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What changed in NATIONAL BANKSHARES INC's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of NATIONAL BANKSHARES INC's 2024 and 2025 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 2025 report.

+221 added−228 removedSource: 10-K (2026-03-27) vs 10-K (2025-03-28)

Top changes in NATIONAL BANKSHARES INC's 2025 10-K

221 paragraphs added · 228 removed · 167 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

45 edited+16 added−17 removed76 unchanged
Biggest changeTreasury 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.
Biggest changeTo 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.
The following table presents the required minimum ratios along with the required minimum ratios including the capital conservation buffer: Regulatory Capital Ratios Minimum Ratio Minimum Ratio With Capital Conservation Buffer Total Capital to Risk Weighted Assets 8.00 % 10.50 % Tier 1 Capital to Risk Weighted Assets 6.00 % 8.50 % Common Equity Tier 1 Capital to Risk Weighted Assets 4.50 % 7.00 % Tier 1 Capital to Average Assets (Leverage Ratio) 4.00 % 4.00 % Risk-weighted assets are assets on the balance sheet as well as certain off-balance sheet items, such as standby letters of credit, to which weights between 0% and 1250% are applied, according to the risk of the asset type.
The following table presents the required minimum ratios along with the required minimum ratios including the capital conservation buffer: 6 Table of Contents Regulatory Capital Ratios Minimum Ratio Minimum Ratio With Capital Conservation Buffer Total Capital to Risk Weighted Assets 8.00 % 10.50 % Tier 1 Capital to Risk Weighted Assets 6.00 % 8.50 % Common Equity Tier 1 Capital to Risk Weighted Assets 4.50 % 7.00 % Tier 1 Capital to Average Assets (Leverage Ratio) 4.00 % 4.00 % Risk-weighted assets are assets on the balance sheet as well as certain off-balance sheet items, such as standby letters of credit, to which weights between 0% and 1250% are applied, according to the risk of the asset type.
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.
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 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.
The branches acquired in 2024 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.
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.
Institutions with at least $1.5 billion but less than $3 billion in total assets, including the Company, were 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.
NBB is required to comply with these laws and regulations in its dealings with customers. In addition, the CFPB has adopted and may continue to refine rules regulating consumer mortgage lending pursuant to the Dodd-Frank Act. There are numerous disclosure and other compliance requirements associated with the consumer laws and regulations.
NBB is required to comply with these laws and regulations in its dealings with customers. In addition, the CFPB has adopted and may continue to refine rules regulating consumer mortgage lending pursuant to the Dodd-Frank Act. There are numerous disclosure and other compliance requirements associated with the consumer laws and regulations. Deposit Insurance.
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.
NBB offers telephone, mobile and internet banking and it operates 26 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.
The Company has adopted a clawback policy compliant with such rule, a copy of which is attached as Exhibit 97.1 to this Form 10-K. Cybersecurity . In March 2015, federal regulators issued two related statements regarding cybersecurity.
The Company has adopted a clawback policy compliant with such rule, a copy of which is included as Exhibit 97.1 to this Form 10-K. Cybersecurity . In March 2015, federal regulators issued two related statements regarding cybersecurity.
Common Equity Tier 1 Capital (“CET1”) is capital according to the balance sheet, adjusted for goodwill and intangible assets and other prescribed adjustments. At NBB’s election, CET1 is also adjusted to exclude accumulated other comprehensive loss. Tier 1 Capital is CET1 adjusted for additional capital deductions.
Common Equity Tier 1 Capital (“CET1”) is capital according to the balance sheet, adjusted for goodwill and intangible assets and other prescribed adjustments. At NBB’s election, CET1 is also adjusted to exclude accumulated other comprehensive income or loss. Tier 1 Capital is CET1 adjusted for additional capital deductions.
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.
The Company’s proxy materials for the 2026 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.
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.
NBB exceeded the thresholds to be considered well capitalized as of December 31, 2025. Limits on Dividend Payments. A significant portion of NBI’s income is derived from dividends paid by NBB.
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 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 7 Table of Contents 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.
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.
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, 2025, NBB’s capital ratios exceeded the minimum ratios including the capital conservation buffer.
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.
With some limited exceptions, the BHCA requires 4 Table of Contents 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.
In order to compete, NBB relies upon a deep knowledge of its markets, a service-based business philosophy, personal relationships with customers, specialized services tailored to meet customers’ needs and the convenience of office locations and technological access.
In order to compete, NBB relies upon a deep knowledge of its markets, a service-based business philosophy, personal relationships with customers, speci alized services tailored to meet customers’ needs and the convenience of office locations and technological access.
The FDIC maintains a Deposit Insurance Fund (“DIF”) that is funded by risk-based insurance premium assessments on insured depository institutions. Assessments are determined based upon several factors, including the level of regulatory capital and the results of regulatory examinations.
NBB has deposits that are insured by the FDIC. The FDIC maintains a Deposit Insurance Fund (“DIF”) that is funded by risk-based insurance premium assessments on insured depository institutions. Assessments are determined based upon several factors, including the level of regulatory capital and the results of regulatory examinations.
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.
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. The Federal Reserve is authorized to examine NBI and its subsidiaries.
Item 1. Business History and Business National Bankshares, Inc. (the “Company” or “NBI”) is a financial holding company that was organized in 1986 under the laws of Virginia and is registered under the Bank Holding Company Act of 1956.
Item 1. Business History and Business National Bankshares, Inc. (the “Company” or “NBI”) is a financial holding company that was organized in 1986 under the laws of Virginia and is registered under the Bank Holding Company Act of 1956, as amended ("BHCA").
As of December 31, 2024, the Company had not been made aware of any instances of non-compliance with the final guidance.
As of December 31, 2025, the Company had not been made aware of any instances of non-compliance with the final guidance.
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.
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. During 2025, the CFPB reduced its staff by over 80%.
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 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 table presents the executive officers of the Company; their age; their terms of office as officers; the positions and offices within the Company held by each officer; and thier principal occupation or employment during the past five years.
Jones 47 National Bankshares, Inc.: Executive Vice President/CFO and Treasurer, January 8, 2025 to Present; Senior Vice President/CFO and Treasurer, May 2022 to January 7, 2025; Vice President/Controller, May 2014 – May 2022; Corporate Analysis Officer June 2011 – May 2014.
Jones 48 National Bankshares, Inc.: EVP/CFO and Treasurer, January 8, 2025 to Present; SVP/CFO and Treasurer, May 2022 to January 7, 2025; Vice President/Controller, May 2014 – May 2022; Corporate Analysis Officer June 2011 – May 2014.
Ramsey 56 National Bankshares, Inc.: 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, June 2011 – December 2017; Vice President/Human Resources, January 2001 – June 2011.
Ramsey 57 National Bankshares, Inc.: Chief Executive Officer ("CEO"), July 2025 to Present; President, January 1, 2025 to Present; Corporate Secretary, June 2016 to June 2025; Executive Vice President ("EVP")/Chief Operating Officer ("COO") May 2022 to December 31, 2024; Senior Vice President ("SVP")/Administration, June 2011 to December 2017; Vice President/Human Resources, January 2001 – June 2011.
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. The Economic Growth, Regulatory Reform and Consumer Protection Act of 2018.
In the event of a bank holding 5 Table of Contents company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
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.
Mylum 59 National Bankshares, Inc.: EVP/Chief Lending Officer, November 2019 to Present; SVP/Chief Lending Officer, August 2016 – November 2019 The National Bank of Blacksburg: EVP/Chief Lending Officer, November 2019 to Present; SVP/Chief Lending Officer, August 2016 – November 2019; SVP/Loans, August 2012 – August 2016. 2012 Lora M.
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: EVP/COO, February 1, 2026 to Present; EVP/Chief Risk Officer, January 8, 2025 to January 31, 2026; SVP/Senior Operations, Risk and Technology Officer, May 2022 to January 7, 2025; SVP/Operations and Risk Management and CFO, January 2009 – May 2022; SVP/Operations and Risk Management, February 2008 – January 2009; Vice President/Operations and Risk Management, April 2004 – February 2008. 2009 Paul M.
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.
As of December 31, 2025, NBB had total assets of $1,821,703 and total deposits of $1,646,795. NBB’s net income for 2025 was $16,858, which produced a return on average assets of 0.93% and a return on average equity of 10.93%. Refer to Note 11 of Notes to Consolidated Financial Statements for NBB’s risk-based capital ratios. National Bankshares Financial Services, Inc.
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.
Percentage of Total Operating Revenue For the Year Ended December 31, Revenue Component 2025 2024 Interest and Fees on Loans 65.00 % 60.59 % Interest on Investments 19.54 % 22.80 % Market Area The Company serves customers through its offices in southwest, western and central Virginia.
The region has had success attracting retirees, particularly from the Northeast and urban northern Virginia. Because NBI’s market area is economically diverse and includes large public employers, it has historically avoided the most extreme effects of past economic downturns. Future economic challenges may impact unemployment and other economic indicators that could negatively affect the Company’s market.
Because NBI’s market area is economically diverse and includes large public employers, it has historically avoided the most extreme effects of past economic downturns. Future economic challenges may impact unemployment and other economic indicators that could negatively affect the Company’s market. Competition The banking and financial services industry is highly competitive.
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.
The National Bank of Blacksburg: EVP/CFO and Cashier, January 8, 2025 to Present; SVP/CFO and Cashier, May 2022 to January 7, 2025; Vice President/Controller, May 2014 – May 2022; Corporate Analysis Officer June 2011 – May 2014. National Bankshares Financial Services, Inc.: Treasurer, July 1, 2025 to Present. 2011 Bobby D.
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.
The National Bank of Blacksburg: CEO, July 2025 to Present; President, January 1, 2025 to Present; Corporate Secretary, June 2016 to June 2025; EVP/COO, May 2022 to December 31, 2024; SVP/Administration, January 2018 to May 2022; Vice President/Human Resources, January 2001 to June 2011. National Bankshares Financial Services, Inc.: Chairman, President and CEO, July 2025 to Present. 2016 David K.
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.
As of December 31, 2025, NBB had 243 full time employees and 11 part time employees. NBFS had two full time employees and 1 part time employee.. NBB performs services for and charges commensurate fees to NBI and NBFS.
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.
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.
Skeens 58 National Bankshares, Inc.: 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; Treasurer and CFO, January 2009 to May 2022.
Skeens 59 National Bankshares, Inc.: EVP/COO, February 1, 2026 to Present; EVP/Chief Risk Officer, January 8, 2025 to January 31, 2026; SVP/Senior Operations, Risk and Technology Officer, May 2022 to January 7, 2025; Treasurer and Chief Financial Officer ("CFO"), January 2009 to May 2022.
The National Bank of Blacksburg: Senior Vice President/Chief Credit Officer, March 2022 to Present. 2022 10 Table of Contents
Sanders, II 46 National Bankshares, Inc.: SVP/Chief Credit Officer, March 2022 to Present. The National Bank of Blacksburg: SVP/Chief Credit Officer, March 2022 to Present. 2022 10 Table of Contents
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.
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.
NBI is a bank holding company qualified as a financial holding company under the federal Bank Holding Company Act of 1956, as amended (“BHCA”), which is administered by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).
NBI is a bank holding company qualified as a financial holding company under the BHCA, which is administered by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). As such, NBI is subject to the supervision, examination, and reporting requirements of the BHCA and the regulations of the Federal Reserve.
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.
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. Tazewell County's economic base is centered on the coal mining industry and agriculture.
The Basel III Capital Rules require NBB to comply with minimum capital ratios plus a “capital conservation buffer” designed to absorb losses during periods of economic stress.
Capital Requirements. NBB is subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Act (the “Basel III Capital Rules”) as applied by the OCC. The Basel III Capital Rules require NBB to comply with minimum capital ratios plus a “capital conservation buffer” designed to absorb losses during periods of economic stress.
NBB competes for loans and deposits with other commercial banks, credit unions, securities and brokerage companies, mortgage companies, insurance companies, retailers, automobile companies and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than NBB.
Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than NBB.
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.
Through 28 banking locations across southwest, western and central Virginia, including a new branch opened in 2025 in Roanoke, Virginia, a recently upgraded Lynchburg, Virginia location and a loan production office in Charlottesville, Virginia, NBB offers a full range of retail and commercial banking services to individuals, businesses, non-profits and local governments.
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 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.
Competition The banking and financial services industry is highly competitive. The competitive business environment is a result of changes in regulation, changes in technology and product delivery systems and competition from other financial institutions as well as non-traditional financial services.
The competitive business environment is a result of changes in regulation, changes in technology and product delivery systems and competition from other financial institutions as well as non-traditional financial services. NBB competes for loans and deposits with other commercial banks, credit unions, securities and brokerage companies, mortgage companies, insurance companies, retailers, automobile companies and other nonbank financial service providers.
On October 24, 2023, the federal bank regulatory agencies issued a final rule to modernize their respective CRA regulations. The revised rules substantially alter the methodology for assessing compliance with the CRA, with material aspects taking effect January 1, 2026 and revised data reporting requirements taking effect January 1, 2027.
On October 24, 2023, the federal bank regulatory agencies issued a final rule to modernize their respective CRA regulations. The revised rules would have substantially altered the methodology for assessing compliance with the CRA, and likely would have made it more challenging and/or costly for NBB to maintain its “satisfactory” rating.
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.
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.
Removed
As such, NBI is subject to the supervision, examination, and reporting requirements of the BHCA and the regulations of the Federal Reserve.
Added
The reduction in force is the subject of litigation, and the staffing cuts are currently stayed pending the federal circuit court’s rehearing of the case. The impact of these developments on banking organizations is uncertain.
Removed
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.
Added
States and state attorneys general may increase regulatory, investigative and enforcement activity with respect to consumer protection, in response to changes in regulation, supervision and enforcement of consumer protection laws by federal regulators.
Removed
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.
Added
Notwithstanding ongoing, legal, budgetary and structural challenges affecting the CFPB, the CFPB remains an active federal regulatory agency with continuing supervisory and enforcement authority and retains its broad authority to pursue enforcement actions, including investigations, civil actions and cease and desist proceedings. The CFPB may also refer civil and criminal findings to the Department of Justice for prosecution.
Removed
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.
Added
NBB is also subject to other federal and state consumer protection laws and regulations that, among other things, prohibit unfair, deceptive and abusive, corrupt or fraudulent business practices, untrue or misleading advertising and unfair competition. Source of Strength.
Removed
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) .
Added
Following its finalization on March 29, 2024, the 2023 modernization rule became subject to an ongoing injunction. On July 16, 2025, the federal bank regulatory agencies issued a joint proposal to rescind the 2023 modernization rule.
Removed
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.
Added
The agencies continue to apply the CRA rules as they existed before the 2023 modernization, considering the injunction and pending finalization of the rescission of the modernization rule. Privacy Legislation .
Removed
Among other things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible CRA activities.
Added
The FDIC has authority to impose special measures to boost the deposit insurance fund such as prepayments of assessments and additional special assessments.
Removed
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 .
Added
OFAC publishes lists of prohibited parties that are regularly consulted by the Company in the conduct of its business in order to assure compliance.
Removed
The EGRRCPA modified a number of these requirements, including, for qualifying institutions with less than $10 billion in assets, a safe harbor for compliance with the “ability to pay” requirements for consumer mortgage loans. Deposit Insurance. NBB has deposits that are insured by the FDIC.
Added
Despite numerous proposals, no regulation has been finalized.
Removed
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.
Added
Cybersecurity of this Form 10-K for a discussion of the Company’s cybersecurity risk management, strategy and governance. Fair Access to Financial Services .
Removed
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.
Added
In August 2025, President Trump signed Executive Order 14331, “Guaranteeing Fair Banking Access for All Americans,” which states that it is the policy of the United States that no American should be denied access to financial services because of their constitutionally or statutorily protected beliefs, affiliations, or political views.
Removed
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.
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The Executive Order directs the Treasury Secretary and federal banking regulators to address politicized or unlawful debanking activities.
Removed
The federal banking agencies issued such proposed rules in March 2011 and issued a revised proposed rule in June 2016 implementing the requirements and prohibitions set forth in Section 956.
Added
In recent years, certain states have also enacted, or have proposed to enact, statutes, regulations or policies that prohibit financial institutions from denying or canceling products or services to a person or business, or otherwise discriminating against a person or business in making available products or services, on the basis of certain social or political factors or other activities.
Removed
The 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.
Added
Artificial Intelligence. CFPB and other federal regulatory guidance reiterates that creditors are not excused from the adverse action notice requirements under the Equal Credit Opportunity Act if they rely on complex algorithmic underwriting models. States have also 8 Table of Contents started to regulate the use of artificial intelligence technologies.
Removed
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.
Added
In July 2024, the federal banking agencies issued a final rule that requires, among other things, financial institutions to ensure that their automated valuation models for property valuation follow certain quality control standards, including a requirement that such valuation models comply with nondiscrimination laws.
Removed
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.
Added
Name Age Offices and Positions Held Year Elected an Officer Lara E.
Removed
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

22 edited+2 added−8 removed122 unchanged
Biggest changeThe trading volume in the Company’s common stock on the Nasdaq Capital Market has been relatively low when compared with larger companies listed on the Nasdaq Capital Market or other stock exchanges. There is no assurance that a more active and liquid trading market for the common stock will exist in the future.
Biggest changeWhile 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. The trading volume in the Company’s common stock on the Nasdaq Capital Market has been relatively low when compared with larger companies listed on the Nasdaq Capital Market or other stock exchanges.
In the event the Company forecloses on a loan that is collateralized with property having reduced market value, the Company may suffer a recovery loss. The Bank has a moderate concentration of credit exposure in commercial real estate, and loans with this type of collateral are viewed as having more risk of default.
In the event the Company forecloses on a loan that is collateralized with property having reduced market value, the Company may suffer a loss upon liquidation of the collateral. The Bank has a moderate concentration of credit exposure in commercial real estate, and loans with this type of collateral are viewed as having more risk of default.
Third parties provide key components of the Company’s business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While the Company has selected these third party vendors carefully, it does not control their actions.
Third parties provide key components of the Company’s business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While the Company has selected these 14 Table of Contents third party vendors carefully, it does not control their actions.
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.
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.
If 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.
If any of the foregoing risks materialize, it could have a material adverse effect on the Company’s business, financial condition, and results of operations. 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.
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 or theft by employees, directors, or outsiders.
Concerns regarding the effectiveness of the Company’s 16 Table of Contents measures to safeguard PII, or even the perception that such measures are inadequate, could cause the Company to lose customers or potential customers and thereby reduce its revenues.
Concerns regarding the effectiveness of the Company’s measures to safeguard PII, or even the perception that such measures are inadequate, could cause the Company to lose customers or potential customers and thereby reduce its revenues.
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.
As of December 31, 2025, 83.7% 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.
In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs.
In addition, the complexity of 17 Table of Contents many AI models makes it difficult to understand why they are generating particular outputs.
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.
As of December 31, 2025, approximately 41.7% 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 19.75% are uninsured. We rely on deposits for liquidity.
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.
From time to time, customers make claims and take legal action pertaining to the performance of the Company’s fiduciary responsibilities.
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, 2025, the Bank held $467,783 in loans secured by commercial real estate, representing 46.8% of total loans outstanding at that date. The real estate consists primarily of multi-family housing, non-owner-occupied properties and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans.
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.
To the extent that regulatory initiatives lead to the promulgation of new regulations or supervisory guidance applicable to the Company, the Company would likely experience increased compliance costs and other compliance-related risks. LEGAL RISK The Company is subject to claims and litigation pertaining to fiduciary responsibility.
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.
Effective internal controls also are a deterrent to fraud. Pursuant to Section 404 15 Table of Contents 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.
One or more of these could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline. CREDIT RISK Focus on lending to small to mid-sized community-based businesses may increase our credit risk.
One or more of these could cause the Company’s future results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline.
If general economic conditions in the market areas in which the Company operates negatively impact this important customer sector, the Company’s results of operations and financial condition may be adversely affected.
These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market areas in which the Company operates negatively impact this important customer sector, the Company’s results of operations and financial condition may be adversely affected.
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.
Climate change may result in operational changes and expenditures that could negatively impact the Company’s business. The current and anticipated effects of climate change are creating concern for the state of the global environment.
As part of its ongoing monitoring of internal controls, the Company may discover material weaknesses or significant deficiencies in its internal controls that require remediation.
If the Company cannot provide reliable financial reports or reasonably prevent fraud, its reputation and operating results would be harmed. As part of its ongoing monitoring of internal controls, the Company may discover material weaknesses or significant deficiencies in its internal controls that require remediation.
Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on customers and impact the communities in which the Company operates. Overall, climate change, its effects and the resulting unknown impact, could have a material adverse effect on the Company’s financial condition and results of operations.
Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on customers and impact the communities in which the Company operates. 16 Table of Contents The federal banking regulators have been focused on the physical and financial risks to financial institutions associated with climate change.
Consequently, stockholders may not be able to sell a substantial number of shares for the same price at which stockholders could sell a smaller number of shares.
There is no assurance that a more active and liquid trading market for the common stock will exist in the future. Consequently, stockholders may not be able to sell a substantial number of shares for the same price at which stockholders could sell a smaller number of shares.
These factors would increase the likelihood that more of our customers would become delinquent or default on their loans.
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 results of operations and financial condition.
Most of the Company’s commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.
CREDIT RISK Focus on lending to small to mid-sized community-based businesses may increase our credit risk. Most of the Company’s commercial business and commercial real estate loans are made to small business or middle market customers.
Removed
Notably, guidance issued in June 2016 required a change in the calculation of credit reserves from using an incurred loss model to using the current expected credit losses model (“CECL”), effective January 1, 2023. To implement the standard, the Company incurred costs related to documentation, technology, training and increased audit expenses to validate the model.
Added
References to past events in these risk factors are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future.
Removed
Adoption increased our credit reserves and reduced capital. Post adoption, the ACLL may experience increased volatility associated with change in forecasts that will impact profit and loss and various financial metrics. Please refer to Note 1 of Notes to Consolidated Financial Statements for further information on CECL.
Added
Expectations with respect to these matters has been changing, and it is difficult to predict changes in priorities and requirements with respect to these matters, including any changes in compliance costs relating to such changes.
Removed
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.
Removed
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.
Removed
The OCC also has appointed its first ever Climate Change Risk Officer and established an internal climate risk implementation committee in order to assist with these initiatives and to support the agency’s efforts to enhance its supervision of climate change risk management.
Removed
Similar and even more expansive initiatives are expected, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.
Removed
In addition, on March 6, 2024, the SEC adopted rules to enhance and standardize climate-related disclosures by public companies so that there is more consistent, comparable, and reliable information about the financial effects of climate-related risks on a public company’s operations and how it manages those risks.
Removed
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.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

1 edited+0 added−0 removed9 unchanged
Biggest changeManagement’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.
Biggest changeManagement’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 Operating Officer and the Board of Directors.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−1 removed1 unchanged
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.
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. NBB owns an additional twenty branch offices and a private office location for support functions. NBB leases six branch locations and one loan production office.
We believe that existing facilities are adequate for current needs and to meet anticipated growth. A list of all branch and ATM locations is available on our website at www.nbbank.com . Information contained on our website is not part of this report.
As of December 31, 2025, 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.
Removed
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−0 removed3 unchanged
Biggest changeIn 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.
Biggest changeIn May 2025, 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, 2025 to May 31, 2026. During 2025, 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, 2024, there were 894 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, 2025, there were 876 record stockholders of NBI common stock.

Item 7. Management's Discussion & Analysis

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

95 edited+36 added−35 removed38 unchanged
Biggest changeThe net interest margin as well as key noninterest income and expense items are discussed under “Income Statement” below. 24 Table of Contents Summary Change in Key Balances Key balances are presented in the following table as of the dates indicated: December 31, Change 2024 2023 Dollars Percent Loans, net of deferred fees and costs, and the ACLL $ 977,688 $ 847,552 $ 130,136 15.35 % Securities available for sale 601,898 618,601 (16,703 ) (2.70 )% Deposits 1,644,752 1,503,972 140,780 9.36 % Total assets 1,811,636 1,655,370 156,266 9.44 % Stockholders’ equity 156,409 140,522 15,887 11.31 % Loans, net of deferred fees and costs and the ACLL, increased when December 31, 2024 is compared with December 31, 2023, primarily due to the FCB acquisition.
Biggest changeYear Ended December 31, Efficiency Ratio 2025 2024 Noninterest expense (GAAP) $ 36,413 $ 35,008 Less: merger-related expense - (2,916 ) Less: core system conversion expense (2,076 ) (173 ) Adjusted noninterest expense (non-GAAP) $ 34,337 $ 31,919 Noninterest income (GAAP) $ 10,002 $ 9,046 Net interest income, FTE (non-GAAP) 46,565 37,279 Total income for efficiency ratio (non-GAAP) $ 56,567 $ 46,325 Efficiency ratio (non-GAAP) 60.70 % 68.90 % 24 Table of Contents Summary Change in Key Balances Key balances are presented in the following table as of the dates indicated: December 31, Change 2025 2024 Dollars Percent Loans, net of deferred fees and costs, and the ACLL $ 989,418 $ 977,688 $ 11,730 1.20 % Securities available for sale 654,377 601,898 52,479 8.72 % Deposits 1,626,933 1,644,752 (17,819 ) (1.08 )% Total assets 1,824,506 1,811,635 12,871 0.71 % Stockholders’ equity 184,908 156,409 28,499 18.22 % Organic growth accounted for the increase in loans, net of deferred fees and costs and the ACLL, when December 31, 2025 is compared with December 31, 2024.
The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability.
The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing expense, recovering an asset or relieving a liability.
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.
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, 2025, 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, 2024, 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, 2025, the Company’s liquidity is sufficient to meet projected trends.
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 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 and FHLB advances.
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.
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.
Management does not plan any future involvement in high risk derivative products. The Company’s investments in mortgage-backed securities are primarily through the Government National Mortgage Association and Federal National Mortgage Association. See Note 3 of Notes to Consolidated Financial Statements for information on securities.
Management does not plan any future involvement in high risk derivative products. 34 Table of Contents The Company’s investments in mortgage-backed securities are primarily through the Government National Mortgage Association and Federal National Mortgage Association. See Note 3 of Notes to Consolidated Financial Statements for information on securities.
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.
Upon acquisition of FCB in 2024, the Company recognized a core deposit intangible asset that is amortized over 10 years. Franchise tax expense decreased from 2024 to 2025. 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.
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.
Please refer to Note 5 of Notes to Financial Statements for information on modifications to loans for borrowers experiencing financial difficulty during the years ended December 31, 2025 and December 31, 2024. During the years ended December 31, 2025 and 2024, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty.
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 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 $26 in 2025.
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.
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, • our ability to maintain existing deposit relationships or attract new deposit relationships, • changes in consumer spending, borrowing and savings habits, • increased competition with other financial institutions and fintech companies, • 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.
The following table presents time deposits that exceed $250 as of the date indicated.
The following table presents the maturity distribution of time deposits that exceed $250 as of the date indicated.
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.
Individually Evaluated Loans Individually evaluated loans were $8,802 as of December 31, 2025, a decrease from $10,521 as of December 31, 2024. Please refer to Note 1 of Notes to Consolidated Financial Statements for information on the Company’s identification of individually evaluated loans.
Loans include loans held in portfolio and loans held for sale. (2) Net loan fees included in interest income in 2024 were $200. Net loan fees included in interest income in 2023 were $214. (3) Nonaccrual loans are included in average balances for yield computations. (4) Daily averages are presented at amortized cost.
Loans include loans held in portfolio and loans held for sale. (2) Net loan fees included in interest income in 2025 were $503. Net loan fees included in interest income in 2024 were $245. (3) Nonaccrual loans are included in average balances for yield computations. (4) Daily averages are presented at amortized cost.
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.
Summary Asset Quality Key indicators of the Company’s asset quality are presented in the following table as of the dates indicated: December 31, 2025 2024 Nonaccrual loans $ 188 $ 2,222 Loans past due 90 days or more, and still accruing 881 548 ACLL to loans net of deferred fees and costs 0.99 % 1.04 % Net charge-off to average loans ratio 0.03 % 0.03 % Ratio of nonperforming loans to loans, net of deferred fees and costs 0.02 % 0.22 % Ratio of ACLL to nonperforming loans 5261.70 % 461.84 % The Company monitors asset quality indicators in managing credit risk and in determining the ACLL and provision for credit losses.
Conversely, when interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, the balance sheet is considered “liability sensitive”. A liability sensitive position will produce relatively more net interest income when interest rates fall and less net interest income when rates increase.
An asset sensitive position will produce relatively more net interest income when interest rates rise and less net interest income when rates decline. Conversely, when interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, the balance sheet is considered “liability sensitive”.
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%.
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, 2025, the loan to deposit ratio was 61.42%.
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.
December 31, 2025 December 31, 2024 Regulatory Capital Minimum Ratios Regulatory Capital Minimum Ratios with Capital Conservation Buffer Common Equity Tier I Capital Ratio 16.16 % 15.28 % 4.50 % 7.00 % Tier I Capital Ratio 16.16 % 15.28 % 6.00 % 8.50 % Total Capital Ratio 17.02 % 16.14 % 8.00 % 10.50 % Leverage Ratio 10.42 % 10.25 % 4.00 % 4.00 % Off-Balance Sheet Arrangements The Company’s off-balance sheet arrangements as of December 31, 2025 are detailed in the table below.
Allowance for Credit Losses on Loans The Company’s risk analysis as of December 31, 2024 determined an ACLL of $10,262, or 1.04% of loans net of deferred fees and costs. This compares with an allowance of $9,094 as of December 31, 2023, or 1.06% of loans.
Allowance for Credit Losses on Loans The Company’s risk analysis as of December 31, 2025 determined an ACLL of $9,892, or 0.99% of loans net of deferred fees and costs. This compares with an ACLL of $10,262 as of December 31, 2024, or 1.04% of loans 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. 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.
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 increased to 0.35% of total loans at December 31, 2025, from 0.30% at December 31, 2024.
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.
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, 2025 2024 ACLL $ 9,892 $ 10,262 Total loans, net of deferred fees 999,310 987,950 ACLL to loans, net of deferred fees and costs 0.99 % 1.04 % Nonaccrual loans $ 188 $ 2,222 Nonperforming loans to total loans, net of deferred fees and costs 0.02 % 0.22 % ACLL to nonperforming loans 5261.70 % 461.84 % Accruing loans past due 90 days or more $ 881 $ 548 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.
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.
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 29 Table of Contents development authority (“IDA”) loans are extended to municipalities.
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.
Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve discount window. As of December 31, 2025, 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.
Modifications In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons. Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements. Modifications to consumer loans generally involve short-term payment extensions to accommodate specific, temporary circumstances.
Modifications In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons. Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements.
As of December 31, 2024, the Company had borrowing capacity of $300,667 from the FHLB and $174,632 of borrowing capacity at the Federal Reserve discount window, with no amounts advanced against those lines. The Company assumed FHLB borrowings from FCB, which it repaid during the week following acquisition.
As of December 31, 2025, the Company had borrowing capacity of $306,870 from the FHLB and $190,586 of borrowing capacity at the Federal Reserve discount window, with no amounts advanced against those lines. The Company assumed FHLB borrowings from FCB, which it repaid during the week following acquisition.
The simulation process requires certain estimates and assumptions including, but not limited to, asset growth, the mix of assets and liabilities, the interest rate environment and local and national economic conditions. Asset growth and the mix of assets can, to a degree, be influenced by management. Other areas, such as the interest rate environment and economic factors, cannot be controlled.
The simulation process requires certain estimates and assumptions including, but not limited to, asset growth, the mix of assets and liabilities, the interest rate environment and local and national economic conditions. Asset growth and the mix of 27 Table of Contents assets can, to a degree, be influenced by management.
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.
Uninsured Deposits FDIC insurance covers deposits of up to $250 per depositor. As of December 31, 2025, $673,764 of the Bank’s deposits were uninsured. Municipal deposits, which account for 23.00% 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, 19.75% are uninsured.
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.
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.
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.
Reasonable and Supportable Forecast The Company applies national unemployment forecasts to project cash flows. The Company determined that 12 months represents a reasonable and supportable forecast period as of December 31, 2025, and set a period of 12 months to revert to historical losses on a straight-line basis.
An allowance for credit risk will be recorded if analysis indicates the presence of credit risk. Additional information about securities available for sale can be found in Note 3 of Notes to Consolidated Financial Statements.
An allowance for credit risk will be recorded if analysis indicates the presence of credit risk. As of December 31, 2025, there are no credit risk concerns with any of the Company’s securities. Additional information about securities available for sale can be found in Note 3 of Notes to Consolidated Financial Statements.
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.
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, increased when 2025 is compared with 2024 due to contract re-negotiation associated with the core system conversion.
Qualitative Factors: Other Considerations The Company considers other factors that impact credit risk, including the interest rate environment, the competitive, legal and regulatory environments, changes in lending policies and loan review, changes in lending management, and high risk loans. The interest rate environment impacts variable rate loans.
Qualitative Factors: Other Considerations The Company considers other factors that impact credit risk, including the competitive, legal and regulatory environments, changes in lending policies and loan review, changes in lending management, and high risk loans. Competitive, legal and regulatory environments were evaluated for changes that would affect credit risk.
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.
As of December 31, 2025, 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, 2025, the Company has no material commitments for long-term debt or for capital expenditures.
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.
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, 2025.
The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters. Portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased/decreased liquidity from public funds deposits or discount window borrowings results in increased/decreased liquidity from pledging requirements.
Portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased/decreased liquidity from public funds deposits or discount window borrowings results in increased/decreased liquidity from pledging requirements. The Company monitors public funds pledging requirements and unpledged available for sale securities accessible for liquidity needs.
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.
The following table presents information on the ACLL as of the dates indicated: December 31, 2025 December 31, 2024 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 $ 335 4.07 % 0.82 % $ 348 5.14 % 0.69 % Consumer real estate 3,804 32.87 % 1.16 % 3,926 31.14 % 1.28 % Commercial real estate 3,784 46.78 % 0.81 % 4,299 48.36 % 0.90 % Commercial non-real estate 846 5.20 % 1.63 % 655 5.24 % 1.26 % Public sector and IDA 306 6.37 % 0.48 % 336 5.78 % 0.59 % Consumer non-real estate 767 4.71 % 1.63 % 648 4.34 % 1.51 % Unallocated 50 - - 50 - - $ 9,892 100.00 % 0.99 % $ 10,262 100.00 % 1.04 % Securities The Company’s securities are designated as available for sale and as such, are reported at fair value.
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.
Rate Shift (basis points) Change in Projected Net Interest Income as of December 31, 2025 2024 300 -8.60 % -8.60 % 200 -5.20 % -4.70 % 100 -2.40 % -1.90 % (-)100 6.10 % 7.00 % (-)200 10.60 % 12.80 % (-)300 9.80 % 18.00 % Results of the net interest income simulation indicate that the Company is liability sensitive as of December 31, 2025 and December 31, 2024.
Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants. The Company reviews modifications to determine whether the borrower is experiencing financial difficulty, including indicators of default, bankruptcy, going concern, insufficient projected cash flows and inability to obtain financing from other sources.
The Company reviews modifications to determine whether the borrower is experiencing financial difficulty, including indicators of default, bankruptcy, going concern, insufficient projected cash flows and inability to obtain financing from other sources.
Net Interest Income The Company’s primary source of revenue is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on customer deposits and other interest-bearing liabilities.
Income Statement The following provides information on the results of operations for the years ended December 31, 2025 and December 31, 2024. Net Interest Income The Company’s primary source of revenue is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on customer deposits and other interest-bearing liabilities.
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.
December 31, 2025 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 $ 23,809 $ 31,469 $ 16,297 $ 3,905 $ 75,480 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.
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.
The residential vacancy rate available at December 31, 2025 increased compared to the data incorporated into the December 31, 2024 calculation, resulting in a higher allocation. Housing inventory increased when December 31, 2025 is compared with December 31, 2024, resulting in a higher allocation.
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 information on results of operations, changes in key balances and asset quality is presented below. 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.
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.
The largest component of stockholders’ equity, retained earnings, increased from December 31, 2024 to December 31, 2025. 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.
The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated.
Consumer non-real estate loans include automobile loans, personal loans, credit cards and consumer overdrafts. The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated.
Interest Rate Sensitivity Interest rate risk is the risk to earnings or capital arising from movements in market interest rates. When interest-earning assets and interest-bearing liabilities reprice at different times or in different degrees or when call options are exercised, in response to change in market interest rates, future net interest income is impacted.
When interest-earning assets and interest-bearing liabilities reprice at different times or in different degrees or when call options are exercised, in response to change in market interest rates, future net interest income is impacted. When interest-earning assets mature or re-price more quickly than interest-bearing liabilities, the balance sheet is considered “asset sensitive”.
In addition, competitive pressures can make it difficult to price deposits and loans in a manner that optimally minimizes interest rate risk. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes; changes in market conditions and customer behavior; and changes in management strategies.
Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes; changes in market conditions and customer behavior; and changes in management strategies.
As of December 31, 2024, three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $80.
As of December 31, 2025, two individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the DCF method, resulting in an allocation of $106. Collectively Evaluated Loans Collectively evaluated loans totaled $991,124 with an ACLL of $9,786 as of December 31, 2025.
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.
Payments Due by Period Total Less Than 1 Year Commitments to extend credit $ 230,755 $ 230,755 Standby letters of credit 20,016 20,016 Mortgage loans with potential recourse 14,246 14,246 Total $ 265,017 $ 265,017 36 Table of Contents In the normal course of business the Company’s banking affiliate extends lines of credit to its customers.
Provision for funded loans included $1,290 in provision for non-PCD loans recorded upon acquisition date, offset by $48 resulting from changes in the Company's assessment of credit risk. For the year ended December 31, 2023, the Company recorded a net recovery of $1,261, reflecting an improvement in portfolio metrics and economic conditions when compared with December 31, 2022.
For the year ended December 31, 2024, the Company recorded a net provision of $1,227, which included a provision of $1,290 for non-PCD loans recorded upon acquisition of FCB, offset by $48 recovery reflecting changes in the Company's assessment of credit risk for both funded and unfunded loan balances.
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.
December 31, 2025 Net Charge-Offs (Recoveries) Average Loans, net of deferred fees and costs Percentage of Net Charge-Offs (Recoveries) to Average Loans Real estate construction $ - $ 44,806 0.00 % Consumer real estate 3 317,882 0.00 % Commercial real estate (133 ) 487,765 (0.03 )% Commercial non-real estate 17 52,811 0.03 % Public Sector and IDA - 57,845 0.00 % Consumer non-real estate 420 44,820 0.94 % Total $ 307 $ 1,005,929 0.03 % 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 % 31 Table of Contents The Company charges off commercial real estate loans at the time that a loss is confirmed.
During 2024, the Company modified 875 loans totaling $130,347. During 2023, the Company provided modifications for competitive purposes to 757 loans totaling $89,006. 31 Table of Contents C.
During 2025, the Company modified 487 loans totaling $66,886. During 2024, the Company provided modifications for competitive purposes to 875 loans totaling $130,347. C.
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.
The Company's effective tax rate for 2024 was also affected by a significant portion of merger related expense that was not tax deductible. 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, 2025 and December 31, 2024.
Included within other operating expense and data processing and ATM expense are expenses related to cybersecurity. These expenses include testing and vulnerability assessment, technological defenses, insurance and employee training. The cost of these measures was $365 for 2024 and $529 for 2023. The Company places high priority on cybersecurity. The decrease in expense reflects renegotiation of contracts and licensing.
Included within other operating expense and data processing expense are expenses related to cybersecurity. These expenses include testing and vulnerability assessment, technological defenses, insurance and employee training. The cost of these measures was $409 for 2025 and $365 for 2024. Income Taxes Income tax expense for 2025 was $3,340 compared to $1,499 in 2024.
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.
Data processing expense decreased when the year ended December 31, 2025 is compared with the year ended December 31, 2024, reflecting savings from the core system conversion and other technology upgrades. FDIC assessment expense increased from 2024 to 2025, due to an expanded assessment base after the FCB acquisition.
Unallocated Surplus The unallocated surplus as of December 31, 2024 was $50, or 0.49% in excess of the calculated requirement. The unallocated surplus at December 31, 2023 was $350, or 4.00% in excess of the calculated requirement. The surplus provides some mitigation of current economic uncertainty that may impact credit risk.
The unallocated surplus at December 31, 2024 was $50, or 0.49% in excess of the calculated requirement. The surplus provides some mitigation of current economic uncertainty that may impact credit risk. Conclusion The calculation of the appropriate level for the ACLL incorporates analysis of multiple factors and requires management’s prudent and informed judgment.
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.
Year Ended December 31, Summary Income and Expenses 2025 2024 Interest income $ 75,313 $ 70,035 Interest expense 29,752 33,724 Net interest income 45,561 36,311 (Recovery of) provision for credit losses (16 ) 1,227 Net interest income after (recovery of) provision for credit losses 45,577 35,084 Noninterest income 10,002 9,046 Noninterest expense 36,413 35,008 Income before income taxes 19,166 9,122 Income tax expense 3,340 1,499 Net income $ 15,826 $ 7,623 Year Ended December 31, Summary Key Performance Indicators 2025 2024 Return on average assets 0.87 % 0.44 % Return on average equity 9.29 % 5.17 % Basic net income per common share $ 2.49 $ 1.24 Diluted net income per common share $ 2.49 $ 1.24 Net interest margin (1) 2.66 % 2.19 % Efficiency ratio (1) 60.70 % 68.90 % (1) See "Non-GAAP Financial Measures" below.
The Company considers interest rate risk to be a significant risk and manages its exposure through policies approved by its Asset Liability Committee ("ALCO") and Board of Directors. ALCO reviews periodic reports of the Company's interest rate risk position, including results of simulation analysis.
A liability sensitive position will produce relatively more net interest income when interest rates fall and less net interest income when rates increase. The Company considers interest rate risk to be a significant risk and manages its exposure through policies approved by its Asset Liability Committee ("ALCO") and Board of Directors.
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.
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 as critical those policies governing the ACLL and the pension plan. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed.
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.
Cash flow projections based on each loan’s contractual terms are modified by the adjusted PD and LGD for its class. Loan classes are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.
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.
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 32 Table of Contents 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.
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.
The forecast applied as of December 31, 2025 projects that unemployment will be stable over the next 12 months at a similar level to the forecast applied as of December 31, 2024.
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.
Year Ended December 31, Net Interest Margin, FTE 2025 2024 Interest income (GAAP) $ 75,313 $ 70,035 Add: FTE adjustment 1,004 968 Interest income, FTE (non-GAAP) 76,317 71,003 Interest expense (GAAP) 29,752 33,724 Net interest income, FTE (non-GAAP) $ 46,565 $ 37,279 Average balance of interest-earning assets $ 1,751,197 $ 1,704,863 Net interest margin (non-GAAP) 2.66 % 2.19 % 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.
(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.
(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. Interest Rate Sensitivity Interest rate risk is the risk to earnings or capital arising from movements in market interest rates.
December 31, 2024 2023 Real estate construction $ 50,798 $ 55,379 Consumer real estate 307,855 241,564 Commercial real estate 478,078 419,130 Commercial non real estate 51,844 41,555 Public sector and IDA 57,171 60,551 Consumer non real estate 42,867 38,996 Gross loans $ 988,613 $ 857,175 Less deferred fees and costs (663 ) (529 ) Loans, net of deferred fees and costs $ 987,950 $ 856,646 Allowance for credit losses on loans (10,262 ) (9,094 ) Total loans, net $ 977,688 $ 847,552 30 Table of Contents A.
December 31, December 31, 2025 2024 Real estate construction $ 40,694 $ 50,798 Consumer real estate 328,653 307,855 Commercial real estate 467,783 478,078 Commercial non-real estate 52,018 51,844 Public sector and IDA 63,677 57,171 Consumer non-real estate 47,101 42,867 Gross loans $ 999,926 $ 988,613 Less: deferred fees and costs (616 ) (663 ) Loans, net of deferred fees and costs $ 999,310 $ 987,950 Allowance for credit losses on loans (9,892 ) (10,262 ) Total loans, net $ 989,418 $ 977,688 A.
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.
Trust income increased when the year ended December 31, 2025 is compared with the year ended December 31, 2024, reflecting the Company's investment in business development. 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.
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.
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, 2025 2024 Average Amounts Average Rates Paid Average Amounts Average Rates Paid Noninterest-bearing demand deposits $ 305,115 - $ 290,038 - Interest-bearing demand deposits 842,479 2.03 % 838,526 2.44 % Savings deposits 142,547 0.15 % 141,148 0.16 % Time deposits 328,286 3.68 % 313,401 4.16 % Average total deposits $ 1,618,427 1.81 % $ 1,583,113 2.13 % B.
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.
Compared with data available at December 31, 2024, business bankruptcy filings decreased while personal bankruptcy filings increased. Residential vacancy rates and housing inventory are used to measure the health of the housing market. The housing market directly or indirectly affects all loan classes. Higher vacancy and inventory levels increase credit risk.
Capital Resources The following table presents components of stockholders’ equity: As of December 31, Change 2024 2023 Dollars Percent Common stock and additional paid in capital $ 21,831 $ 7,404 $ 14,427 194.85 % Retained earnings 196,343 197,984 (1,641 ) (0.83 )% Accumulated other comprehensive loss (61,765 ) (64,866 ) 3,101 (4.78 )% Total stockholders’ equity $ 156,409 $ 140,522 $ 15,887 11.31 % Total stockholders’ equity increased when December 31, 2024 is compared with December 31, 2023, due to issuance of equity for the FCB acquisition and improvement in the value of assets held by the Company's retirement plan reflected in accumulated other comprehensive loss.
Capital Resources The following table presents components of stockholders’ equity: December 31, December 31, Change 2025 2024 Dollars Percent Common stock and additional paid-in capital $ 22,024 $ 21,831 $ 193 0.88 % Retained earnings 202,558 196,343 6,215 3.17 % Accumulated other comprehensive loss (39,674 ) (61,765 ) 22,091 35.77 % Total stockholders’ equity $ 184,908 $ 156,409 $ 28,499 18.22 % Total stockholders’ equity increased when December 31, 2025 is compared with December 31, 2024, due primarily to improvement in the unrealized loss on securities and value of assets held by the Company's retirement plan.
The frequency and/or magnitude of future changes in market interest are difficult to predict and may have a greater short-term impact on net interest income than adjustments by management. Please refer to the section titled “Analysis of Changes In Interest Income and Interest Expense” for further information related to rate and volume changes.
Current interest rates are still at a level that will allow improved yield on loans as adjustable loans reach repricing dates. The frequency and/or magnitude of future changes in market interest are difficult to predict and may have a greater short-term impact on net interest income than adjustments by management.
Net income for the year ended December 31, 2024 decreased when compared with the year ended December 31, 2023, due to net interest margin compression, merger related expenses and contract termination expense.
Net income for the year ended December 31, 2025 increased when compared with the year ended December 31, 2024, due to net interest margin expansion and a lower provision for credit losses.
The Company’s effective tax rate is lower than the statutory rate of 21% due to investments in tax-advantaged loans and securities. The Company's effective tax rate for 2024 was also affected by a significant portion of merger related expense that was not tax deductible.
The Company’s statutory tax rate was 21% for each year. The Company’s effective tax rates for 2025 and 2024 were 17.43% and 16.43%, respectively. The Company’s effective tax rate is lower than the statutory rate of 21% primarily due to investments in tax-advantaged loans and securities.
December 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%.
December 31, 2025 2024 Net interest income, GAAP $ 45,561 $ 36,311 FTE adjustment 1,004 968 Net interest income, FTE (non-GAAP) $ 46,565 $ 37,279 26 Table of Contents 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, 2025 is compared with the year ended December 31, 2024. 2025 Over 2024 Increase (Decrease) due to Changes in: Net Dollar Rates (2) Volume (2) Change Interest income: (1) Loans $ 3,947 $ 3,630 $ 7,577 Taxable securities (825 ) (526 ) (1,351 ) Nontaxable securities 21 (25 ) (4 ) Federal Funds Sold - (21 ) (21 ) Interest-bearing deposits (888 ) 1 (887 ) Interest income $ 2,255 $ 3,059 $ 5,314 Interest expense: Interest-bearing demand deposits $ (3,446 ) $ 96 $ (3,350 ) Savings deposits (24 ) 2 (22 ) Time deposits (1,577 ) 598 (979 ) Short-term borrowings - 379 379 Interest expense $ (5,047 ) $ 1,075 $ (3,972 ) Net interest income $ 7,302 $ 1,984 $ 9,286 (1) FTE basis using a Federal income tax rate of 21%.
(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 following table reconciles net interest income on an FTE basis (non-GAAP) to net interest income on a GAAP basis for the years indicated.
Service charges on deposit accounts also include account maintenance fees, ATM fees and wire transfer fees. Other service charges and fees decreased when 2024 is compared with 2023, due to lower fees associated with letters of credit and one time fee income received in 2023.
Other service charges and fees decreased when 2025 is compared with 2024, due to nonrecurring fee income received in 2024 and lower fees associated with non-customer use of NBB ATMs.
Professional services, which includes legal and other expenses decreased when 2024 is compared to 2023. During 2023, the Company incurred legal and consulting expenses of $786 to respond to a threatened proxy contest from an activist shareholder. Merger-related expenses included legal, accounting, regulatory, and executive and employee severance costs associated with the FCB acquisition.
When 2025 is compared with 2024, higher legal and audit expenses drove the increase in professional services, which also includes consulting expense. Merger-related expenses included legal, accounting, regulatory, and executive and employee severance costs associated with the FCB acquisition. The core system conversion was completed during the second quarter of 2025 positioning the Company for future growth.
Year Ended December 31, Change 2024 2023 Dollars Percent Salaries and employee benefits $ 19,214 $ 17,318 $ 1,896 10.95 % Occupancy, furniture and fixtures 2,339 2,005 334 16.66 % Data processing and ATM 3,923 3,549 374 10.54 % FDIC assessment 812 749 63 8.41 % Intangible asset amortization 237 - 237 NM Net costs of other real estate owned - 31 (31 ) NM Franchise taxes 1,454 1,422 32 2.25 % Professional services 1,051 1,739 (688 ) (39.56 )% Merger-related expenses 2,916 - 2,916 NM Contract termination expenses 173 - 173 NM Other operating expenses 2,889 2,415 474 19.63 % Total noninterest expense $ 35,008 $ 29,228 $ 5,780 19.78 % Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when 2024 is compared with 2023, reflecting the addition of FCB employees.
Noninterest Expense The following table presents the Company’s noninterest expense for the years indicated. 28 Table of Contents Year Ended December 31, Change 2025 2024 Dollars Percent Salaries and employee benefits $ 20,858 $ 19,181 $ 1,677 8.74 % Occupancy, furniture and fixtures 3,077 2,650 427 16.11 % Data processing 3,421 3,558 (137 ) (3.85 )% FDIC assessment 831 812 19 2.34 % Intangible asset amortization 373 237 136 57.38 % Franchise taxes 1,431 1,454 (23 ) (1.58 )% Professional services 1,446 1,051 395 37.58 % Merger-related expenses - 2,916 (2,916 ) NM Core system conversion expense 2,076 173 1,903 NM Other operating expenses 2,900 2,976 (76 ) (2.55 )% Total noninterest expense $ 36,413 $ 35,008 $ 1,405 4.01 % Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k) plan, pension service costs, incentives and salary continuation, increased when 2025 is compared with 2024, reflecting the addition of FCB employees and normal merit adjustments.
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.
Nonaccrual loans improved when December 31, 2025 is compared with December 31, 2024, due to the return of one loan relationship to accrual status. The net charge-off ratio remained at the same low level and accruing loans past due 90 days or more increased slightly, but remain low.
The net interest margin for the year ended December 31, 2024 decreased when compared with the year ended December 31, 2023. Loans, adjustable rate securities and interest bearing deposit assets repriced upward, but did not fully offset higher interest expense.
The net interest margin for the year ended December 31, 2025 increased when compared with the year ended December 31, 2024. Loans repriced upward while the Federal Reserve's interest rate cuts resulted in lower yields on adjustable rate securities and interest 25 Table of Contents bearing deposit assets, as well as lower cost of deposits.
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.
To date, no recourse provisions have ever been invoked. If the Company identified a factor or trend that indicated recourse risk, a loss reserve would be recorded. Recent Accounting Pronouncements See Note 1 of Notes to Consolidated Financial Statements for information relating to recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable.
The category of other operating expenses includes expense for marketing and business development, supplies, non-service pension cost and charitable donations. Marketing and business development expenses increased during 2024 for advertising campaigns associated with the FCB acquisition and the coming Roanoke branch. Multiple additional items increased by smaller amounts.
Other operating expenses decreased when the years ended December 31, 2025 and 2024 are compared. The category of other operating expenses includes expense for marketing and business development, supplies, non-service pension cost and charitable donations.

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