table of Contents Conclusion The calculation of the appropriate level for the allowance for loan losses incorporates analysis of multiple factors and requires management’s prudent and informed judgment. The Company augmented the calculated requirement with an unallocated surplus.
The surplus provides some mitigation of current economic uncertainty that 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. The Company augmented the calculated requirement with an unallocated surplus.
Conversely, when interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, the balance sheet is considered “liability sensitive”. A liability sensitive position will produce relatively more net interest income when interest rates fall and less net interest income when rates increase.
An asset sensitive position will produce relatively more net interest income when interest rates rise and less net interest income when rates decline. Conversely, when interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, the balance sheet is considered “liability sensitive”.
Ratios at December 31, 2022 Ratios at December 31, 2021 Regulatory Capital Minimum Ratios Regulatory Capital Minimum Ratios with Capital Conservation Buffer Total Capital Ratio 17.57 % 19.50 % 8.00 % 10.50 % Tier I Capital Ratio 16.81 % 18.72 % 6.00 % 8.50 % Common Equity Tier I Capital Ratio 16.81 % 18.72 % 4.50 % 7.00 % Leverage Ratio 10.50 % 11.16 % 4.00 % 4.00 % 34 Table of Contents Off-Balance Sheet Arrangements The Company’s off-balance sheet arrangements as of December 31, 2022 are detailed in the table below.
Ratios at December 31, 2023 Ratios at December 31, 2022 Regulatory Capital Minimum Ratios Regulatory Capital Minimum Ratios with Capital Conservation Buffer Total Capital Ratio 18.09 % 17.57 % 8.00 % 10.50 % Tier I Capital Ratio 17.23 % 16.81 % 6.00 % 8.50 % Common Equity Tier I Capital Ratio 17.23 % 16.81 % 4.50 % 7.00 % Leverage Ratio 11.05 % 10.50 % 4.00 % 4.00 % Off-Balance Sheet Arrangements The Company’s off-balance sheet arrangements as of December 31, 2023 are detailed in the table below.
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 December 31, 2022, the loan to deposit ratio was 55.28%.
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 December 31, 2023, the loan to deposit ratio was 56.96%.
As of December 31, 2022, there are no credit risk concerns with any of the Company’s securities. The majority of mortgage-backed securities and collateralized mortgage obligations were backed by U.S. government agencies. Certain holdings are required to be periodically subjected to the Federal Financial Institution Examination Council’s (FFIEC) high risk mortgage security test.
As of December 31, 2023, there are no credit risk concerns with any of the Company’s securities. The majority of mortgage-backed securities and collateralized mortgage obligations were backed by U.S. government agencies. Certain holdings are required to be periodically subjected to the FFIEC’s high risk mortgage security test.
Modifications In the ordinary course of business the Company modifies loan terms on a case-by-case basis, including consumer and commercial loans, 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 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.
Other Factors 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 management, and high risk loans. The interest rate environment impacts variable rate loans. When interest rates increase, the payment on variable rate loans increases, which may increase credit risk.
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.
More information about the level and calculation methodology of the allowance for loan losses is provided in Notes 1 and 5 of Notes to Consolidated Financial Statements. Noninterest Income The following table presents the Company’s noninterest income for the years indicated.
More information about the ACLL is provided in Notes 1 and 5 of Notes to Consolidated Financial Statements. 26 Table of Contents Noninterest Income The following table presents the Company’s noninterest income for the years indicated.
Credit card fees are presented net of certain processing expenses and are dependent on the volume of transactions. Trust income increased when the year ended December 31, 2022 is compared with the year ended December 31, 2021.
Decreased transaction volume lowered credit and debit card fees when the year ended December 31, 2023 is compared with the year ended December 31, 2022. Credit and debit card fees are presented net of certain processing expenses and are dependent on the volume of transactions.
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. 33 Table of Contents Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve discount window.
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 discount window.
As of December 31, 2022, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity. As of December 31, 2022, the Company has no material commitments for long term debt or for capital expenditures.
As of December 31, 2023, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity.
Net costs of OREO include write-downs, maintenance costs, and net gains or losses on the sale of OREO property. This expense category varies with the number of foreclosed properties owned by NBB and with the costs associated with each.
FDIC assessment expense increased from 2022 to 2023, due to an industry-wide assessment increase implemented by the FDIC. Net costs of OREO include write-downs, maintenance costs, and net gains or losses on the sale of OREO property. This expense category varies with the number of foreclosed properties owned by NBB and with the costs associated with each.
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 December 31, 2022, the Bank did not have purchased deposits, discount window borrowings, short-term borrowings, or FHLB advances.
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 Federal Home Loan Bank of Atlanta (“FHLB”) advances.
The vast majority of PPP loans were paid off by December 31, 2021. (5) Nonaccrual loans are included in average balances for yield computations. (6) Includes restricted stock. The following table reconciles net interest income on an FTE basis to net interest income on a GAAP basis for the years indicated.
(4) Nonaccrual loans are included in average balances for yield computations. (5) Includes restricted stock. 24 Table of Contents The following table reconciles net interest income on an FTE basis to net interest income on a GAAP basis for the years indicated.
Other income includes dividends and increases in the Company’s equity-method investments, which decreased when the year ended December 31, 2022 is compared with the year ended December 31, 2021. Other income also includes net gains from the sale of fixed assets and revenue from investment and insurance sales.
Other income includes dividends and increases in the Company’s equity-method investments, which were lower for 2023 when compared with 2022. Other income also includes revenue from investment and insurance sales, which increased when the year ended December 31, 2023 is compared with the year ended December 31, 2022.
The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Please refer to Note 1 of Notes to Consolidated Financial Statements for information on these and other accounting policies.
The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Please refer to Note 1 of Notes to Consolidated Financial Statements for information on these and other accounting policies. Non-GAAP Financial Measures This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”).
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 this Form 10-K.
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 this Form 10-K. Critical Accounting Policies The Company’s consolidated financial statements are prepared in accordance with GAAP.
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 are summarized in the following table.
This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency.
Summary of Loan Loss Experience The following table provides information about the allowance for loan losses, nonperforming assets and accruing loans past due 90 days or more: December 31, 2022 2021 Allowance for loan losses $ 8,225 $ 7,674 Total loans, net of unearned income and deferred fees 852,744 803,248 Allowance for loan losses to loans, net of unearned income and deferred fees and costs 0.96 % 0.96 % Nonaccrual loans $ 91 $ - TDR loans in nonaccrual status 2,756 2,873 Total nonperforming loans $ 2,847 $ 2,873 Other real estate owned, net 662 957 Total nonperforming assets $ 3,509 $ 3,830 Nonperforming loans to total loans, net of unearned income and deferred fees and costs 0.33 % 0.36 % Allowance for loan losses to nonperforming loans 288.90 % 267.11 % Nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned 0.41 % 0.48 % Allowance for loan losses to nonperforming assets 234.40 % 200.37 % Accruing loans past due 90 days or more $ 8 $ 90 More information about the level and calculation methodology of the allowance for loan losses is provided in the sections “Allowance for Loan Losses” as well as Notes 1 and 5 of Notes to Consolidated Financial Statements. 28 Table of Contents E.
Summary of Loan Loss Experience The following table provides information about the allowance for credit losses on loans, nonperforming assets and accruing loans past due 90 days or more as of the dates indicated: December 31, 2023 2022 ACLL $ 9,094 $ 8,225 Total loans, net of unearned income and deferred fees 856,646 852,744 ACLL to loans, net of unearned income and deferred fees and costs 1.06 % 0.96 % Nonaccrual loans $ 2,629 $ 2,847 Other real estate owned, net - 662 Total nonperforming assets $ 2,629 $ 3,509 Nonperforming loans to total loans, net of unearned income and deferred fees and costs 0.31 % 0.33 % ACLL to nonperforming loans 345.91 % 288.90 % Nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned 0.31 % 0.41 % ACLL to nonperforming assets 345.91 % 234.40 % Accruing loans past due 90 days or more $ 188 $ 8 More information about the level and calculation methodology of the allowance for credit losses on loans is provided in the sections “Allowance for Credit Losses on Loans” as well as Notes 1 and 5 of Notes to Consolidated Financial Statements. 30 Table of Contents D.
(2) Variances caused by the change in rate multiplied by the change in volume have been allocated to rate and volume changes proportional to the relationship of the absolute dollar amounts of the change in each. Total interest income increased when the year ended December 31, 2022 is compared with the year ended December 30, 2021, primarily due to volume.
(2) Variances caused by the change in rate multiplied by the change in volume have been allocated to rate and volume changes proportional to the relationship of the absolute dollar amounts of the change in each. 2023 over 2022 The rising rate environment increased total interest income and, to a greater extent, total interest expense when 2023 is compared with 2022.
Simulation analysis applies interest rate shocks, hypothetical immediate shifts in interest rates, to the Company’s financial instruments and determines the impact to projected one-year net interest income and other key measures. The following table shows the results of rate shocks on net interest income projected for one year from the reporting date.
ALCO reviews periodic reports of the Company's interest rate risk position, including results of simulation analysis. Simulation analysis applies interest rate shocks, hypothetical immediate shifts in interest rates, to the Company’s financial instruments and determines the impact to projected one-year net interest income and other key measures.
Other service charges and fees also include charges for official checks, income from the sale of checks to customers, safe deposit box rent, and income from commissions on the sale of credit life, accident and health insurance. Increased transaction volume improved credit card fees when the year ended December 31, 2022 is compared with the year ended December 31, 2021.
Other service charges and fees also include charges for official checks, income from the sale of checks to customers, safe deposit box rent, and income from commissions on the sale of credit life, accident and health insurance.
Trust fees are generated from a number of different types of accounts, including estates, personal trusts, employee benefit trusts, investment management accounts, attorney-in-fact accounts and guardianships.
Trust income increased when the year ended December 31, 2023 is compared with the year ended December 31, 2022. Trust fees are generated from a number of different types of accounts, including estates, personal trusts, employee benefit trusts, investment management accounts, attorney-in-fact accounts and guardianships.
To assure that short-term borrowing is readily available, the Company tests accessibility annually. 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.
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.
Year ended December 31, 2022 2021 Total interest income $ 50,109 $ 44,987 FTE adjustment 919 961 FTE interest income (non-GAAP) $ 51,028 $ 45,948 Interest expense 3,083 3,098 FTE net interest income (non-GAAP) $ 47,945 $ 42,850 Average earning assets 1,667,191 1,525,651 Net interest margin (non-GAAP) 2.88 % 2.81 % 20 Table of Contents Efficiency Ratio The efficiency ratio is computed by dividing noninterest expense by the sum of FTE net interest income and noninterest income, excluding certain items management deems unusual or non-recurring.
Year Ended December 31, Net Interest Income, FTE 2023 2022 Interest income (GAAP) $ 58,833 $ 50,109 Add: FTE adjustment 890 919 Interest income, FTE (non-GAAP) 59,723 51,028 Interest expense (GAAP) 21,550 3,083 Net interest income, FTE (non-GAAP) $ 38,173 $ 47,945 Average balance of interest-earning assets $ 1,606,667 $ 1,667,191 Net interest margin 2.38 % 2.88 % Efficiency Ratio 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.
In making investment decisions, management follows internal policy guidelines that help to limit risk by specifying parameters for both security quality and industry and geographic concentrations. Management regularly monitors the quality of the investment portfolio and tracks changes in financial markets.
In making investment decisions, management follows internal policy guidelines that help to limit risk by specifying parameters for both security quality and industry and geographic concentrations. Management regularly monitors the quality of the investment portfolio as part of its risk management function. An allowance for credit risk will be recorded if analysis indicates the presence of credit risk.
The Company sources economic data pertinent to its market from the most recently available publications, including unemployment, business and personal bankruptcy filings, the residential vacancy rate and the inventory of new and existing homes.
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.
To date, there have been no defaults in any of the corporate bonds held in the portfolio. The Company’s investment portfolio also contains a large percentage of municipal bonds.
If the corporate issuers were to default, there could be a delay in the payment of interest, or there could be a loss of principal and accrued interest. To date, there have been no defaults in any of the corporate bonds held in the portfolio. The Company’s investment portfolio also contains a large percentage of municipal bonds.
December 31, 2022 3 Months or Less Over 3 Months Through 6 Months Over 6 Months Through 12 Months Over 12 Months Total Total time deposits exceeding $250 $ - $ 7,454 $ 8,600 $ 2,556 $ 18,610 Derivatives and Market Risk Exposures The Company engages in derivative financial instruments associated with its secondary market operation.
December 31, 2023 3 Months or Less Over 3 Months Through 6 Months Over 6 Months Through 12 Months Over 12 Months Total Total time deposits exceeding $250 $ 37,206 $ 12,306 $ 8,464 $ 3,551 $ 61,527 Derivatives and Market Risk Exposures The Company engages in derivative financial instruments associated with its secondary market operation, recorded within other assets and other liabilities.
Income Statement The following provides information on the results of operations for the years ended December 31, 2022 and December 31, 2021. 22 Table of Contents Net Interest Income The Company’s primary source of revenue is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on customer deposits and other interest-bearing liabilities.
Net Interest Income The Company’s primary source of revenue is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on customer deposits and other interest-bearing liabilities.
Securities 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.
The following table presents information on securities available for sale as of the dates indicated.
Interest Rate Sensitivity Interest rate risk is the risk to earnings or capital arising from movements in market interest rates. When interest-earning assets and interest-bearing liabilities reprice at different times or in different degrees or when call options are exercised, in response to change in market interest rates, future net interest income is impacted.
When interest-earning assets and interest-bearing liabilities reprice at different times or in different degrees or when call options are exercised, in response to change in market interest rates, future net interest income is impacted. When interest-earning assets mature or re-price more quickly than interest-bearing liabilities, the balance sheet is considered “asset sensitive”.
During 2021, average unrealized gains on the securities portfolio increased stockholders’ equity by $7,759. (3) The net interest margin is a non-GAAP financial measure. Please see “Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to GAAP. (4) The efficiency ratio is a non-GAAP financial measure. Please see “Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to GAAP.
The repurchased shares reduced shareholder equity by $6,338 during 2022. (2) Average unrealized losses on securities reduced average stockholders’ equity by $76,827 for 2023 and $48,109 for 2022. (3) The net interest margin is a non-GAAP financial measure. Please see “Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to GAAP. (4) The efficiency ratio is a non-GAAP financial measure.
Federal Reserve rate increases during 2022 improved yields on interest-bearing deposits in correspondent banks and on adjustable-rate mortgage backed securities. The yield on loans decreased during 2022, due to PPP fees received in 2021, however the yield on loans originated or repriced after March of 2022 benefitted from the Federal Reserve rate increases.
Federal Reserve rate increases during 2022 and 2023 improved yields on interest-bearing deposits in correspondent banks, on adjustable-rate mortgage backed securities, and on loans originated or repriced since the Federal Reserve started to increase rates.
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 decreased 7.67% from the level as of December 31, 2021.
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.
For purposes of this analysis, noninterest income and expenses are assumed to be flat. 24 Table of Contents Rate Shift (basis points) Change in Projected Net Interest Income as of December 31, 2022 2021 300 -10.7 % 2.5 % 200 -7.0 % 2.9 % 100 -3.4 % 2.5 % (-)100 1.3 % 0.0 % (-)200 0.6 % NA (-)300 -1.78 % NA Results of the net interest income simulation as of December 31, 2022 indicate that the Company is liability sensitive, a change from the asset sensitive position as of December 31, 2021.
Rate Shift (basis points) Change in Projected Net Interest Income as of December 31, 2023 2022 300 -10.6 % -10.7 % 200 -6.8 % -7.0 % 100 -3.2 % -3.4 % (-)100 8.4 % 1.3 % (-)200 15.7 % 0.6 % (-)300 22.1 % -1.78 % Results of the net interest income simulation indicate that the Company is liability sensitive as of December 31, 2023 and December 31, 2022.
December 31, 2022 Net Charge-Offs (Recoveries) Average Loans Percentage of Net Charge-Offs (Recoveries) to Average Loans Real estate construction $ - $ 67,197 - Consumer real estate (16 ) 213,578 (0.01 )% Commercial real estate (49 ) 422,259 (0.01 )% Commercial non real estate (9 ) 53,742 (0.02 ) % Public Sector and IDA - 48,112 - Consumer non-real estate 229 33,183 0.69 % Total $ 155 $ 833,071 0.02 % December 31, 2021 Net Charge-Offs (Recoveries) Average Loans Percentage of Net Charge-Offs (Recoveries) to Average Loans Real estate construction $ - $ 45,463 - Consumer real estate (7 ) 193,159 - Commercial real estate (159 ) 402,146 (0.04 )% Commercial non real estate 493 68,917 0.72 % Public Sector and IDA - 45,829 - Consumer non-real estate 82 31,589 0.26 % Total $ 409 $ 787,103 0.05 % The Company charges off commercial real estate loans at the time that a loss is confirmed.
December 31, 2023 Net Charge-Offs (Recoveries) Average Loans Percentage of Net Charge-Offs (Recoveries) to Average Loans Real estate construction $ - $ 58,214 - Consumer real estate (86 ) 226,555 (0.04 )% Commercial real estate (45 ) 428,757 (0.01 )% Commercial non-real estate 208 50,529 0.41 % Public Sector and IDA - 51,278 - Consumer non-real estate 118 35,754 0.33 % Total $ 195 $ 851,087 0.02 % December 31, 2022 Net Charge-Offs (Recoveries) Average Loans Percentage of Net Charge-Offs (Recoveries) to Average Loans Real estate construction $ - $ 62,197 - Consumer real estate (16 ) 213,578 (0.01 )% Commercial real estate (49 ) 422,259 (0.01 )% Commercial non-real estate (9 ) 53,742 (0.02 )% Public Sector and IDA - 48,112 - Consumer non-real estate 229 33,183 0.69 % Total $ 155 $ 833,071 0.02 % The Company charges off commercial real estate loans at the time that a loss is confirmed.
The Company considers interest rate risk to be a significant risk and manages its exposure through policies approved by its Asset Liability Committee ("ALCO") and Board of Directors. ALCO reviews periodic reports of the Company's interest rate risk position, including results of simulation analysis.
A liability sensitive position will produce relatively more net interest income when interest rates fall and less net interest income when rates increase. The Company considers interest rate risk to be a significant risk and manages its exposure through policies approved by its Asset Liability Committee ("ALCO") and Board of Directors.
The mortgages originated must meet strict underwriting and documentation requirements for the sale to be completed. The Company estimates a potential loss reserve for recourse provisions. The amount is not material as of December 31, 2022. To date, no recourse provisions have been invoked. Operating leases are for buildings used in the Company’s day-to-day operations.
The Company estimates a potential loss reserve for recourse provisions. The amount is not material as of December 31, 2023. To date, no recourse provisions have been invoked. Operating leases are for buildings used in the Company’s day-to-day operations. Recent Accounting Pronouncements See Note 1 of Notes to Consolidated Financial Statements for information relating to recent accounting pronouncements.
Average Amounts of Deposits and Average Rates Paid Average amounts and average rates paid on deposit categories are presented below: Year Ended December 31, 2022 2021 Average Amounts Average Rates Paid Average Amounts Average Rates Paid Noninterest-bearing demand deposits $ 338,269 - $ 316,976 - Interest-bearing demand deposits 910,989 0.31 % 811,661 0.33 % Savings deposits 216,414 0.07 % 190,997 0.09 % Time deposits 77,686 0.18 % 86,089 0.31 % Average total deposits $ 1,543,358 0.20 % $ 1,405,723 0.22 % B.
Average Amounts of Deposits and Average Rates Paid Average amounts and average rates paid on deposit categories during the periods indicated are presented below: Year Ended December 31, 2023 2022 Average Amounts Average Rates Paid Average Amounts Average Rates Paid Noninterest-bearing demand deposits $ 299,748 - $ 338,269 - Interest-bearing demand deposits 826,112 1.88 % 910,989 0.31 % Savings deposits 195,592 0.38 % 216,414 0.07 % Time deposits 150,395 3.32 % 77,686 0.18 % Average total deposits $ 1,471,847 1.44 % $ 1,543,358 0.20 % B.
Rate-related income on loans fell when the year ended December 31, 2022 is compared with the year ended December 31, 2021 due to PPP fees that were received during 2021. However, increased volume offset much of the impact of lower income from rates.
Rate-related income on loans fell when the year ended December 31, 2022 is compared with the year ended December 31, 2021 due to PPP fees received during 2021. Interest rate increases did not meaningfully impact deposit competition or pricing during 2022.
The reconciliation of FTE net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below.
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.
In the event of a sudden and substantial draw on these lines, the Company has its own lines of credit from which it can draw funds. A sale of loans or investments would also be an option to meet liquidity demands. The Company sells mortgages on the secondary market subject to recourse agreements.
In the event of a sudden and substantial draw on these lines, the Company would manage liquidity using cash on hand, borrowing capacity, or sale of investments or loans. The Company sells mortgages on the secondary market subject to recourse agreements. The mortgages originated must meet strict underwriting and documentation requirements for the sale to be completed.
December 31, 2022 December 31, 2021 Average Balance Interest Average Yield/ Rate Average Balance Interest Average Yield/ Rate Interest-earning assets: Loans (1)(2)(3)(4)(5) $ 833,226 $ 34,579 4.15 % $ 787,754 $ 35,241 4.47 % Taxable securities, at amortized cost (6) 669,515 12,788 1.91 % 524,818 7,960 1.52 % Nontaxable securities, at amortized cost (2) 75,487 2,308 3.06 % 80,059 2,577 3.22 % Interest-bearing deposits 88,963 1,353 1.52 % 133,020 170 0.13 % Total interest-earning assets $ 1,667,191 $ 51,028 3.06 % $ 1,525,651 $ 45,948 3.01 % Interest-bearing liabilities: Interest-bearing demand deposits $ 910,989 $ 2,794 0.31 % $ 811,661 $ 2,657 0.33 % Savings deposits 216,414 148 0.07 % 190,997 174 0.09 % Time deposits 77,686 141 0.18 % 86,089 267 0.31 % Total interest-bearing liabilities $ 1,205,089 $ 3,083 0.26 % $ 1,088,747 $ 3,098 0.28 % Net interest income (2) and interest rate spread $ 47,945 2.80 % $ 42,850 2.73 % Net yield on average interest‑earning assets 2.88 % 2.81 % (1) Loans are net of unearned income and deferred fees and costs.
December 31, 2023 December 31, 2022 Average Balance Interest Average Yield/ Rate Average Balance Interest Average Yield/ Rate Interest-earning assets: Loans (1)(2)(3)(4) $ 851,221 $ 39,320 4.62 % $ 833,226 $ 34,579 4.15 % Taxable securities, at amortized cost (5) 652,477 16,536 2.53 % 669,515 12,788 1.91 % Nontaxable securities, at amortized cost (2) 65,309 1,885 2.89 % 75,487 2,308 3.06 % Interest-bearing deposits 37,660 1,982 5.26 % 88,963 1,353 1.52 % Total interest-earning assets $ 1,606,667 $ 59,723 3.72 % $ 1,667,191 $ 51,028 3.06 % Interest-bearing liabilities: Interest-bearing demand deposits $ 826,112 $ 15,515 1.88 % $ 910,989 $ 2,794 0.31 % Savings deposits 195,592 746 0.38 % 216,414 148 0.07 % Time deposits 150,395 4,989 3.32 % 77,686 141 0.18 % Borrowings 6,198 300 4.84 % - - - Total interest-bearing liabilities $ 1,178,297 $ 21,550 1.83 % $ 1,205,089 $ 3,083 0.26 % Net interest income (2) and interest rate spread $ 38,173 1.89 % $ 47,945 2.80 % Net yield on average interest‑earning assets 2.38 % 2.88 % (1) Loans are net of unearned income and deferred fees and costs.
The provision for the year ended December 31, 2022 reflects loan portfolio growth and changes in factors detailed in “Balance Sheet – Loans – Allowance for Loan Losses” below. The recovery in 2021 reflected improved economic indicators from those in 2020.
The recovery in 2023 reflects an improvement in factors and economic conditions detailed in “Balance Sheet – Loans – Allowance for Credit Losses” below. The provision in 2022 was the result of loan portfolio growth.
Year Ended December 31, Change 2022 2021 Dollar Percent Salaries and employee benefits $ 16,519 $ 15,747 $ 772 4.90 % Occupancy, furniture and fixtures 1,934 1,842 92 4.99 % Data processing and ATM 3,186 3,039 147 4.84 % FDIC assessment 477 422 55 13.03 % Net costs of OREO 325 51 274 537.25 % Franchise taxes 1,483 1,425 58 4.07 % Other operating expenses 3,034 3,554 (520 ) (14.63 )% Total noninterest expense $ 26,958 $ 26,080 $ 878 3.37 % Salaries and employee benefits expense, which includes payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when 2022 is compared with 2021, due to normal compensation and staffing decisions.
Year Ended December 31, Change 2023 2022 Dollar Percent Salaries and employee benefits $ 17,318 $ 16,519 $ 799 4.84 % Occupancy, furniture and fixtures 2,005 1,934 71 3.67 % Data processing and ATM 3,549 3,186 363 11.39 % FDIC assessment 749 477 272 57.02 % Net costs of other real estate owned 31 325 (294 ) (90.46 )% Franchise taxes 1,422 1,483 (61 ) (4.11 )% Professional services 1,739 999 740 74.07 % Other operating expenses 2,415 2,035 380 18.67 % Total noninterest expense $ 29,228 $ 26,958 $ 2,270 8.42 % Salaries and employee benefits expense, which includes payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when 2023 is compared with 2022.
The category of other operating expenses includes noninterest expense items such as professional services, stationery and supplies, telephone costs, non-service pension cost and charitable donations. Other operating expenses decreased when the years ended December 31, 2022 and 2021 are compared, primarily due to a decrease of $597 in non-service pension cost.
The Company does not anticipate any further material expense for this matter. Other operating expenses increased when the years ended December 31, 2023 and 2022 are compared. The category of other operating expenses includes expense for stationery and supplies, telephone costs, non-service pension cost and charitable donations.
Non-service pension cost is determined by actuarial assumptions and projections. During 2022 and 2021, the calculations resulted in a credit to expense, due to the expected return on plan assets. For more information on non-service pension cost, please refer to Note 8 of Notes to Consolidated Financial Statements.
Non-service pension cost is determined by actuarial assumptions and projections and increased $348 from 2022. For more information on non-service pension cost, please refer to Note 8 of Notes to Consolidated Financial Statements. Included within other operating expense and data processing and ATM expense are expenses related to cybersecurity.
Unallocated Surplus The unallocated surplus as of December 31, 2022 was $179 or 2.23% in excess of the calculated requirement. The unallocated surplus as of December 31, 2021 was $361 or 4.94% in excess of the calculated requirement.
Total high risk loans increased from the level at December 31, 2022, resulting in an increased allocation. Unallocated Surplus The unallocated surplus as of December 31, 2023 is $350, or 4.00% in excess of the calculated requirement. The unallocated surplus at December 31, 2022 was $179, or 2.23% in excess of the calculated requirement.
Payments Due by Period Total Less Than 1 Year 1-3 Years 4-5 Years More Than 5 Years Commitments to extend credit $ 197,459 $ 197,459 $ - $ - $ - Standby letters of credit 17,021 17,021 - - - Mortgage loans with potential recourse 8,654 8,654 - - - Operating leases 1,571 360 606 399 206 Total $ 224,705 $ 223,494 $ 606 $ 399 $ 206 In the normal course of business the Company’s banking affiliate extends lines of credit to its customers.
All are due in less than one year. Payments Due by Period Total Less Than 1 Year Commitments to extend credit $ 220,656 $ 220,656 Standby letters of credit 20,711 20,711 Mortgage loans with potential recourse 7,325 7,325 Total $ 248,692 $ 248,692 In the normal course of business the Company’s banking affiliate extends lines of credit to its customers.
Recent Accounting Pronouncements See Note 1 of Notes to Consolidated Financial Statements for information relating to recent accounting pronouncements.
See Note 5 of Notes to Consolidated Financial Statements for information relating to the allowance for credit losses on loans.
Asset Quality Key indicators of NBI’s asset quality are presented in the following table: 12/31/2022 12/31/2021 Nonperforming loans (1) $ 2,847 $ 2,873 Loans past due 90 days or more and accruing 8 90 Other real estate owned 662 957 Allowance for loan losses to loans (2) 0.96 % 0.96 % Net charge-off ratio 0.02 % 0.05 % (1) Nonperforming loans are nonaccrual loans and troubled debt restructurings ("TDRs") in nonaccrual status.
Summary Asset Quality Key indicators of the Company’s asset quality are presented in the following table as of the dates indicated: December 31, 2023 2022 Nonaccrual loans $ 2,629 $ 2,847 Loans past due 90 days or more and accruing 188 8 Other real estate owned - 662 ACLL as a percentage of loans, net of unearned income and deferred fees and costs 1.06 % 0.96 % Net charge-off ratio, net of unearned income and deferred fees and costs 0.02 % 0.02 % 23 Table of Contents The Company monitors asset quality indicators in managing credit risk and in determining the ACLL and provision for credit losses.
Key performance ratios provide a summary of the Company’s results and allow comparison with results from prior years.
Expanded discussion is provided in subsequent sections. Summary Results of Operations The following tables present summary income, expenses and key performance indicators for the years indicated. Key performance indicators provide a summary of the Company’s results and allow comparison with results from prior years.
December 31, 2022 December 31, 2021 Allowance Amount Percent of Loans to Total Loans Percent of Allowance to Loans Allowance Amount Percent of Loans to Total Loans Percent of Allowance to Loans Real estate construction $ 450 6.40 % 0.82 % $ 422 6.07 % 0.87 % Consumer real estate 2,199 25.93 % 0.99 % 1,930 26.02 % 0.92 % Commercial real estate 3,642 51.33 % 0.83 % 3,121 50.49 % 0.77 % Commercial non real estate 930 6.76 % 1.61 % 1,099 7.50 % 1.82 % Public sector and IDA 319 5.64 % 0.66 % 297 5.97 % 0.62 % Consumer non-real estate 506 3.94 % 1.50 % 444 3.95 % 1.40 % Unallocated 179 - - 361 - - $ 8,225 100.00 % 0.96 % $ 7,674 100.00 % 0.96 % An analysis of the allowance for loan losses by impairment basis follows.
The following table presents information on the ACLL as of the dates indicated: December 31, 2023 December 31, 2022 Allowance Amount Percent of Loans to Total Loans Percent of Allowance to Loans Allowance Amount Percent of Loans to Total Loans Percent of Allowance to Loans Real estate construction $ 408 6.45 % 0.74 % $ 450 6.40 % 0.82 % Consumer real estate 3,162 28.20 % 1.31 % 2,199 25.93 % 0.99 % Commercial real estate 3,576 48.92 % 0.85 % 3,642 51.33 % 0.83 % Commercial non-real estate 682 4.85 % 1.64 % 930 6.76 % 1.61 % Public sector and IDA 333 7.07 % 0.55 % 319 5.64 % 0.66 % Consumer non-real estate 583 4.51 % 1.51 % 506 3.94 % 1.50 % Unallocated 350 - - 179 - - $ 9,094 100.00 % 1.06 % $ 8,225 100.00 % 0.96 % Securities The Company’s securities are designated as available for sale and as such, are reported at fair value.
Service charges on deposit accounts also include account maintenance fees, ATM fees and wire transfer fees. Other service charges and fees increased due to higher volume of letters of credit and associated fees, when the year ended December 31, 2022 is compared with the year ended December 31, 2021.
Service charges on deposit accounts also include account maintenance fees, ATM fees and wire transfer fees. Other service charges and fees increased when 2023 is compared with 2022, reflecting a loan transaction-related fee recorded during 2023.
Franchise tax expense increased when the years ended December 31, 2022 and 2021 are compared. Franchise taxes are levied by the states in which NBB operates and are based upon NBB’s total equity at the prior year-end, adjusted for real estate taxes and certain other items.
Franchise taxes are levied by the states in which NBB operates and are based upon NBB’s total equity at the prior year-end, adjusted for real estate taxes and certain other items. Professional services include legal and other expenses for the Company’s response to a threatened proxy contest from an activist shareholder during 2023, which totaled $786.

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