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What changed in NATIONAL BANKSHARES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of NATIONAL BANKSHARES INC's 2023 and 2024 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 2024 report.

+296 added−298 removedSource: 10-K (2025-03-28) vs 10-K (2024-03-19)

Top changes in NATIONAL BANKSHARES INC's 2024 10-K

296 paragraphs added · 298 removed · 203 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

52 edited+17 added−22 removed69 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. 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.
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.
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.
The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, enacted a listing rule that became effective in 2023 requiring 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 rule requires financial institutions to notify their primary federal regulator as soon as possible and no later than 36 hours after the institution determines that a cybersecurity incident has occurred that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the institution’s: (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business, (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value, or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.
The rule requires financial institutions to notify their primary federal regulator as soon as possible and no later than 36 hours after the institution determines that a cybersecurity incident has occurred that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the institution’s: (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business, (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of 8 Table of Contents revenue, profit, or franchise value, or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.
Montgomery County, Bluefield in Tazewell County, Abingdon in Washington County and the cities of Roanoke, Charlottesville and Staunton are regional retail centers and have facilities to provide basic health care for the regions. NBI’s market area offers the advantages of a good quality of life, scenic beauty, moderate climate and historical and cultural attractions.
Montgomery County, Bluefield in Tazewell County, Abingdon in Washington County and the cities of Roanoke, Charlottesville, Waynesboro, Lynchburg and Staunton are regional retail centers and have facilities to provide basic health care for the regions. NBI’s market area offers the advantages of a good quality of life, scenic beauty, moderate climate and historical and cultural attractions.
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.
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, 2024, NBB’s capital ratios exceeded the above minimum ratios including the capital conservation buffer.
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.
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 Bearing Insurance Group, LLC for insurance products. NBFS does not significantly contribute to NBI’s net income.
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.
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. The Bank Holding Company Act.
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.
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 Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of a financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.
The Interagency Guidance on Sound Incentive Compensation Policies, issued by federal banking agencies, covers all employees that have the ability to materially affect the risk profile of a financial institution, either individually or as part of a group, and is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.
As of December 31, 2023, the Company had not been made aware of any instances of non-compliance with the final guidance.
As of December 31, 2024, the Company had not been made aware of any instances of non-compliance with the final guidance.
The EGRRCPA exempts insured depository institutions (and their parent companies) with less than $10 billion in consolidated assets and that meet certain tests from the Volker Rule (which prohibits banks from conducting certain investment activities with their own accounts).
The EGRRCPA exempts insured depository institutions (and their parent companies) with less than $10 5 Table of Contents billion in consolidated assets and that meet certain tests from the Volker Rule (which prohibits banks from conducting certain investment activities with their own accounts) .
The National Bank of Blacksburg: Chairman, September 2017 to Present; President and CEO, July 2014 to Present; Executive Vice President/Chief Operating Officer, October 2002 – July 2014. National Bankshares Financial Services, Inc.: Chairman, President and CEO of National Bankshares Financial Services, Inc., September 2017 to Present; Treasurer, June 2011 to Present. 1989 David K.
The National Bank of Blacksburg: Chairman, September 2017 to Present; CEO, July 2014 to Present; President July 2014 to December 31, 2024; Executive Vice President/Chief Operating Officer ("COO"), October 2002 – July 2014. National Bankshares Financial Services, Inc.: Chairman, President and CEO, September 2017 to Present; Treasurer, June 2011 to Present. 1989 David K.
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.
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.
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.
Name Age Offices and Positions Held Year Elected an Officer F. Brad Denardo 72 National Bankshares, Inc.: Chairman and Chief Executive Officer (“CEO”), May 2019 to Present; Chairman, President and CEO, May 2019 to December 31, 2024; President and CEO, September 2017 – May 2019; Executive Vice President, April 2008 – August 2017.
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.
As of December 31, 2024, NBB had 242 full time equivalent employees and NBFS had 3 full time equivalent employees. NBB performs services for and charges commensurate fees to NBI and NBFS.
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.
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.
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.
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.
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.
The National Bank of Blacksburg: Executive Vice President/Chief Risk Officer, January 8, 2025 to Present; Senior Vice President/Senior Operations, Risk and Technology Officer, May 2022 to January 7, 2025; Senior Vice President/Operations and Risk Management and Chief Financial Officer ("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. 2009 Lara E.
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 National Bank of Blacksburg: Executive Vice President/CFO and Cashier, January 8, 2025 to Present; Senior Vice President/CFO and Cashier, May 2022 to January 7, 2025; Vice President/Controller, May 2014 – May 2022; Corporate Analysis Officer June 2011 – May 2014. 2011 Bobby D. Sanders, II 45 National Bankshares, Inc.: Senior Vice President/Chief Credit Officer, March 2022 to Present.
As such, NBI is subject to the supervision, examination, and reporting requirements of the BHCA and the regulations of the Federal Reserve. NBI is required to furnish to the Federal Reserve an annual report of its operations at the end of each fiscal year and such additional information as the Federal Reserve may require pursuant to the BHCA.
NBI is required to furnish to the Federal Reserve an annual report of its operations at the end of each fiscal year and such additional 4 Table of Contents information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve is authorized to examine NBI and its subsidiaries.
In May 2018 the EGRRCPA amended provisions of the Dodd-Frank Act and other statutes administered by banking regulators. Among these amendments are provisions to tailor applicability of certain of the enhanced prudential standards for Systemically Important Financial Institutions (“SIFI’s”) and to increase the $50 billion asset threshold in two stages to $250 billion to which these enhanced standards apply.
Among these amendments are provisions to tailor applicability of certain of the enhanced prudential standards for Systemically Important Financial Institutions and to increase the $50 billion asset threshold in two stages to $250 billion to which these enhanced standards apply.
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.
Percentage of Total Operating Revenue For the Year Ended December 31, Revenue Component 2024 2023 Interest and Fees on Loans 60.55 % 57.08 % Interest on Investments 22.94 % 26.29 % Market Area The Company serves customers through its offices in southwest and central Virginia.
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.
As of December 31, 2024, NBB had total assets of $1,808,152 and total deposits of $1,661,495. NBB’s net income for 2024 was $11,001, which produced a return on average assets of 0.63% and a return on average equity of 7.95%. Refer to Note 11 of Notes to Consolidated Financial Statements for NBB’s risk-based capital ratios. National Bankshares Financial Services, Inc.
All consumer protection responsibility formerly handled by other banking regulators was consolidated in the CFPB. It oversees the enforcement of all federal laws intended to ensure fair access to credit. For smaller financial institutions such as NBI and NBB, the CFPB coordinates its examination activities through their primary regulators.
The CFPB has rule marking authority over financial institutions with regard to consumer protection and oversees the enforcement of all federal laws intended to ensure fair access to credit. For smaller financial institutions such as NBI and NBB, the CFPB coordinates its examination activities through their primary regulators.
Both of these companies have experienced cycles of hiring and layoffs within the past several years. Tazewell County is largely dependent on the coal mining industry and on agriculture for its economic base.
Large manufacturing facilities in the region include Celanese Acetate, the largest employer in Giles County, and Volvo Heavy Trucks, the largest company in Pulaski County. Both of these companies have experienced cycles of hiring and layoffs within the past several years. Tazewell County is largely dependent on the coal mining industry and on agriculture for its economic base.
In October 2022, the FDIC adopted a final rule to increase the assessment base rate schedules uniformly by two basis points beginning with the first quarterly assessment period of 2023. The FDIC has authority to impose special measures to boost the deposit insurance fund such as prepayments of assessments and additional special assessments.
In October 2022, the FDIC adopted a final rule to increase the assessment base rate schedules uniformly by two basis points beginning with the first quarterly assessment period of 2023.
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.
The FDIC has authority to impose special measures to boost the deposit insurance fund such as prepayments of assessments and additional special assessments. 6 Table of Contents 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.
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.
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.
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 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.
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.
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.
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.
Mylum 58 National Bankshares, Inc.: Executive Vice President/Chief Lending Officer, November 2019 to Present; Senior Vice President/Chief Lending Officer, August 2016 – November 2019 The National Bank of Blacksburg: Executive Vice President/Chief Lending Officer, November 2019 to Present; Senior Vice President/Chief Lending Officer, August 2016 – November 2019; Senior Vice President/Loans, August 2012 – August 2016. 2012 Lora M.
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 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.
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.
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 securities investments has a significant effect on earnings. U.S. fiscal policy, including deficits requiring increased governmental borrowing also can affect interest rates.
OFAC publishes lists of prohibited parties that are regularly consulted by the Company in the conduct of its business in order to assure compliance. The Company is responsible for, among other things, blocking accounts of, and transactions with, prohibited parties identified by OFAC, avoiding unlicensed trade and financial transactions with such parties and reporting blocked transactions after their occurrence.
The Company is responsible for, among other things, blocking accounts of, and transactions with, prohibited parties identified by OFAC, avoiding unlicensed trade and financial transactions with such parties and reporting blocked transactions after their occurrence. Failure to comply with OFAC requirements could have serious legal, financial and reputational consequences for the Company. Incentive Compensation.
The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants.
The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes.
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 Company’s proxy materials for the 2025 annual meeting of stockholders will also be 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.
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.
Other Legislative and Regulatory Concerns Federal and state laws and regulations are regularly proposed that could affect the regulation of financial institutions.
In May 2006, Bank of Tazewell County, a Virginia bank which since 1996 was a wholly-owned subsidiary of NBI, was merged with and into NBB. Headquartered in Blacksburg, Virginia, NBB is community-oriented and offers a full range of retail and commercial banking services to individuals, businesses, non-profits and local governments.
In May 2006, Bank of Tazewell County, a Virginia bank which since 1996 was a wholly-owned subsidiary of NBI, was merged with and into NBB. On June 1, 2024, NBB purchased Frontier Community Bank ("FCB"), a Virginia bank. NBB is a community-oriented financial institution headquartered in Blacksburg, Virginia.
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.
For more information on the completed acquisition, see Note 22: Business Combination. 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.
Although largely rural, the market area is home to several major state-supported universities, including Virginia Polytechnic Institute and State University (“Virginia Tech”) and Radford University. Recently opened loan production offices in Charlottesville and Staunton also service areas that contain the University of Virginia, James Madison University, Virginia Military Institute, Washington and Lee University, and Mary Baldwin University.
Although largely rural, the market area is home to several major state-supported universities, including Virginia Polytechnic Institute and State University (“Virginia Tech”) and Radford University.
The Statement, among other things, exempts qualified bank holding companies that have consolidated total assets of less than $3 billion from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements. The Company qualifies as a small bank holding company. The Bank continues to be subject to various capital requirements administered by banking agencies as described below.
The Federal Reserve's Small Bank Holding Company Policy Statement (the "Statement") sets forth requirements for designation as a small bank holding company and related expectations for capital and reporting requirements. Qualified bank holding companies that have consolidated total assets of less than $3 billion are exempt from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements.
To comply with these obligations, the Company has implemented appropriate internal practices, procedures, and controls. Office of Foreign Assets Control. The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) is responsible for administering and enforcing economic and trade sanctions against specified foreign parties, including countries and regimes, foreign individuals and other foreign organizations and entities.
Treasury Department’s Office of Foreign Assets Control (“OFAC”) is responsible for administering and enforcing economic and trade sanctions against specified foreign parties, including countries and regimes, foreign individuals and other foreign organizations and entities. OFAC publishes lists of prohibited parties that are regularly consulted by the Company in the conduct of its business in order to assure compliance.
The EGRRCPA changes numerous other regulatory requirements based on the size and complexity of financial institutions, particularly benefiting smaller institutions like the Company.
The EGRRCPA also increased the asset threshold from $1 billion to $3 billion for financial institutions to qualify for an 18 month on site examination schedule. The EGRRCPA addressed numerous other regulatory requirements based on the size and complexity of financial institutions, particularly benefiting smaller institutions like the Company.
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.
Cybersecurity of this Form 10-K for a discussion of the Company’s cybersecurity risk management, strategy and governance. 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.
Failure to meet minimum capital requirements can trigger certain mandatory and discretionary actions by regulators that could have a direct material effect on the Company’s consolidated financial statements. Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act was signed into law on July 21, 2010.
The Company qualifies as a small bank holding company. The Bank continues to be subject to various capital requirements administered by banking agencies as described below. Failure to meet minimum capital requirements can trigger certain mandatory and discretionary actions by regulators that could have a direct material effect on the Company’s consolidated financial statements.
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.
The National Bank of Blacksburg: President, January 1, 2025 to Present; Corporate Secretary, June 2016 to Present; Executive Vice President/COO, May 2022 to December 31, 2024; Senior Vice President/Administration, January 2018 – May 2022; Vice President/Human Resources, January 2001 – June 2011. 2016 Paul M.
Additionally, in response to the Dodd-Frank Act, the Federal Reserve issued rules in 2011 which had the effect of limiting the fees charged to merchants by credit card companies for debit card transactions. The Dodd-Frank Act also contains provisions that affect corporate governance and executive compensation.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") sets forth requirements for consumer mortgage lending, provisions for corporate governance and executive compensation, directed rule-making by the Federal Reserve limiting fees charged to merchants for credit and debit card transactions and established the Consumer Financial Protection Bureau (the “CFPB”).
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”).
Acquisition of Frontier Community Bank On June 1, 2024 (the "acquisition date"), the Company completed its acquisition of FCB, a Virginia chartered commercial bank, in accordance with the definitive merger agreement, dated January 23, 2024, by and among the Company, the Bank, and FCB.
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.
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.
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.
Through 27 banking locations across southwest and central Virginia and two loan production offices in Roanoke and Charlottesville, Virginia, NBB offers a full range of retail and commercial banking services to individuals, businesses, non-profits and local governments. Construction on a branch in Roanoke, Virginia is underway, with a planned completion date during the first quarter of 2025.
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.
The National Bank of Blacksburg: Senior Vice President/Chief Credit Officer, March 2022 to Present. 2022 10 Table of Contents
In addition to education, the market area has a diverse economic base with manufacturing, agriculture, tourism, healthcare, retail and service industries. Large manufacturing facilities in the region include Celanese Acetate, the largest employer in Giles County, and Volvo Heavy Trucks, the largest company in Pulaski County.
The recently acquired branches and the loan production office in Charlottesville also service areas that contain the University of Virginia, James Madison University, Virginia Military Institute, Washington and Lee University, Liberty University, and Mary Baldwin University. In addition to education, the market area has a diverse economic base with manufacturing, agriculture, tourism, healthcare, retail and service industries.
Removed
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.
Added
NBB offers telephone, mobile and internet banking and it operates 25 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.
Removed
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.
Added
As such, NBI is subject to the supervision, examination, and reporting requirements of the BHCA and the regulations of the Federal Reserve.
Removed
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.
Added
Dodd-Frank Wall Street Reform and Consumer Protection Act.
Removed
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.
Added
In February 2025, the Trump administration halted the CFPB’s operations, and its employees were instructed to cease all supervision and examination activity. As a result, the future of the CFPB and its impact on our business are uncertain. Source of Strength.
Removed
The Federal Reserve is authorized to examine NBI and its subsidiaries.
Added
The Economic Growth, Regulatory Reform and Consumer Protection Act of 2018 ("EGRRCPA") amended provisions of the Dodd-Frank Act and other statutes administered by banking regulators.
Removed
In August 2018, the Federal Reserve updated the Small Bank Holding Company Policy Statement (the “Statement”), in compliance with the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”).
Added
The final rule has been subject to an injunction since March 29, 2024, and the effective dates will be extended pending resolution of the lawsuit. Privacy Legislation .
Removed
Its wide ranging provisions affect all federal financial regulatory agencies and nearly every aspect of the American financial services industry. The Dodd-Frank Act created an independent Consumer Financial Protection Bureau (the “CFPB”) which has the ability to write rules for consumer protections governing all financial institutions.
Added
In October 2024, the CFPB issued a final rule regarding personal financial data rights that is designed to promote “open banking.” The final rule requires, among other things, that data providers, including any financial institution, make available to consumers and certain authorized third parties, upon request, certain covered transaction, account, and payment information.
Removed
The Dodd-Frank Act contains provisions designed to reform mortgage lending, which includes the requirement of additional disclosures for consumer mortgages, and the CFPB implemented many mortgage lending regulations to carry out its mandate.
Added
Institutions with at least $1.5 billion but less than $3 billion in total assets, including the Company, are required to comply with the final rule by April 1, 2029. On the same day the final rule was released, certain industry participants filed a complaint against the CFPB challenging the final rule.
Removed
As discussed below, pursuant to EGRRCPA, regulators finalized an optional, simplified measure of capital adequacy, which is commonly known as the “community bank leverage ratio” (“CBLR”) framework, for qualifying financial institutions with less than $10 billion in consolidated assets.
Added
This legal challenge has since been paused to allow time for the CFPB to assess the rule and determine whether it aligns with the agency’s current policy objectives. Consumer Laws and Regulations. There are a number of laws and regulations that regulate banks’ consumer loan and deposit transactions.
Removed
If the financial institution maintains its tangible equity above the CBLR, it will be deemed in compliance with the various regulatory capital requirements currently in effect. The EGRRCPA also increased the asset threshold from $1 billion to $3 billion for financial institutions to qualify for an 18 month on site examination schedule.
Added
NBB has no knowledge of any matter that would threaten its FDIC insurance coverage. 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.
Removed
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
NBB exceeded the thresholds to be considered well capitalized as of December 31, 2024. Limits on Dividend Payments. A significant portion of NBI’s income is derived from dividends paid by NBB.
Removed
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
Federal banking regulators are required, 7 Table of Contents when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, the Company has implemented appropriate internal practices, procedures, and controls. Office of Foreign Assets Control. The U.S.
Removed
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
In May 2024, the FDIC, the OCC, and the Federal Housing Finance Agency reproposed the 2016 proposed rule and requested comment on specific alternatives and general questions, given the passage of time since the 2016 proposed rule was issued.
Removed
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 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

33 edited+49 added−37 removed70 unchanged
Biggest changeAny lawsuit adversely resolved against the Company, Frontier or members of the respective Boards of Directors of the Company or Frontier, could have a material adverse effect on each party’s business, financial condition and results of operations. GENERAL RISK Changes in funding for local universities could materially affect our business.
Biggest changeIf any of the foregoing risks materialize, it could have a material adverse effect on the Company’s business, financial condition, and results of operations. 14 Table of Contents 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.
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.
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 (“FHLB”) 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.
Natural disasters, acts of war or terrorism, the impact of public health issues and other adverse external events could have a significant negative impact on our ability to conduct business or upon third parties who perform operational services for us or our customers.
Natural disasters, acts of war or terrorism, geopolitical instability, the impact of public health issues and other adverse external events could have a significant negative impact on our ability to conduct business or upon third parties who perform operational services for us or our customers.
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.
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, impair the value of our investment portfolio, result in lost revenue or cause us to incur additional expenses.
Satisfying capital requirements may require the Company to limit its banking operations, retain net income or reduce dividends to improve regulatory capital levels, which could negatively affect its business, financial condition and results of operations. Changes in accounting standards could impact reported earnings.
Satisfying capital requirements may require the Company to limit its banking operations, retain net income or reduce dividends to improve regulatory capital levels, which could negatively affect its business, financial condition and results of operations. 15 Table of Contents Changes in accounting standards could impact reported earnings.
If there is additional competition from new business or if our existing competitors focus more attention on our market, we could lose customers and our business could suffer. Consumers may increasingly decide not to use the Bank to process their financial transactions, which would have a material adverse impact on the Company ’ s financial condition and operations.
If there is additional competition from new business or if our existing competitors focus more attention on our market, we could lose customers and our business could suffer. Consumers may increasingly decide not to use the Bank to process their financial transactions, which would have a material adverse impact on the Company’s financial condition and operations.
Competition for such personnel is strong and the Company may not be successful in attracting or retaining the personnel it requires. The Company relies on other companies to provide key components of the Company ’ s business infrastructure.
Competition for such personnel is strong and the Company may not be successful in attracting or retaining the personnel it requires. The Company relies on other companies to provide key components of the Company’s business infrastructure.
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.
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.
Because the Bank’s loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in the percentage of non-performing loans.
Because the Bank’s loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in the percentage of nonperforming loans.
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.
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.
The federal banking agencies, including the OCC, have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks’ risk management practices. In December 2021, the OCC published proposed principles for climate risk management by banking organizations with more than $100 billion in assets.
The federal banking agencies, including the OCC, have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks’ risk management practices. In October 2023, the OCC published principles for climate risk management by banking organizations with more than $100 billion in assets.
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.
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 increased in 2022 and 2023, the Company experienced significant unrealized losses on our available for sale securities portfolio.
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.
As of December 31, 2024, 84.6% 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. 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.
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.
Although the Company has historically paid a cash dividend to the holders of its common stock, 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.
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.
An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the provision for credit 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.
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.
As of December 31, 2024, the Bank had approximately $478,078 in loans secured by commercial real estate, representing approximately 48.4% 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.
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.
As of December 31, 2024, approximately 44.6% 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 22.4% are uninsured. We rely on deposits for liquidity.
From time to time, customers make claims and take legal action pertaining to the performance of the Company’s fiduciary responsibilities.
LEGAL RISK The Company is subject to claims and litigation pertaining to fiduciary responsibility. From time to time, customers make claims and take legal action pertaining to the performance of the Company’s fiduciary responsibilities.
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.
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. As a result, political and social attention to the issue of climate change has increased.
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.
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 Changes in funding for local universities could materially affect our business.
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.
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.
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.
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.
Regulatory capital standards may have an adverse effect on the Company ’ s profitability, lending, and ability to pay dividends. The Company is subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital that the Company and the Bank must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines.
The Company is subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital that the Company and the Bank must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines.
The financial services industry is highly competitive, with a number of commercial banks, credit unions, insurance companies, stockbrokers, financial technology companies and other nonbank financial service providers seeking to do business with our customers.
MARKET RISK If competition increases, our business could suffer, which could result in loan losses and adversely affect the Company’s financial condition and results of operations. The financial services industry is highly competitive, with a number of commercial banks, credit unions, insurance companies, stockbrokers, financial technology companies and other nonbank financial service providers seeking to do business with our customers.
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.
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.
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.
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.
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.
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. CYBERSECURITY RISK Our information systems may experience an interruption or security breach. We rely heavily on communications and information systems to conduct our business.
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.
These factors would increase the likelihood that more of our customers would become delinquent or default on their loans.
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.
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.
While the Company ’ s common stock is currently traded on the Nasdaq Capital Market, it has less liquidity than stocks for larger companies quoted on a national securities exchange.
A higher level of loan defaults could result in higher loan losses, which could adversely affect our results of operations and financial condition. 17 Table of Contents While the Company’s common stock is currently traded on the Nasdaq Capital Market, it has less liquidity than stocks for larger companies quoted on a national securities exchange.
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.
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 subject to a variety of operational risks, including reputational, legal, and compliance risk, and the risk of fraud ort heft by employees, directors, or outsiders.
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.
Accordingly, changes in levels of market interest rates or management thereof could materially and adversely affect the net interest spread, loan and deposit volumes, and the Company’s overall profitability. 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.
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.
Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures. Item 1B . Unresolved Staff Comments There are no unresolved staff comments. 18 Table of Contents
Removed
MARKET RISK If competition increases, our business could suffer, which could result in loan losses and adversely affect the Company ’ s financial condition and results of operations.
Added
INTEREST RATE RISK The Company's business is subject to interest rate risk and variations in interest rates and inadequate management of interest rate risk may negatively affect financial performance. Changes in the interest rate environment may reduce the Company’s profits.
Removed
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).
Added
It is expected that the Company will continue to realize income from the differential or “spread” between the interest earned on loans, securities, and other interest-earning assets, and interest paid on deposits, borrowings, and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities.
Removed
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.
Added
Loan and deposit volumes, yields, and costs are affected by market interest rates on these products, and there is substantial competition for loans and deposits that affect rates on these products. Additionally, short-term rates are driven by actions of the Federal Reserve, and movements in such rates may have a significant effect on the Company’s interest rate risk.
Removed
These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
Added
The Company’s management cannot ensure that it can minimize interest rate risk. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected.
Removed
While federal bank regulators took action to ensure that depositors of the failed banks had access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.
Added
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Further, shifts in the Company’s mix of interest-earning assets or interest-bearing liabilities could adversely affect yields 12 Table of Contents on assets or costs of funds, respectively.
Removed
Furthermore, there is no guarantee that regional bank failures or bank runs similar to the ones that occurred in 2023 will not occur in the future and, if they were to occur, they may have a material and adverse impact on customer and investor confidence in regional banks negatively impacting the Company’s liquidity, capital, results of operations and stock price.
Added
The Company is exposed to many types of operational risks, including reputational, legal, and compliance risk, the risk of fraud or theft by employees, directors or outsiders, unauthorized transactions by employees, operational errors, clerical or record-keeping errors, and errors resulting from faulty or disabled computer or communications systems.
Removed
COMPLIANCE AND REGULATORY RISK Additional laws and regulations, or revisions and rescission of existing laws and regulations, could lead to a significant increase in our regulatory burden. Both federal and state governments could enact new laws and regulations affecting financial institutions that would further increase our regulatory burden and could negatively affect our profits.
Added
Reputational risk, or the risk to the Company’s earnings and capital from negative public opinion, could result from the Company’s actual or alleged conduct in any number of activities, including lending practices, corporate governance, and from actions taken by government regulators and community organizations in response to those activities.
Removed
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.
Added
Negative public opinion can adversely affect the Company’s ability to attract and keep customers and employees and can expose it to litigation and further regulatory action. Further, if any of the Company’s financial, accounting, or other data processing systems fail or have other significant issues, the Company could be adversely affected.
Removed
Regulators for the Company and the Bank are tasked with ensuring compliance with applicable laws and regulations. Laws and regulations are subject to a degree of interpretation. If financial industry regulators take more extreme interpretations, the Company’s earnings could be adversely impacted.
Added
The Company depends on internal systems and outsourced technology to support these data storage and processing operations. The Company’s inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of the Company’s business operations.
Removed
RISKS RELATED TO THE PROPOSED ACQUISITION OF FRONTIER The Company may not be able to successfully integrate the operations of Frontier into the Bank, which integration may be more difficult, costly or time-consuming than expected.
Added
It could be adversely affected if one of its employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates its operations or systems.
Removed
The success of the merger and future operating performance of the Company and the Bank will depend, in part, on the Company’s ability to realize the anticipated benefits and cost savings from combining the business of Frontier into the business of the Bank.
Added
The Company is also at risk of the impact of natural disasters, terrorism, and international hostilities on its systems and from the effects of outages or other failures involving power or communications systems operated by others.
Removed
The success of the merger will, in turn, depend on a number of factors, including the Company’s ability to (i) integrate the operations and branches of Frontier and the Bank, (ii) retain the deposits and customers of Frontier and the Bank, (iii) control the incremental increase in noninterest expense arising from the merger in a manner that enables the combined bank to improve its overall operating efficiencies, and (iv) retain and integrate the appropriate personnel of Frontier into the operations of the Bank, and reduce overlapping bank personnel.
Added
The Company may also be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for example, computer viruses, or electrical or communications outages), which may give rise to disruption of service to customers and to financial loss or liability.
Removed
The integration of Frontier and the Bank following the merger will require the dedication of the time and resources of the banks’ management teams and may temporarily distract managements’ attention from the day-to-day business of the banks.
Added
In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts.
Removed
If the Company is unable to successfully integrate Frontier into the Bank, the anticipated benefits and cost savings of the merger, including expected operating efficiencies and eliminating redundant costs, may not be realized fully, or at all, or may take longer to realize than expected.
Added
Although the Company has policies and procedures in place to verify the authenticity of its customers, it cannot guarantee that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to the Company’s reputation.
Removed
The Company and Frontier will incur significant transaction and merger-related integration costs in connection with the merger. The Company and Frontier expect to incur significant costs associated with completing the merger and integrating the operations of the two companies. The Company and Frontier are continuing to assess the impact of these costs.
Added
COMPLIANCE AND REGULATORY RISK The Company operates in a highly regulated industry, and the laws and regulations that govern the Company’s operations, including changes in them or the Company’s failure to comply with them, and regulatory actions implementing such laws and regulations, may adversely affect the Company.
Removed
Although the Company and Frontier believe that the elimination of duplicate costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.
Added
The Company is subject to extensive regulation and supervision that govern almost all aspects of its operations.
Removed
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger. Before the merger may be completed, various approvals must be obtained from bank regulatory authorities, including the OCC and the Virginia Bureau of Financial Institutions.
Added
These laws and regulations, and regulatory actions implementing such laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the Company’s business activities, limit the dividends or distributions that it can pay, and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in its capital than GAAP.
Removed
These regulators may impose conditions on the granting of such approvals or request changes to the terms of the merger. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the merger or of imposing additional costs or limitations on the Company following the merger.
Added
Changes to laws, regulations, or regulatory policies, or supervisory guidance, including changes in interpretation or implementation of laws, regulations, policies, or supervisory guidance, could affect the Company in substantial and unpredictable ways.
Removed
If the necessary governmental approvals contain such conditions or changes, the business, financial condition and results of operations of the Company following the merger may be materially adversely affected.
Added
Regulatory responses in connection with unforeseen stress events, including failures of banks and other financial institutions, often lead to increased regulatory scrutiny and heightened supervisory expectations and could adversely impact the Company’s business, financial condition, and results of operations, or alter or disrupt the Company’s planned future strategies and actions.
Removed
Furthermore, such conditions or changes may constitute, result in or be reasonably expected to result in a burdensome condition that may allow the Company and the Bank to refuse to complete the merger. A significant delay in the completion of the merger could have a material adverse effect on the Company and Frontier as a combined company.
Added
The Company’s failure to comply with these laws and regulations could subject it to restrictions on its business activities, fines, and other penalties, any of which could adversely affect the Company’s results of operations, capital base, and the price of its securities.
Removed
The merger agreement is subject to a number of conditions that must be fulfilled in order to complete the merger.
Added
Compliance with laws and regulations, and regulatory actions implementing such laws and regulations, can be difficult and costly, and changes to laws and regulations could make compliance more difficult or expensive or otherwise adversely affect the Company’s business and financial condition. Regulatory capital standards may have an adverse effect on the Company’s profitability, lending, and ability to pay dividends.
Removed
Those conditions include, among others: (i) approval of the merger agreement by the Frontier shareholders, (ii) receipt of all required approvals from bank regulatory authorities and expiration of all applicable waiting periods, (iii) absence of any order, decree or injunction enjoining or prohibiting the completion of the merger, and (iv) effectiveness of the registration statement of which this proxy statement/prospectus is a part.
Added
Failure to maintain effective systems of internal and disclosure controls could have a material adverse effect on the Company's results of operation and financial condition. Effective internal and disclosure controls are necessary for the Company to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company.
Removed
If these conditions to the completion of the merger are not fulfilled when expected and, as a result, the completion of the merger is delayed, the diversion of management attention from pursuing other opportunities, the interruptions to each company’s ongoing business during the pendency of the merger, the incurrence of additional merger-related expenses, and other market and economic factors could have a material adverse effect on the combined company’s business, financial condition and results of operations.
Added
Effective internal controls also are a deterrent to fraud. Pursuant to Section 404 of the SOX, the Company is required to include in its Annual Reports on Form 10-K management’s assessment of the effectiveness of internal controls over financial reporting. If the Company cannot provide reliable financial reports or reasonably prevent fraud, its reputation and operating results would be harmed.
Removed
The merger may distract management of the Company and Frontier from their other responsibilities. The merger could cause the respective management teams of the Company and Frontier to focus their time and energies on matters related to the transaction that otherwise would be directed to their respective businesses and operations.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeFor more information on how cybersecurity risk may materially affect the Company’s business strategy, results of operations or financial condition, please refer to Item 1A, Risk Factors of this Form 10-K. 18 Table of Contents Governance Board of Directors Oversight The Company’s Board of Directors is charged with overseeing the establishment and execution of the Company’s enterprise risk management framework, including cybersecurity risk, and monitoring adherence to related policies required by applicable statutes, regulations and principles of safety and soundness.
Biggest changeGovernance Board of Directors Oversight The Company’s Board of Directors is charged with overseeing the establishment and execution of the Company’s enterprise risk management framework, including cybersecurity risk, and monitoring adherence to related policies required by applicable statutes, regulations and principles of safety and soundness .
Periodic testing of the plan ensures readiness and identifies refinements. ● Reputable third-party assessors are engaged to conduct various assessments on a regular basis. Supporting the Company’s information security program is a third-party risk management program that manages the life cycle of external service providers and ensures that vendors meet the Company’s cybersecurity requirements.
Periodic testing of the plan ensures readiness and identifies refinements. • Reputable third-party assessors are engage d to conduct various assessments on a regular basis. Supporting the Company’s information security program is a third-party risk management program that manages the life cycle of external service providers and ensures that vendors meet the Company’s cybersecurity requirements.
Operations, Risk & Technology Officer and the Board of Directors. Management’s enterprise risk management committee receives regular updates from the ISO on cybersecurity related risks, including trends and emerging threats.
Management’s enterprise risk management committee receives regular updates from the ISO on cybersecurity related risks, including trends and emerging threats .
Management ’ s Role The Company’s ISO, supported by skilled internal personnel, is responsible for identifying, assessing and managing cybersecurity risks and designing, implementing and maintaining the Company’s information security program. The ISO has many years of experience and holds multiple certifications appropriate to the role. The ISO reports to the Senior Vice President/Sr.
Management’s Role The Company’s ISO has many years of experience appropriate to the role and is supported by skilled internal personnel. The ISO is responsible for identifying, assessing and managing cybersecurity risks and designing, implementing and maintaining the Company’s information security program. The ISO reports to the Chief Risk Officer and the Board of Directors.
Material Effects of Cybersecurity Threats Cybersecurity risks have the potential to materially affect the Company’s business, financial condition and results of operation. The Company strengthened its cybersecurity framework in response to cyber attacks in 2016 and 2017 and does not believe that risks from cyber security threats or attacks have materially affected the Company since 2017.
Material Effects of Cybersecurity Threats Cybersecurity risks have the potential to materially affect the Company’s business, financial condition and results of operation. The Company has strengthened its cybersecurity framework in recent years but the sophistication of emerging cyber threats and the utilization of new attack methods continues to evolve.
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However, the sophistication of emerging cyber threats and the utilization of new attack methods continues to evolve. The Company’s cybersecurity risk management and strategy may not protect against all cyber incidents.
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The Company’s cybersecurity risk management and strategy may not protect against all cyber incidents. For more information on how cybersecurity risk may materially affect the Company’s business strategy, results of operations or financial condition, please refer to Item 1A, Risk Factors of this Form 10-K.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties NBB owns and has a branch bank in NBI’s headquarters building located at 101 Hubbard Street, Blacksburg, Virginia. NBB’s main office is at 100 South Main Street, Blacksburg, Virginia. NBB owns an additional eighteen branch offices and a private office location for support functions and it leases four branch locations and three loan production offices.
Biggest changeItem 2. P roperties NBB owns and has a branch bank in NBI’s headquarters located at 101 Hubbard Street, Blacksburg, Virginia. NBB’s main office is at 100 South Main Street, Blacksburg, Virginia.
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.
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.
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For additional information, please see Note 6 and Note 19 of Notes to Consolidated Financial Statements.
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NBB owns an additional nineteen branch offices and a private office location for support functions, as well as a property nearing completion that will become its Roanoke branch location. NBB leases six branch locations and one loan production office. As of December 31, 2024, there were no mortgages or liens against any properties.
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For additional information, please see Note 6 and Note 19 of Notes to Consolidated Financial Statements. 19 Table of Contents Item 3. Legal Proceedings NBI, NBB, and NBFS are not currently involved in any material pending legal proceedings. There are no legal proceedings against the Company related to cybersecurity. Item 4. Mine Safety Disclosures Not applicable. Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 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.
Biggest changeThe Company’s share repurchase program does not obligate it to acquire any specific number of shares or any shares at all. Item 6. [ Reserved] 20 Table of Contents
In 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.
In May 2024, 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, 2024 to May 31, 2025. During 2024, 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, 2023, there were 544 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, 2024, there were 894 record stockholders of NBI common stock.

Item 7. Management's Discussion & Analysis

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

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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%.
Biggest changeDecember 31, 2024 2023 Net interest income, GAAP $ 36,397 $ 37,283 FTE adjustment 968 890 Net interest income, FTE (non-GAAP) $ 37,365 $ 38,173 Analysis of Changes in Interest Income and Interest Expense The following table summarizes 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, 2024 is compared with the year ended December 31, 2023. 2024 Over 2023 Increase (Decrease) due to Changes in: Net Dollar Rates (2) Volume (2) Change Interest income: (1) Loans $ 4,801 $ 4,248 $ 9,049 Taxable securities 904 (643 ) 261 Nontaxable securities (7 ) (50 ) (57 ) Federal Funds Sold - 26 26 Interest-bearing deposits 29 2,059 2,088 Interest income $ 5,727 $ 5,640 $ 11,367 Interest expense: Interest-bearing demand deposits $ 4,694 $ 236 $ 4,930 Savings deposits 232 (81 ) 151 Time deposits 2,108 5,284 7,392 Short-term borrowings (65 ) (233 ) (298 ) Interest expense $ 6,969 $ 5,206 $ 12,175 Net interest income $ (1,242 ) $ 434 $ (808 ) (1) FTE basis using a Federal income tax rate of 21%.
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”).
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 on a basis other than GAAP (“non-GAAP”).
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.
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 trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, and 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.
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.
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, 2024, the analysis indicated adequate liquidity under the tested scenarios.
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.
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, 2024, the Company’s liquidity is sufficient to meet projected trends.
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.
As of December 31, 2024, 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.
Details on non-GAAP measures follow. Net Interest Margin The Company uses the net interest margin to measure profit on interest generating activities, as a percentage of total interest-earning assets. The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis.
Details on non-GAAP measures follow. Net Interest Margin The Company uses the net interest margin (non-GAAP) to measure profitability of interest generating activities, as a percentage of total interest-earning assets. The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis.
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.
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 deferred fees and costs.
Analysis of Net Interest Earnings The following table shows the major categories of interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net yield on average interest‑earning assets for the years indicated.
Analysis of Net Interest Earnings The following table presents the major categories of interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net yield on average interest‑earning assets for the years indicated.
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.
As of December 31, 2024, 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.
The Company determined that 12 months represents a reasonable and supportable forecast period as of December 31, 2023, and set a period of 12 months to revert to historical losses on a straight-line basis.
The Company determined that 12 months represents a reasonable and supportable forecast period as of December 31, 2024, and set a period of 12 months to revert to historical losses on a straight-line basis.
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.
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. 32 Table of Contents E.
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.
The Company estimates a potential loss reserve for recourse provisions. The amount is not material as of December 31, 2024. 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. Item 7A.
Periodically during 2023, the Company accessed FHLB and Federal Reserve discount window borrowings to reinforce liquidity. The advances were fully repaid, due to the success of the Company’s deposit strategy. As of December 31, 2023, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.
Periodically during 2023, the Company accessed FHLB and Federal 36 Table of Contents Reserve discount window borrowings to reinforce liquidity. The advances were fully repaid, due to the success of the Company’s deposit strategy. As of December 31, 2024, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.
More information about nonaccrual and past due loans is provided in Note 1 and Note 5 of Notes to Consolidated Financial Statements. The Company continues to carefully monitor risk levels within the loan portfolio. Income Statement The following provides information on the results of operations for the years ended December 31, 2023 and December 31, 2022.
More information about nonaccrual and past due loans is provided in Note 1 and Note 5 of Notes to Consolidated Financial Statements. The Company continues to carefully monitor risk levels within the loan portfolio. 25 Table of Contents Income Statement The following provides information on the results of operations for the years ended December 31, 2024 and December 31, 2023.
The Bank also issues two types of standby letters of credit to customers: financial standby letters of credit that guarantee payment to facilitate customer purchases and performance letters of credit that guarantee payment if the customer fails to perform a specific obligation. Associated revenue from letters of credit was $51 in 2023.
The Bank also issues two types of standby letters of credit to customers: financial standby letters of credit that guarantee payment to facilitate customer purchases and performance letters of credit that guarantee payment if the customer fails to perform a specific obligation. Associated revenue from letters of credit was $31 in 2024.
The Company recognized tax-free income of $1,044 for the settlement of a bank owned life insurance policy (“BOLI”) policy in 2023, and incurred expense in 2023 of $786 to respond to a threatened proxy contest from an activist investor. Summary information on results of operations, changes in key balances and asset quality is presented below.
The Company recognized tax-free income of $1,044 for the settlement of a bank owned life insurance (“BOLI”) policy in 2023, and incurred expense in 2023 of $786 to respond to a proxy contest from an activist investor. Summary information on results of operations, changes in key balances and asset quality is presented below. Expanded discussion is provided in subsequent sections.
Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations $ in thousands, except per share data. The purpose of this discussion and analysis is to provide information about the results of operations, financial condition, liquidity and capital resources of the Company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations $ in thousands, except per share data. The purpose of this discussion and analysis is to provide information about the results of operations, financial condition, liquidity and capital resources of the Company.
Analysis of Net Charge-Offs The following tables show net charge-offs, average loan balance and the percentage of charge-offs to average loan balance for each of the Company’s loan segments at the end of each period. Average loans are presented net of unearned income and net deferred fees.
D. Analysis of Net Charge-Offs The following tables show net charge-offs, average loan balance and the percentage of charge-offs to average loan balance for each of the Company’s loan segments at the end of each period. Average loans are presented net of deferred fees and costs.
Qualitative Factors: Asset Quality Indicators Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. Accruing loans past due 30-89 days were 0.19% of total loans at December 31, 2023, an increase from 0.16% at December 31, 2022.
Qualitative Factors: Asset Quality Indicators Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. On a portfolio level, accruing loans past due 30-89 days were 0.30% of total loans at December 31, 2024, an increase from 0.19% at 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 credit losses on loans. 32 Table of Contents 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.
Compared with data available at December 31, 2022, business bankruptcy filings decreased slightly while personal bankruptcy filings increased slightly. Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market. Higher levels increase credit risk.
Compared with data available at December 31, 2023, business bankruptcy filings and personal bankruptcy filings increased. Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market. Higher levels increase credit risk.
These factors include, but are not limited to, effects of or changes in: ● interest rates, ● the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged, ● the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses, ● general and local economic conditions, ● monetary and fiscal policies of the U.S.
These factors include, but are not limited to, effects of or changes in: • inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments, • the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged, • the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses, • general and local economic conditions, • monetary and fiscal policies of the U.S.
See Note 5 of Notes to Consolidated Financial Statements for information relating to the allowance for credit losses on loans.
See Note 5 of Notes to Consolidated Financial Statements for information relating to the allowance for credit losses on loans. See Note 14 of Notes to Consolidated Financial Statements for information relating to concentrations of credit risk.
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 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.
The risk in financial markets, including interest rate risk and credit risk, affects the Company in the same way that it affects other institutional and individual investors. The fair value of available for sale securities is reflected on the Company's balance sheet.
The risk in financial markets, including interest rate risk and credit risk, affects the Company in the same way that it affects other institutional and individual investors. The fair value of available for sale securities is reflected on the Company's balance sheet. The unrealized loss in the Company’s investment portfolio is due to interest rate risk.
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”.
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.
The residential vacancy rate available at December 31, 2023 improved from the data incorporated into the December 31, 2022 calculation, resulting in a lower allocation. Housing data available as of December 31, 2023 showed higher inventory than at December 31, 2022, resulting in a higher allocation.
The residential vacancy rate available at December 31, 2024 increased from the data incorporated into the December 31, 2023 calculation, resulting in a higher allocation. Housing data available as of December 31, 2024 showed higher inventory than at December 31, 2023, resulting in a higher allocation.
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.
December 31, 2024 December 31, 2023 Regulatory Capital Minimum Ratios Regulatory Capital Minimum Ratios with Capital Conservation Buffer Common Equity Tier I Capital Ratio 15.28 % 17.23 % 4.50 % 7.00 % Tier I Capital Ratio 15.28 % 17.23 % 6.00 % 8.50 % Total Capital Ratio 16.14 % 18.09 % 8.00 % 10.50 % Leverage Ratio 10.25 % 11.05 % 4.00 % 4.00 % Off-Balance Sheet Arrangements The Company’s off-balance sheet arrangements as of December 31, 2024 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, 2023, the loan to deposit ratio was 56.96%.
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, 2024, the loan to deposit ratio was 60.07%.
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.
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.
Uninsured Deposits FDIC insurance covers deposits of up to $250 per depositor. As of December 31, 2023, $672,063 of the Bank’s deposits were uninsured. Municipal deposits, which account for 25.43% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, 19.65% are uninsured.
Uninsured Deposits FDIC insurance covers deposits of up to $250 per depositor. As of December 31, 2024, $741,063 of the Bank’s deposits were uninsured. Municipal deposits, which account for 23.58% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, 22.38% are uninsured.
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.
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.
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.
More information about the ACLL is provided in “Balance Sheet – Loans – Allowance for Credit Losses” below and 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.
When December 31, 2023 is compared with December 31, 2022, nonaccrual loans and other real estate owned (“OREO”) improved, the net charge-off ratio remained the same, and accruing loans past due 90 days or more increased. The Company believes that sufficient resources have been dedicated to resolving problem assets, and exposure to loss is somewhat mitigated by sufficient collateralization.
When December 31, 2024 is compared with December 31, 2023, nonaccrual loans improved. The net charge-off ratio and accruing loans past due 90 days or more increased, though remain at historically low levels. The Company believes that sufficient resources have been dedicated to resolving problem assets, and exposure to loss is somewhat mitigated by sufficient collateralization.
The forecast applied at December 31, 2023 projects that unemployment will rise over the next 12 months, but to a smaller extent than the forecast applied as of December 31, 2022. The lower unemployment forecast reduced the required level of the ACLL when December 31, 2023 is compared with December 31, 2022.
The forecast applied as of December 31, 2024 projects that unemployment will rise over the next 12 months to a higher level than the forecast applied as of December 31, 2023. The higher unemployment forecast increased the required level of the ACLL when December 31, 2024 is compared with December 31, 2023.
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.
All are due in less than one year. Payments Due by Period Total Less Than 1 Year Commitments to extend credit $ 248,661 $ 248,661 Standby letters of credit 21,081 21,081 Mortgage loans with potential recourse 10,303 10,303 Total $ 280,045 $ 280,045 In the normal course of business the Company’s banking affiliate extends lines of credit to its customers.
Stockholders’ equity increased from December 31, 2022 to December 31, 2023 due to improvements in accumulated other comprehensive loss related to the market value of securities.
Stockholders’ equity increased from December 31, 2023 to December 31, 2024 due to the acquisition of FCB and improvements in accumulated other comprehensive loss related to the market value of securities and the Company's 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.
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 designates the following policies as critical: those governing the allowance for credit losses, goodwill, the pension plan, core deposit intangibles and loans acquired in a business combination.
BOLI income increased when 2023 is compared with 2022, due to a gain of $1,044 for settlement of a policy during 2023. During 2023, the Company sold its VISA Class B securities, recognizing a gain of $2,971.
BOLI income decreased when 2024 is compared with 2023, due to a gain of $1,044 recorded in 2023 for settlement of a policy. During 2023, the Company sold its VISA Class B securities, recognizing a gain of $2,971. The gain on sale of mortgage loans increased from 2023 to 2024 as volume improved.
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.
Conclusion The calculation of the appropriate level for the ACLL incorporates analysis of multiple factors and requires management’s prudent and informed judgment. Based on analysis of historical indicators, asset quality and economic factors, management believes the level of ACLL is reasonable for the credit risk in the loan portfolio as of December 31, 2024.
Loan pools are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management. 31 Table of Contents Reasonable and Supportable Forecast To estimate cash flows, the Company adjusted its historical loss information with a forecast of the national unemployment rate.
Loan classes are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management. Reasonable and Supportable Forecast The Company applies national unemployment forecasts to project cash flows.
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.
Commercial real estate loans are comprised of owner-occupied and leased nonfarm, nonresidential properties, multi-family residence loans and farmland. 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.
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.
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. Credit and debit card fees, net, decreased when 2024 is compared with 2023 due to higher processing costs.
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.
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, 2024 2023 ACLL $ 10,262 $ 9,094 Total loans, net of deferred fees 987,950 856,646 ACLL to loans, net of deferred fees and costs 1.04 % 1.06 % Nonaccrual loans $ 2,222 $ 2,629 Nonperforming loans to total loans, net of deferred fees and costs 0.22 % 0.31 % ACLL to nonperforming loans 461.84 % 345.91 % Accruing loans past due 90 days or more $ 548 $ 188 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.
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.
Year Ended December 31, Net Interest Margin, FTE 2024 2023 Interest income (GAAP) $ 70,122 $ 58,833 Add: FTE adjustment 968 890 Interest income, FTE (non-GAAP) 71,090 59,723 Interest expense (GAAP) 33,725 21,550 Net interest income, FTE (non-GAAP) $ 37,365 $ 38,173 Average balance of interest-earning assets $ 1,706,479 $ 1,606,667 Net interest margin (non-GAAP) 2.19 % 2.38 % 22 Table of Contents Efficiency Ratio The efficiency ratio (non-GAAP) 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.
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.
Credit and debit card fees are presented net of certain processing expenses and are dependent on the volume of transactions. 28 Table of Contents Trust income increased when the year ended December 31, 2024 is compared with the year ended December 31, 2023 due to higher volume.
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.
December 31, 2024 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 $ 45,414 $ 22,295 $ 11,316 $ 5,614 $ 84,639 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.
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.
Summary Asset Quality Key indicators of the Company’s asset quality are presented in the following table as of the dates indicated: December 31, 2024 2023 Nonaccrual loans $ 2,222 $ 2,629 Loans past due 90 days or more, and still accruing 548 188 ACLL to loans net of deferred fees and costs 1.04 % 1.06 % Net charge-off ratio 0.03 % 0.02 % Ratio of nonperforming assets to loans, net of deferred fees and costs 0.22 % 0.31 % Ratio of ACLL to nonperforming loans 461.84 % 345.91 % The Company monitors asset quality indicators in managing credit risk and in determining the ACLL and provision for credit losses.
The Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $3 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements.
While earnings were lower in 2024 when compared to 2023, the Company maintained its regular semiannual dividend. 37 Table of Contents The Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $3 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements.
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.
As of December 31, 2024, there are no credit risk concerns with any of the Company’s securities. 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.
The Company is positioned to continue to make every loan that meets its underwriting standards. Securities available for sale are reported at fair value, which moves inversely to interest rate changes.
The higher interest rate environment continues to restrain loan demand. The Company is positioned to continue to make every loan that meets its underwriting standards. Securities available for sale are presented at fair value as of each reporting date. The fair value of bonds moves inversely to interest rate changes and expectations of interest rate changes.
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 discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A. of this Form 10-K. 21 Table of Contents Critical Accounting Policies The Company’s consolidated financial statements are prepared in accordance with GAAP.
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.
The following table presents information on the ACLL as of the dates indicated: December 31, 2024 December 31, 2023 Allowance Amount Percent of Loans to Total Gross Loans Percent of Allowance to Gross Loans Allowance Amount Percent of Loans to Total Gross Loans Percent of Allowance to Gross Loans Real estate construction $ 348 5.14 % 0.69 % $ 408 6.45 % 0.74 % Consumer real estate 3,926 31.14 % 1.28 % 3,162 28.20 % 1.31 % Commercial real estate 4,299 48.36 % 0.90 % 3,576 48.92 % 0.85 % Commercial non-real estate 655 5.24 % 1.26 % 682 4.85 % 1.64 % Public sector and IDA 336 5.78 % 0.59 % 333 7.07 % 0.55 % Consumer non-real estate 648 4.34 % 1.51 % 583 4.51 % 1.51 % Unallocated 50 - - 350 - - $ 10,262 100.00 % 1.04 % $ 9,094 100.00 % 1.06 % 34 Table of Contents Securities The Company’s securities are designated as available for sale and as such, are reported at fair value.
Also in 2023, the Company sold its VISA Class B shares and recognized a pre-tax gain of $2,971, and strategically sold securities, recording a pre-tax loss of $3,332.
Related to the 2022 gain on the sale of a private equity investment, the Company recorded in 2023 pre-tax income of $232 upon receipt of a contract contingency payment. Also in 2023, the Company sold its VISA Class B shares and recognized a pre-tax gain of $2,971, and strategically sold securities, recording a pre-tax loss of $3,332.
This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency.
This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. The components of the efficiency ratio calculation for the periods indicated are summarized in the following table.
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.
December 31, 2024 Net Charge-Offs (Recoveries) Average Loans, net of deferred fees and costs Percentage of Net Charge-Offs (Recoveries) to Average Loans Real estate construction $ - $ 66,654 0.00 % Consumer real estate - 278,351 0.00 % Commercial real estate (53 ) 445,212 (0.01 )% Commercial non-real estate 87 48,175 0.18 % Public Sector and IDA - 58,953 0.00 % Consumer non-real estate 215 41,003 0.52 % Total $ 249 $ 938,348 0.03 % December 31, 2023 Net Charge-Offs (Recoveries) Average Loans, net of deferred fees and costs Percentage of Net Charge-Offs (Recoveries) to Average Loans Real estate construction $ - $ 58,214 0.00 % 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 0.00 % Consumer non-real estate 118 35,754 0.33 % Total $ 195 $ 851,087 0.02 % The Company charges off commercial real estate loans at the time that a loss is confirmed.
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.
A decrease in the level of high risk loans within a class decreases the required allocation for the loan class, and an increase in the level of high risk loans within a class increases the required allocation for the loan class. Total high risk loans increased from the level at December 31, 2023, resulting in an increased allocation.
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”.
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.
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.
Average Amounts of Deposits and Average Rates Paid Average amounts and average rates paid on deposit categories during the periods indicated are presented below: Years Ended December 31, 2024 2023 Average Amounts Average Rates Paid Average Amounts Average Rates Paid Noninterest-bearing demand deposits $ 290,038 - $ 299,748 - Interest-bearing demand deposits 838,526 2.44 % 826,112 1.88 % Savings deposits 176,014 0.51 % 195,592 0.38 % Time deposits 278,535 4.45 % 150,395 3.32 % Average total deposits $ 1,583,113 2.13 % $ 1,471,847 1.44 % B.
As part of its interest rate risk management, the Company periodically evaluates its position in financial assets. During the first half of 2023, the Company strategically selected and sold securities with an amortized cost of $46,850, realizing a loss of $3,332. The strategy for the sales prioritized enhancement of long-term earnings.
During the first half of 2023, the Company strategically selected and sold securities with an amortized cost of $46,850, realizing a loss of $3,332. The strategy for the sales prioritized enhancement of long-term earnings. Credit risk in the Company’s investment portfolio is evaluated on an individual security basis. The Company’s investment portfolio includes corporate bonds.
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.
The following table shows the results of rate shocks on net interest income projected for one year from the reporting date. 27 Table of Contents Rate Shift (basis points) Change in Projected Net Interest Income as of December 31, 2024 2023 300 -8.60 % -10.60 % 200 -4.70 % -6.80 % 100 -1.90 % -3.20 % (-)100 7.00 % 8.40 % (-)200 12.80 % 15.70 % (-)300 18.00 % 22.10 % Results of the net interest income simulation indicate that the Company is liability sensitive as of December 31, 2024 and December 31, 2023.
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.
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 varies depending on the number and type of accounts under management and financial market conditions.
(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.
(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. The acquisition of FCB increased the volume of both loans and deposits, contributing to higher interest income and interest expense.
See Interest Rate Sensitivity for further details on asset liability management and Note 15 of Notes to Consolidated Financial Statements for information relating to fair value of financial instruments. Liquidity Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost. Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits.
Liquidity Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost. Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits.
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 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.
Modifications for Borrowers Who Were Not Experiencing Financial Difficulty During the years ended December 31, 2023 and 2022, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty. During the 2023, the Company modified 757 loans totaling $89,006. During 2022, the Company provided modifications for competitive purposes to 840 loans totaling $120,241.
Please refer to Note 5 of Notes to Financial Statements for information on modifications to loans for borrowers experience financial difficulty during the years ended December 31, 2024 and December 31, 2023. During the years ended December 31, 2024 and 2023, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty.
Adjustments for asset and liability management are made when securities are called or mature and funds are subsequently reinvested. Securities may be sold for reasons related to credit quality, to maintain compliance with regulatory limitations or for interest rate risk management. No trading activity is planned in the foreseeable future.
Securities may be sold for reasons related to credit quality, to maintain compliance with regulatory limitations or for interest rate risk management. No trading activity is planned in the foreseeable future. See Interest Rate Sensitivity for further details on asset liability management and Note 15 of Notes to Consolidated Financial Statements for information relating to fair value of financial instruments.
A portion of the Company’s taxable securities portfolio is subject to monthly repricing, while many of the Company’s loans are adjustable with repricing dates in the future. Increases to interest income from rates were partially offset by lower volume of securities from sales and maturities, and lower volume of interest-bearing deposits due to lower customer deposits.
The elevated rate environment increased interest income and while interest expense continued to rise, the increase moderated when compared with 2023. A portion of the Company’s taxable securities portfolio is subject to monthly repricing, while many of the Company’s loans are adjustable with repricing dates in the future. The volume of interest-bearing deposit assets increased due to higher customer deposits.
Please refer to Note 1 of Notes to Consolidated Financial Statements for information on the Company’s identification of individually evaluated loans. As of December 31, 2023, three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation.
Individually Evaluated Loans Individually evaluated loans were $10,521 as of December 31, 2024, a decrease from $10,544 as of December 31, 2023. Please refer to Note 1 of Notes to Consolidated Financial Statements for information on the Company’s identification of individually evaluated loans.
The competitive, legal and regulatory environments were evaluated for changes that would affect credit risk. Higher competition for loans increases credit risk, while lower competition decreases credit risk. Competition remained at similar levels to those at December 31, 2022. The legal and regulatory environments also remain in a similar posture to December 31, 2022.
As of December 31, 2024, the Company reduced its allocation from December 31, 2023. The competitive, legal and regulatory environments were evaluated for changes that would affect credit risk. Higher competition for loans increases credit risk, while lower competition decreases credit risk.
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.
During 2023, the Company recognized a gain on the settlement of a BOLI policy that was not taxable. 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, 2024 and December 31, 2023.
Year Ended December 31, Summary Income and Expenses 2023 2022 Interest income $ 58,833 $ 50,109 Interest expense 21,550 3,083 Net interest income 37,283 47,026 (Recovery of) provision for credit losses (1,261 ) 706 Net interest income after (recovery of) provision for credit losses 38,544 46,320 Noninterest income 9,359 12,401 Noninterest expense 29,228 26,958 Income before income taxes 18,675 31,763 Income tax expense 2,984 5,831 Net income $ 15,691 $ 25,932 22 Table of Contents Year Ended December 31, Key Performance Indicators 2023 2022 Return on average assets 0.97 % 1.52 % Return on average equity (1)(2) 12.59 % 17.81 % Basic and fully diluted net earnings per common share $ 2.66 $ 4.33 Net interest margin (3) 2.38 % 2.88 % Efficiency ratio (4) 61.01 % 47.69 % (1) During the year ended December 31, 2022, the Company repurchased 174,250 shares under its publicly announced stock repurchase plan.
Year Ended December 31, Summary Income and Expenses 2024 2023 Interest income $ 70,122 $ 58,833 Interest expense 33,725 21,550 Net interest income 36,397 37,283 Provision for (recovery of) credit losses 1,227 (1,261 ) Net interest income after provision for (recovery of) credit losses 35,170 38,544 Noninterest income 8,960 9,359 Noninterest expense 35,008 29,228 Income before income taxes 9,122 18,675 Income tax expense 1,499 2,984 Net income $ 7,623 $ 15,691 Year Ended December 31, Summary Key Performance Indicators 2024 2023 Return on average assets 0.44 % 0.97 % Return on average equity 5.17 % 12.59 % Basic net income per common share $ 1.24 $ 2.66 Fully diluted net income per common share $ 1.24 $ 2.66 Net interest margin (1) 2.19 % 2.38 % Efficiency ratio (1) 68.90 % 61.01 % (1) See "Non-GAAP Financial Measures" above.
(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.
(5) Interest on nontaxable loans and securities is computed on an FTE basis using a Federal income tax rate of 21%. (6) Includes restricted stock. 26 Table of Contents The following table reconciles net interest income on an FTE basis (non-GAAP) to net interest income on a GAAP basis for the years indicated.
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.
The majority of the securities portfolio was purchased prior to the Federal Reserve’s rate increases during 2022 and 2023. The Company’s Asset Liability Management Committee closely monitors all of the Company’s financial assets and liabilities in managing interest rate risk. During 2024, the Company did not purchase securities to replace matured securities.
The Company increased its base compensation during 2022 in order to attract and retain talent, which is reflected in 2023 results. When the year ended December 31, 2023 is compared with the year ended December 31, 2022, occupancy, furniture and fixtures expense and data processing and ATM expense increased due to ATM upgrades and higher maintenance costs.
When the year ended December 31, 2024 is compared with the year ended December 31, 2023, occupancy, furniture and fixtures expense and data processing and ATM expense increased due to ATM upgrades, higher maintenance costs, and additional assets acquired from FCB. FDIC assessment expense increased from 2023 to 2024, due to an expanded assessment base after the FCB acquisition.
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.
Year Ended December 31, 2024 2023 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Interest-earning assets: Loans (1)(2)(3)(4)(5) $ 938,446 $ 48,369 5.15 % $ 851,221 $ 39,320 4.62 % Taxable securities (4)(6) 627,656 16,797 2.68 % 652,477 16,536 2.53 % Nontaxable securities (4)(5) 63,566 1,828 2.88 % 65,309 1,885 2.89 % Federal funds sold 600 26 4.33 % - - - Interest-bearing deposits 76,211 4,070 5.34 % 37,660 1,982 5.26 % Total interest-earning assets $ 1,706,479 $ 71,090 4.17 % $ 1,606,667 $ 59,723 3.72 % Interest-bearing liabilities: Interest-bearing demand deposits $ 838,526 $ 20,445 2.44 % $ 826,112 $ 15,515 1.88 % Savings deposits 176,014 897 0.51 % 195,592 746 0.38 % Time deposits 278,535 12,381 4.45 % 150,395 4,989 3.32 % Borrowings 57 2 3.51 % 6,198 300 4.84 % Total interest-bearing liabilities $ 1,293,132 $ 33,725 2.61 % $ 1,178,297 $ 21,550 1.83 % Net interest income and interest rate spread $ 37,365 1.56 % $ 38,173 1.89 % Net interest margin 2.19 % 2.38 % (1) Loans are net of deferred fees and costs.
The Federal Reserve’s interest rate increases during 2022 and 2023 reduced the fair value of the Company’s securities portfolio, though the percentage of unrealized loss improved when December 31, 2023 is compared with December 31, 2022. The portfolio decreased during 2023 due to sales and maturities. Further detail is provided in the “Balance Sheet” section below.
Most of the Company’s securities were purchased during periods prior to the Federal Reserve’s interest rate increases that began in March of 2022. The portfolio decreased during 2024 due to maturities and pay downs. Further detail is provided in the “Balance Sheet” section below.
After the rate increase has been in effect for one year, the allocation may be removed under the assumption that the impact of the change has become integrated to the portfolio. For the calculation as of December 31, 2023, the Company removed allocations for interest rate increases that occurred between March and December 2022.
The Company allocates additional reserve each time the Federal Reserve increases rates, under the expectation that higher payments may increase credit risk. After the rate increase has been in effect for one year, the allocation may be removed if management deems that the impact of the change has become integrated to the portfolio.
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.
Upon acquisition of FCB in 2024, the Company recognized a core deposit intangible asset that is amortized over 10 years. Franchise tax expense increased from 2023 to 2024. 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.

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