NATIONAL BANKSHARES INC 10-Q

Item 1. Financial Statements Financial Information National Bankshares, Inc. Consol idated Balance Sheets (Unaudited) (in thousands, except share and per share data) September 30, 2024 December 31, 2023 Assets Cash and due from banks $ 15,990 $ 12,967 Interest-bearing deposits 33,707 73,636 Federal funds sold 73 – Total cash and cash equivalents 49,770 86,603 Securities available for sale, at fair value 622,271 618,601 Restricted stock, at cost 1,849 1,264 Mortgage loans held for sale 457 406 Loans: Loans, net of unearned income and deferred fees and costs 1,001,659 856,646 Less: allowance for credit losses ( 10,328 ) ( 9,094 ) Loans, net 991,331 847,552 Premises and equipment, net 16,165 11,109 Accrued interest receivable 6,648 6,313 Goodwill 10,718 5,848 Core deposit intangible, net 1,963 – Bank-owned life insurance 47,071 43,583 Other assets 36,790 34,091 Total assets $ 1,785,033 $ 1,655,370 Liabilities and Stockholders' Equity Noninterest-bearing demand deposits $ 296,469 $ 281,215 Interest-bearing demand deposits 819,947 821,661 Savings deposits 176,460 177,856 Time deposits 310,077 223,240 Total deposits 1,602,953 1,503,972 Accrued interest payable 2,074 1,416 Other liabilities 12,224 9,460 Total liabilities 1,617,251 1,514,848 Commitments and contingencies Stockholders' Equity Preferred stock, no par value, 5,000,000 shares authorized; no ne issued and outstanding $ – $ – Common stock of $ 1.25 par value and additional paid in capital. Authorized 10,000,000 shares; issued and outstanding 6,360,973 (including 4,379 unvested) shares at September 30, 2024 and 5,893,782 (including 4,095 unvested) shares at December 31, 2023 21,796 7,404 Retained earnings 198,225 197,984 Accumulated other comprehensive loss, net ( 52,239 ) ( 64,866 ) Total stockholders' equity 167,782 140,522 Total liabilities and stockholders' equity $ 1,785,033 $ 1,655,370 See accompanying notes to consolidated financial statements. 3 Table of Contents National Bankshares, Inc. Cons olidated Statements of Income (Unaudited) Three Months Ended September 30, (in thousands, except share and per share data) 2024 2023 Interest Income Interest and fees on loans $ 13,164 $ 9,816 Interest on federal funds sold 12 – Interest on interest-bearing deposits 954 439 Interest on securities – taxable 4,203 4,084 Interest on securities – nontaxable 333 340 Total interest income 18,666 14,679 Interest Expense Interest on time deposits 3,509 1,452 Interest on other deposits 5,709 4,584 Interest on borrowings – 3 Total interest expense 9,218 6,039 Net interest income 9,448 8,640 Recovery of credit losses ( 5 ) ( 371 ) Net interest income after recovery of credit losses 9,453 9,011 Noninterest Income Service charges on deposit accounts 753 642 Other service charges and fees 82 151 Credit and debit card fees, net 344 395 Trust income 580 505 BOLI income 295 253 Gain on sale of mortgage loans 50 22 Other income 168 147 Total noninterest income 2,272 2,115 Noninterest Expense Salaries and employee benefits 4,953 4,462 Occupancy, furniture and fixtures 641 547 Data processing and ATM 1,054 978 FDIC assessment 211 190 Intangible asset amortization 102 – Net costs of other real estate owned – 14 Franchise taxes 373 339 Professional services 254 251 Merger-related expenses 150 – Other operating expenses 761 654 Total noninterest expense 8,499 7,435 Income before income tax expense 3,226 3,691 Income tax expense 550 617 Net Income $ 2,676 $ 3,074 Basic net income per common share $ 0.42 $ 0.52 Fully diluted net income per common share $ 0.42 $ 0.52 Weighted average number of common shares outstanding, basic 6,356,594 5,889,687 Weighted average number of common shares outstanding, fully diluted 6,358,352 5,889,939 See accompanying notes to consolidated financial statements. 4 Table of Contents National Bankshares, Inc. Consolidated Statements of Comprehensive Income (Loss) Three Months Ended September 30, 2024 and 2023 (Unaudited) September 30, (in thousands) 2024 2023 Net Income $ 2,676 $ 3,074 Other Comprehensive Income (Loss), Net of Tax Unrealized holding gain (loss) on available for sale securities net of tax of $ 4,284 and ($ 4,099 ) for the periods ended September 30, 2024 and 2023, respectively 16,115 ( 15,421 ) Other comprehensive income (loss), net of tax 16,115 ( 15,421 ) Total Comprehensive Income (Loss) $ 18,791 $ ( 12,347 ) 5 Table of Contents National Bankshares, Inc. Consoli dated Statements of Income (Unaudited) Nine Months Ended September 30, (in thousands, except share and per share data) 2024 2023 Interest Income Interest and fees on loans $ 34,742 $ 28,793 Interest on federal funds sold 23 – Interest on interest-bearing deposits 3,312 1,207 Interest on securities – taxable 12,718 12,268 Interest on securities – nontaxable 1,010 1,052 Total interest income 51,805 43,320 Interest Expense Interest on time deposits 8,991 2,865 Interest on other deposits 16,419 11,352 Interest on borrowings 2 300 Total interest expense 25,412 14,517 Net interest income 26,393 28,803 Provision for (recovery of) credit losses 1,287 ( 368 ) Net interest income after provision for (recovery of) credit losses 25,106 29,171 Noninterest Income Service charges on deposit accounts 2,150 1,871 Other service charges and fees 176 253 Credit and debit card fees, net 1,141 1,276 Trust income 1,596 1,431 BOLI income 822 1,771 Gain on sale of investment – 2,971 Gain on sale of mortgage loans 132 93 Other income 700 771 Realized securities loss, net – ( 3,332 ) Total noninterest income 6,717 7,105 Noninterest Expense Salaries and employee benefits 14,106 13,361 Occupancy, furniture and fixtures 1,741 1,500 Data processing and ATM 2,807 2,730 FDIC assessment 590 561 Intangible asset amortization 137 – Net costs of other real estate owned – 29 Franchise taxes 1,081 1,072 Professional services 766 1,555 Merger-related expenses 2,891 – Contract termination 173 – Other operating expenses 2,096 1,857 Total noninterest expense 26,388 22,665 Income before income tax expense 5,435 13,611 Income tax expense 891 2,105 Net Income $ 4,544 $ 11,506 Basic net income per common share $ 0.75 $ 1.95 Fully diluted net income per common share $ 0.75 $ 1.95 Weighted average number of common shares outstanding, basic 6,092,468 5,889,687 Weighted average number of common shares outstanding, fully diluted 6,094,442 5,889,778 Dividends declared per common share $ 0.73 $ 1.73 6 Table of Contents National Bankshares, Inc. Consolidate d Statements of Comprehensive Income Nine Months Ended September 30, 2024 and 2023 (Unaudited) September 30, (in thousands) 2024 2023 Net Income $ 4,544 $ 11,506 Other Comprehensive Income (Loss), Net of Tax Unrealized holding gain (loss) on available for sale securities net of tax of $ 3,357 and ($ 2,268 ) for the periods ended September 30, 2024 and 2023, respectively 12,627 ( 8,530 ) Reclassification adjustment for loss included in net income, net of tax of $ 700 in 2023 – 2,632 Other comprehensive income (loss), net of tax 12,627 ( 5,898 ) Total Comprehensive Income $ 17,171 $ 5,608 See accompanying notes to consolidated financial statements. 7 Table of Contents National Bankshares, Inc. Consolidated Statem ents of Changes in Stockholders’ Equity (Unaudited) Three Months Ended September 30, 2024 and 2023 (in thousands except share data) Common Stock and Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Balances at June 30, 2023 $ 7,367 $ 195,320 $ ( 74,243 ) $ 128,444 Net income – 3,074 – 3,074 Other comprehensive loss, net of tax of ($ 4,099 ) – – ( 15,421 ) ( 15,421 ) Stock based compensation 16 – – 16 Balances at September 30, 2023 $ 7,383 $ 198,394 $ ( 89,664 ) $ 116,113 Balances at June 30, 2024 $ 21,768 $ 195,549 $ ( 68,354 ) $ 148,963 Net income – 2,676 – 2,676 Other comprehensive income, net of tax of $ 4,284 – – 16,115 16,115 Stock based compensation 28 – – 28 Balances at September 30, 2024 $ 21,796 $ 198,225 $ ( 52,239 ) $ 167,782 See accompanying notes to consolidated financial statements. Nine Months Ended September 30, 2024 and 202 3 (in thousands except share data) Common Stock and Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Balances at December 31, 2022 $ 7,362 $ 199,091 $ ( 83,766 ) $ 122,687 Adoption of ASU 2016-13 – ( 2,014 ) – ( 2,014 ) Net income – 11,506 – 11,506 Cash dividends of $ 1.73 per share – ( 10,189 ) – ( 10,189 ) Other comprehensive loss, net of tax of ($ 1,568 ) – – ( 5,898 ) ( 5,898 ) Stock based compensation 21 – – 21 Balances at September 30, 2023 $ 7,383 $ 198,394 $ ( 89,664 ) $ 116,113 Balances at December 31, 2023 $ 7,404 $ 197,984 $ ( 64,866 ) $ 140,522 Net income – 4,544 – 4,544 Acquisition of Frontier Community Bank 14,299 – – 14,299 Cash dividends of $ 0.73 per share – ( 4,303 ) – ( 4,303 ) Other comprehensive income, net of tax of $ 3,357 – – 12,627 12,627 Stock based compensation 93 – – 93 Balances at September 30, 2024 $ 21,796 $ 198,225 $ ( 52,239 ) $ 167,782 See accompanying notes to consolidated financial statements. 8 Table of Contents National Bankshares, Inc. Consolidat ed Statements of Cash Flows Nine Months Ended September 30, 2024 and 2023 (Unaudited) September 30, September 30, (in thousands) 2024 2023 Cash Flows from Operating Activities Net income $ 4,544 $ 11,506 Adjustments to reconcile net income to net cash provided by operating activities: Provision for (recovery of) credit losses 1,287 ( 368 ) Depreciation of premises and equipment 660 544 Core deposit intangible amortization 137 - Net accretion of acquisition accounting estimates ( 293 ) - Amortization of premiums and accretion of discounts, net 778 806 Loss on sale of securities available for sale, net - 3,332 Loss on disposal of repossessed assets - 5 Increase in cash value of bank-owned life insurance ( 822 ) ( 734 ) Origination of mortgage loans held for sale ( 8,708 ) ( 6,689 ) Proceeds from sale of mortgage loans held for sale 8,789 6,700 Gain on sale of mortgage loans held for sale ( 132 ) ( 93 ) Equity based compensation expense 93 21 Net change in: Accrued interest receivable 2 ( 179 ) Other assets ( 4,007 ) 59 Accrued interest payable 523 445 Other liabilities 1,169 ( 2,023 ) Net cash provided by operating activities 4,020 13,332 Cash Flows from Investing Activities Proceeds from calls, principal payments, sales and maturities of securities available for sale 20,855 53,696 Net change in restricted stock 168 ( 323 ) Purchase of loan participations ( 13,894 ) ( 5,118 ) Collection of loan participations 5,901 6,686 Loan originations and principal collections, net ( 18,207 ) 1,958 Proceeds from sale of repossessed assets - 13 Recoveries on loans charged off 158 235 Purchases of premises and equipment ( 2,302 ) ( 1,264 ) Proceeds from sale of premises and equipment 46 BOLI settlement - 712 Cash acquired in the acquisition, net of cash paid 6,885 - Net cash (used in) provided by investing activities ( 390 ) 56,595 Cash Flows from Financing Activities Net change in time deposits 20,210 120,256 Net change in other deposits ( 51,140 ) ( 197,981 ) Cash dividends paid ( 4,303 ) ( 10,189 ) Repayment of borrowings ( 5,230 ) - Net cash used in financing activities ( 40,463 ) ( 87,914 ) Net change in cash and cash equivalents ( 36,833 ) ( 17,987 ) Cash and cash equivalents at beginning of period 86,603 71,429 Cash and cash equivalents at end of period $ 49,770 $ 53,442 Supplemental Disclosures of Cash Flow Information Interest paid on deposits and borrowings $ 24,754 $ 14,072 Income taxes paid 715 3,997 Supplemental Disclosure of Noncash Activities Loans charged against the allowance for credit losses $ 411 $ 232 Loans transferred to repossessed assets - 11 Unrealized holding gain (loss) on securities available for sale 15,984 ( 7,466 ) Lease liabilities arising from obtaining right-of-use assets during the period 548 - See accompanying notes to consolidated financial statements. 9 Table of Contents National Bankshares, Inc. Notes t o Consolidated Financial Statements September 30, 2024 (Unaudited) $ in thousands, except per share data Note 1: General and Summary of Significant Accounting Policies The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (the “Bank” or “NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of the Company’s management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included. Application of the principles of GAAP and practices within the banking industry requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statement; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance of credit losses on loans and acquisition accounting. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of results of operations for the full year or any other interim period. The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). The Company’s significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the 2023 Form 10-K. All amounts and disclosures included in this quarterly report as of December 31, 2023, were derived from the Company’s audited consolidated financial statements. Certain items in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications had no effect on prior year net income or stockholders’ equity. The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com . In addition to applying significant accounting policies disclosed in Note 1 of the 2023 Form 10-K, the Company implemented accounting policies appropriate for its merger with Frontier Community Bank (“FCB”). Business combinations are accounted for under Accounting Standards Codification (“ASC”) 805, Business Combinations, using the acquisition method of accounting. The acquisition method of accounting requires an acquirer to record at fair value on the acquisition date the assets acquired and the liabilities assumed. To determine the fair values, the Company relies on internal or third-party valuations, such as appraisals, valuations based on discounted cash flow analyses, or other valuation techniques. Under the acquisition method of accounting, the Company identifies the acquirer and the closing date and applies applicable recognition principles and conditions. Acquisition-related costs are costs the Company incurs to effect a business combination. Those costs include advisory, legal, accounting, valuation, and other professional or consulting fees. Some other examples of costs to the Company include systems conversions, integration planning consultants and advertising costs. The Company accounts for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities are recognized in accordance with other applicable GAAP. These acquisition-related costs have been and will be included within the consolidated statements of income classified within the noninterest expenses caption. The most significant assessment of fair value in the Company’s accounting for business combinations relates to the valuation of an acquired loan portfolio. At acquisition, loans are classified as either (i) purchase credit-deteriorated (“PCD”) loans or (ii) non-PCD loans and are recorded at fair value on the date of acquisition. PCD loans are those for which there is more than insignificant evidence of credit deterioration since origination. Fair values are determined primarily through a discounted cash flow approach which considers the acquired loans’ underlying characteristics, including account types, remaining terms, annual interest rates, interest types, timing of principal and interest payments, current market rates, and remaining balances. Estimates of fair value also include estimates of default, loss severity, and estimated prepayments. At acquisition, an allowance for credit losses (“ACL”) for PCD loans is determined based upon the Company’s methodology for estimating the ACL on loans. This allowance is credited to the ACL on loans with a corresponding adjustment to the amortized cost basis of the loan on the date of the acquisition. The difference between the new amortized cost basis and the unpaid principal balance is either a noncredit discount or premium that is amortized or accreted to interest income over the remaining life of the loan. Disposals of PCD loans, which may include sale of loans to third parties, receipt of payments in full or in part from the borrower or foreclosure of the collateral, result in removal of the loan from the loan portfolio at its carrying amount. 10 Table of Contents For non-PCD loans, an ACL is established in a manner that is consistent with the Company’s originated loans. The ACL is determined using the Company’s methodology and the related ACL for non-PCD loans is recorded through a charge to the provision for credit losses in the period in which the loans are purchased or acquired. The entirety of any purchase discount or premium on non-PCD loans is amortized or accreted to interest income over the remaining life of the loan. In accordance with ASC 805, the Company also identified intangible assets acquired. Intangible assets lack physical substance but have contractual or other legal rights or are capable of being sold or exchanged either on their own or in combination with a related contract, asset or liability. Intangible assets are initially recorded at fair value. Determining fair value is subjective, requiring the use of estimates, assumptions and management judgment. Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to impairment testing. Upon acquisition of FCB, the Company recognized a core deposit intangible asset, which represents the value of customer deposit relationships. Core deposit intangible assets are amortized over an estimated useful life of 10 years using an accelerated method which approximates the estimated attrition of the acquired deposits. Risks and Uncertainties The Company is closely monitoring risks that may impact its business, including high inflation, along with U.S. monetary policy maneuvers to reduce inflation. Inflation and U.S. monetary policy maneuvers to reduce it may impact the Company’s customers’ demand for banking services and ability to qualify for and/or repay loans. These risks could adversely affect the Company’s business, financial condition, results of operations, cash flows, credit risk, asset valuations and capital position. Recent Accounting Pronouncements ASU 2023-09 In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements. Note 2: Business Combination On June 1, 2024 (the “Acquisition Date”), the Company completed its acquisition of FCB, a Virginia chartered commercial bank, in accordance with the definitive merger agreement that was entered into on January 23, 2024, by and among the Company, the Bank and FCB. Upon completion of the merger, former FCB shareholders received a combination of the Company's common stock and cash. The acquisition of FCB was accounted for as a business combination using the acquisition method of accounting. Assets acquired, liabilities assumed, and consideration paid were recorded at estimated fair value on the Acquisition Date. The excess of the purchase price over the fair value of the net assets was recorded as provisional goodwill and represents the benefit from the transaction that is not otherwise quantifiable, including expected management and operational synergies and intangible assets that do not qualify for separate recognition. The Company will keep the measurement of goodwill open for twelve months following the Acquisition Date in order to reflect any adjustments to the fair value of assets acquired and liabilities assumed that may arise during the Company’s final review procedures of any updated information. The Company does not expect that any portion of goodwill will be deductible. 11 Table of Contents The following table presents the calculation of the purchase price and the fair value of the identifiable assets and liabilities. June 1, 2024 As Recorded by FCB Estimated Fair Value Adjustments Estimated Fair Values as Recorded by NBI Purchase Price Consideration: Stock consideration (1) $ 14,299 Cash consideration (2) 2,050 Total purchase price consideration $ 16,349 Identifiable assets: Cash and cash equivalents $ 8,993 $ ( 59 ) $ 8,934 Securities 9,325 ( 5 ) 9,320 Loans, gross, purchased performing 115,589 ( 7,720 ) 107,869 Loans, gross, purchased credit deteriorated 11,157 ( 822 ) 10,335 Loans in process 539 – 539 Deferred fees and costs on loans 34 ( 34 ) – Allowance for credit losses on loans ( 881 ) 881 – Premises and equipment 3,003 449 3,452 Core deposit intangible – 2,100 2,100 Other assets 4,998 966 5,964 Total identifiable assets acquired $ 152,757 $ ( 4,244 ) $ 148,513 Identifiable Liabilities Deposits $ 130,323 $ ( 606 ) $ 129,717 Borrowings 5,250 ( 20 ) 5,230 Other liabilities 1,960 131 2,091 Total identifiable liabilities assumed $ 137,533 $ ( 495 ) $ 137,038 Provisional fair value of net assets acquired $ 11,475 Provisional goodwill $ 4,874 (1) The Company issued 464,855 shares of its common stock valued at $ 30.76 per share, which was the closing price of the Company’s common stock on May 31, 2024, the last day of trading prior to the consummation of the acquisition. (2) Cash consideration was paid for shareholder elections, fractional shares and to settle outstanding vested stock options. The merger agreement provided for up to 10 % of consideration to be paid in cash of $ 14.48 per FCB common share, at the shareholders’ election. Payments for shareholder elections and fractional shares totaled $ 1,769 . Outstanding and vested options were settled at the difference between $ 14.48 and the strike price and totaled $ 281 . Management made significant estimates and exercised significant judgment in accounting for the acquisition of FCB. The following is a brief description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The Company utilized a valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities. Cash and equivalents Included in cash and equivalents are an investment in time deposits of other financial institutions, valued at the present value of the expected contractual payments discounted at market rates for instruments with similar terms. Securities The estimated fair value of the acquired portfolio of debt securities was based on quoted market prices. All of the acquired portfolio was sold upon completion of the acquisition. 12 Table of Contents Loans The fair valuation process identified loans with credit risk indicators that qualified for PCD status. PCD and non-PCD loans were then evaluated for credit risk and other fair value indicators. Consistent with GAAP, FCB’s related allowance for credit losses on loans and deferred fees and costs were not recorded. Credit risk was quantified using a probability of default (“PD”)/loss given default(“LGD”) methodology from a market participant perspective and applied to each loan’s outstanding principal balance. PD/LGD rates were tailored to PCD or non-PCD status. Other fair value indicators were quantified using a discounted cash flow methodology, with discounts applied for current market rates, credit risk and liquidity. Cash flows were generated based upon the loans’ underlying characteristics and estimated prepayment speeds. The following table provides information on PCD and non-PCD loans as of the Acquisition Date: June 1, 2024 PCD Loans Non-PCD Loans Number of loans 46 498 FCB recorded value $ 11,157 $ 115,589 Discount for credit risk ( 295 ) ( 498 ) Discount for non-credit factors ( 527 ) ( 7,222 ) Fair value $ 10,335 $ 107,869 Premises and equipment The fair value of premises acquired was based on a recent third-party appraisal. Acquired equipment was based on the remaining net book value of FCB, which approximated fair value. Core Deposit Intangible Core deposit relationships provide a stable source of funds for lending and contribute to profitability. The core deposit intangible was valued using an income approach focused on cost savings, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates. Leases: right of use asset, lease liability and fair value Right of use assets (included in other assets) and lease liabilities (included in other liabilities) for branch locations were measured at the acquisition date. The fair value of leases was determined by applying a discounted cash flow methodology discounted by current lease rates within the appropriate market. Deposits Deposits were valued using methods appropriate to their characteristics. The fair value of noninterest bearing demand deposits, interest bearing demand deposits, money market and savings deposit accounts were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Time deposits were valued at the present value of the expected contractual payments discounted at market rates for instruments with similar terms. Borrowings The estimated fair value of borrowings was determined by obtaining payoff quotes from the lender. Borrowings were paid off upon completion of the acquisition. Deferred Tax Asset Application of fair value measurements resulted in an increase to the deferred tax asset, included in other assets. 13 Table of Contents Note 3: Loans and Allowance for Credit Losses Loans Loans as of September 30, 2024 include acquired loans at their outstanding principal balance, net of the remaining purchase discount of $ 7,886 . Originated loans as of September 30, 2024 and December 31, 2023 are presented at amortized cost, net of unearned income and deferred fees and costs. The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated. September 30, 2024 December 31, 2023 Real estate construction $ 71,920 $ 55,379 Consumer real estate 306,012 241,564 Commercial real estate 473,018 419,130 Commercial non real estate 52,699 41,555 Public sector and IDA 58,109 60,551 Consumer non real estate 40,483 38,996 Gross loans $ 1,002,241 $ 857,175 Less unearned income and deferred fees and costs ( 582 ) ( 529 ) Loans, net of unearned income and deferred fees and costs $ 1,001,659 $ 856,646 Allowance for credit losses on loans ( 10,328 ) ( 9,094 ) Total loans, net $ 991,331 $ 847,552 Accrued interest receivable of $ 3,269 at September 30, 2024 and $ 3,032 at December 31, 2023 is not included in total loans above. Past Due and Nonaccrual Loans The following tables present the aging of past due loans, by loan pool, as of the dates indicated. September 30, 2024 Accruing Current Loans Accruing Loans 30 – 89 Days Past Due Accruing Loans 90 or More Days Past Due Nonaccrual Loans Total Loans Accruing and Nonaccrual 90 or More Days Past Due Real Estate Construction Construction, 1-4 family residential $ 18,070 $ - $ - $ - $ 18,070 $ - Construction, other 53,822 28 - - 53,850 - Consumer Real Estate Equity line 22,253 90 - - 22,343 - Residential closed-end first liens 169,444 930 84 - 170,458 - Residential closed-end junior liens 7,297 10 - - 7,307 - Investor-owned residential real estate 105,142 762 - - 105,904 - Commercial Real Estate Multifamily residential real estate 132,554 - - - 132,554 - Commercial real estate owner-occupied 140,800 322 - 2,283 143,405 215 Commercial real estate, other 196,511 548 - - 197,059 - Commercial Non Real Estate Commercial and industrial 52,543 112 44 - 52,699 44 Public Sector and IDA States and political subdivisions 58,109 - - - 58,109 - Consumer Non Real Estate Credit cards 4,789 4 1 - 4,794 1 Automobile 13,498 174 - - 13,672 - Other consumer loans 21,721 270 26 - 22,017 26 Total $ 996,553 $ 3,250 $ 155 $ 2,283 $ 1,002,241 $ 286 14 Table of Contents December 31, 2023 Accruing Current Loans Accruing Loans 30 – 89 Days Past Due Accruing Loans 90 or More Days Past Due Nonaccrual Loans Total Loans Accruing and Nonaccrual 90 or More Days Past Due Real Estate Construction Construction, 1-4 family residential $ 13,442 $ - $ - $ - $ 13,442 $ - Construction, other 41,916 21 - - 41,937 - Consumer Real Estate Equity line 17,178 104 - - 17,282 - Residential closed-end first liens 124,886 662 131 - 125,679 131 Residential closed-end junior liens 5,027 12 - - 5,039 - Investor-owned residential real estate 93,564 - - - 93,564 - Commercial Real Estate Multifamily residential real estate 119,052 195 - - 119,247 - Commercial real estate owner-occupied 114,477 336 - 2,408 117,221 231 Commercial real estate, other 182,662 - - - 182,662 - Commercial Non Real Estate Commercial and industrial 41,249 57 28 221 41,555 28 Public Sector and IDA States and political subdivisions 60,551 - - - 60,551 - Consumer Non Real Estate Credit cards 4,648 17 3 - 4,668 3 Automobile 12,126 135 - - 12,261 - Other consumer loans 21,934 107 26 - 22,067 26 Total $ 852,712 $ 1,646 $ 188 $ 2,629 $ 857,175 $ 419 The following table presents nonaccrual loans, by loan class, as of the dates indicated: September 30, 2024 December 31, 2023 With No Allowance With an Allowance Total With No Allowance With an Allowance Total Commercial Real Estate Commercial real estate owner-occupied $ 2,068 $ 215 $ 2,283 $ 2,177 $ 231 $ 2,408 Commercial Non Real Estate Commercial and industrial - - - - 221 221 Total $ 2,068 $ 215 $ 2,283 $ 2,177 $ 452 $ 2,629 During the three and nine months ended September 30, 2024, no accrued interest receivable was reversed against interest income. Allowance for Credit Losses on Loans (“ACLL”) The following tables present the activity in the ACLL by portfolio segment for the periods indicated: Activity in the ACLL for the Nine Months Ended September 30, 2024 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2023 $ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094 Charge-offs - - - ( 145 ) - ( 266 ) - ( 411 ) Recoveries - - 41 12 - 105 - 158 Provision for (recovery of) credit losses 43 697 589 106 5 139 ( 267 ) 1,312 Merger adjustment (1) 10 97 55 4 - 9 - 175 Balance, September 30, 2024 $ 461 $ 3,956 $ 4,261 $ 659 $ 338 $ 570 $ 83 $ 10,328 (1) Adjustment for PCD acquired loans. 15 Table of Contents Activity in the ACLL for the Nine Months Ended September 30, 2023 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2022 $ 450 $ 2,199 $ 3,642 $ 930 $ 319 $ 506 $ 179 $ 8,225 Adoption of ASU 2016-13 ( 21 ) 1,261 700 216 ( 15 ) 72 129 2,342 Charge-offs – ( 17 ) – ( 11 ) – ( 204 ) – ( 232 ) Recoveries – 103 37 4 – 91 – 235 Provision for (recovery of) credit losses 133 ( 353 ) ( 212 ) ( 300 ) 10 156 177 ( 389 ) Balance, September 30, 2023 $ 562 $ 3,193 $ 4,167 $ 839 $ 314 $ 621 $ 485 $ 10,181 Activity in the ACLL for the Year Ended December 31, 2023 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2022 $ 450 $ 2,199 $ 3,642 $ 930 $ 319 $ 506 $ 179 $ 8,225 Adoption of ASU 2016-13 ( 21 ) 1,261 700 216 ( 15 ) 72 129 2,342 Charge-offs – ( 17 ) – ( 214 ) – ( 247 ) – ( 478 ) Recoveries – 103 45 6 – 129 – 283 Provision for (recovery of) for credit losses ( 21 ) ( 384 ) ( 811 ) ( 256 ) 29 123 42 ( 1,278 ) Balance, December 31, 2023 $ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094 The following tables present information about the ACLL for individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated. ACLL by Segment and Evaluation Method September 30, 2024 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Individually evaluated $ – $ 34 $ 51 $ – $ – $ – $ – $ 85 Collectively evaluated 461 3,922 4,210 659 338 570 83 10,243 Total $ 461 $ 3,956 $ 4,261 $ 659 $ 338 $ 570 $ 83 $ 10,328 ACLL by Segment and Evaluation Method December 31, 2023 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Individually evaluated $ – $ 74 $ 367 $ 126 $ – $ 5 $ – $ 572 Collectively evaluated 408 3,088 3,209 556 333 578 350 8,522 Total $ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094 The following tables present information about individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated. Loans by Segment and Evaluation Method as of September 30, 2024 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Total Individually evaluated $ – $ 591 $ 10,122 $ – $ – $ 0 $ 10,713 Collectively evaluated 71,920 305,421 462,896 52,699 58,109 40,483 991,528 Total $ 71,920 $ 306,012 $ 473,018 $ 52,699 $ 58,109 $ 40,483 $ 1,002,241 Loans by Segment and Evaluation Method as of December 31, 2023 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Total Individually evaluated $ 286 $ 1,183 $ 8,805 $ 227 $ – $ 43 $ 10,544 Collectively evaluated 55,093 240,381 410,325 41,328 60,551 38,953 846,631 Total $ 55,379 $ 241,564 $ 419,130 $ 41,555 $ 60,551 $ 38,996 $ 857,175 Collateral Dependent Loans Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually evaluated. The Company measures the ACLL 16 Table of Contents on collateral dependent loans based upon the fair value of the collateral, as permitted by ASU 2016-13. Fair value of the collateral is adjusted for liquidation costs/discounts. If the fair value of the collateral falls below the amortized cost of the loan, the shortfall is recognized in the ACLL. If the fair value of the collateral exceeds the amortized cost, no ACLL is required. As of September 30, 2024, four of the Company’s individually evaluated loans were collateral dependent. As of December 31, 2023, three of the Company’s individually evaluated loans were collateral dependent. All collateral dependent loans were secured by real estate as of September 30, 2024 and December 31, 2023. The following table details the amortized cost of the collateral dependent loans as of the dates indicated: September 30, 2024 December 31, 2023 Balance Related Allowance Balance Related Allowance Consumer Real Estate Residential closed-end first lien $ 84 $ – $ 7 $ – Commercial Real Estate Commercial real estate, owner occupied 8,464 – 2,177 – Commercial real estate, other 880 – – – Total Loans $ 9,428 $ – $ 2,184 $ – Credit Quality The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, historical payment experience, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. Loans rated pass have acceptable credit quality. Loans rated special mention have potential weakness due to challenging economic or financial conditions. Loans rated classified have well-defined weaknesses that heighten the risk of default. The tables below present the loan portfolio by amortized cost basis, year of origination, loan class and credit quality, and gross charge-offs for the nine months ended September 30, 2024 and year ended December 31, 2023. 17 Table of Contents Term Loans Amortized Cost Basis by Origination Year Revolving Loans Converted September 30, 2024 Prior 2020 2021 2022 2023 2024 Revolving to Term Total Construction, residential Pass $ 170 $ 60 $ 163 $ 691 $ 4,561 $ 1,511 $ 10,914 $ — $ 18,070 Construction, other Pass $ 2,859 $ 1,103 $ 7,923 $ 22,163 $ 7,334 $ 7,465 $ 4,731 $ — $ 53,578 Classified — — 272 — — — — — 272 Total $ 2,859 $ 1,103 $ 8,195 $ 22,163 $ 7,334 $ 7,465 $ 4,731 $ — $ 53,850 Equity lines Pass $ 372 $ 335 $ 408 $ 486 $ 938 $ 93 $ 19,621 $ — $ 22,253 Classified — — — — — – 90 — 90 Total $ 372 $ 335 $ 408 $ 486 $ 938 $ 93 $ 19,711 $ — $ 22,343 Residential closed-end first liens Pass $ 41,446 $ 18,265 $ 34,985 $ 37,415 $ 20,325 $ 16,572 $ — $ 305 $ 169,313 Special Mention 369 — — — — — — — 369 Classified 776 — — — — — — — 776 Total $ 42,591 $ 18,265 $ 34,985 $ 37,415 $ 20,325 $ 16,572 $ — $ 305 $ 170,458 Residential closed-end junior liens Pass $ 1,637 $ — $ 284 $ 2,066 $ 1,663 $ 1,630 $ 27 $ — $ 7,307 Investor-owned residential real estate Pass $ 29,550 $ 23,305 $ 19,409 $ 16,420 $ 8,309 $ 3,030 $ 2,066 $ 2,554 $ 104,643 Special Mention — — — 140 — — — — 140 Classified 751 — 169 35 166 — — — 1,121 Total $ 30,301 $ 23,305 $ 19,578 $ 16,595 $ 8,475 $ 3,030 $ 2,066 $ 2,554 $ 105,904 Multifamily residential real estate Pass $ 40,280 $ 2,097 $ 40,166 $ 28,004 $ 8,614 $ 13,243 $ 150 $ — $ 132,554 Commercial real estate, owner occupied Pass $ 54,180 $ 24,811 $ 7,546 $ 29,283 $ 10,495 $ 3,528 $ 3,915 $ 84 $ 133,842 Special mention 6,396 — — — — — — — 6,396 Classified 2,404 748 — — — — 15 — 3,167 Total $ 62,980 $ 25,559 $ 7,546 $ 29,283 $ 10,495 $ 3,528 $ 3,930 $ 84 $ 143,405 Commercial real estate, other Pass $ 91,828 $ 18,117 $ 37,922 $ 24,009 $ 17,112 $ 5,519 $ 1,857 $ — $ 196,364 Special Mention 695 — — — — — — — 695 Total $ 92,523 $ 18,117 $ 37,922 $ 24,009 $ 17,112 $ 5,519 $ 1,857 $ — $ 197,059 Commercial and industrial Pass $ 6,539 $ 2,241 $ 12,256 $ 5,860 $ 6,680 $ 7,042 $ 12,041 $ 12 $ 52,671 Special Mention — — — — — — 22 — 22 Classified — — — 6 — — — — 6 Total $ 6,539 $ 2,241 $ 12,256 $ 5,866 $ 6,680 $ 7,042 $ 12,063 $ 12 $ 52,699 YTD gross charge-offs $ 125 $ — $ — $ — $ — $ — $ 20 $ — $ 145 Public sector and IDA Pass $ 19,421 $ 223 $ 25,978 $ 6,025 $ 6,462 $ — $ — $ — $ 58,109 Credit cards Pass $ — $ — $ — $ — $ — $ — $ 4,794 $ — $ 4,794 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ 43 $ — $ 43 Automobile Pass $ 55 $ 324 $ 915 $ 1,953 $ 5,091 $ 5,252 $ — $ — $ 13,590 Special Mention — — — — 4 — — — 4 Classified — — — 5 73 — — — 78 Total $ 55 $ 404 $ 1,139 $ 2,181 $ 6,019 $ 3,905 $ — $ — $ 13,672 YTD gross charge-offs $ — $ — $ — $ 9 $ 13 $ 11 $ — $ — $ 33 Other consumer Pass $ 264 $ 496 $ 1,151 $ 2,807 $ 7,115 $ 9,422 $ 724 $ — $ 21,979 Special Mention — — 1 — — 10 — — 11 Classified — — — — 5 22 — — 27 Total $ 264 $ 496 $ 1,152 $ 2,807 $ 7,120 $ 9,454 $ 724 $ — $ 22,017 YTD gross charge-offs $ — $ 4 $ 15 $ 17 $ 74 $ 80 $ — $ — $ 190 Total Loans Pass $ 288,601 $ 91,377 $ 189,106 $ 177,182 $ 104,699 $ 74,307 $ 60,840 $ 2,955 $ 989,067 Special Mention 7,460 — 1 140 4 10 22 — 7,637 Classified 3,931 748 441 46 244 22 105 — 5,537 Total $ 299,992 $ 92,125 $ 189,548 $ 177,368 $ 104,947 $ 74,339 $ 60,967 $ 2,955 $ 1,002,241 YTD gross charge-offs $ 125 $ 4 $ 15 $ 26 $ 87 $ 91 $ 63 $ – $ 411 18 Table of Contents Term Loans Amortized Cost Basis by Origination Year Revolving Loans Converted December 31, 2023 Prior 2019 2020 2021 2022 2023 Revolving to Term Total Construction, residential Pass $ – $ – $ 246 $ 158 $ 3,275 $ 5,157 $ 4,606 $ – $ 13,442 Construction, other Pass $ 2,741 $ 1,094 $ 1,305 $ 12,671 $ 17,397 $ 4,884 $ 1,559 $ – $ 41,651 Classified – – – 286 – – – – 286 Total $ 2,741 $ 1,094 $ 1,305 $ 12,957 $ 17,397 $ 4,884 $ 1,559 $ – $ 41,937 Equity lines Pass $ 51 $ – $ – $ – $ – $ – $ 17,182 $ – $ 17,233 Classified – – – – – – 49 – 49 Total $ 51 $ – $ – $ – $ – $ – $ 17,231 $ – $ 17,282 Residential closed-end first liens Pass $ 32,404 $ 5,806 $ 14,634 $ 31,414 $ 29,787 $ 11,208 $ – $ – $ 125,253 Classified 426 – – – – – – – 426 Total $ 32,830 $ 5,806 $ 14,634 $ 31,414 $ 29,787 $ 11,208 $ – $ – $ 125,679 YTD gross charge-offs $ – $ – $ 17 $ – $ – $ – $ – $ – $ 17 Residential closed-end junior liens Pass $ 1,499 $ 116 $ – $ 172 $ 1,387 $ 1,850 $ – $ 15 $ 5,039 Investor-owned residential real estate Pass $ 24,556 $ 5,162 $ 23,649 $ 19,062 $ 14,166 $ 4,880 $ 1,283 $ 98 $ 92,856 Classified 708 – – – – – – – 708 Total $ 25,264 $ 5,162 $ 23,649 $ 19,062 $ 14,166 $ 4,880 $ 1,283 $ 98 $ 93,564 Multifamily residential real estate Pass $ 40,092 $ 1,806 $ 2,148 $ 40,544 $ 25,681 $ 8,850 $ 126 $ – $ 119,247 Commercial real estate, owner occupied Pass $ 41,573 $ 11,091 $ 23,407 $ 4,792 $ 16,720 $ 7,914 $ 2,919 $ – $ 108,416 Special mention 6,396 – – – – – – – 6,396 Classified 2,409 – – – – – – – 2,409 Total $ 50,378 $ 11,091 $ 23,407 $ 4,792 $ 16,720 $ 7,914 $ 2,919 $ – $ 117,221 Commercial real estate, other Pass $ 68,889 $ 21,841 $ 19,098 $ 36,157 $ 22,697 $ 13,279 $ 701 $ – $ 182,662 Commercial and industrial Pass $ 6,004 $ 438 $ 1,060 $ 12,667 $ 6,954 $ 6,938 $ 7,267 $ – $ 41,328 Classified 220 – – – 7 – – – 227 Total $ 6,224 $ 438 $ 1,060 $ 12,667 $ 6,961 $ 6,938 $ 7,267 $ – $ 41,555 YTD gross charge-offs $ – $ 12 $ – $ – $ – $ 12 $ 190 $ – $ 214 Public sector and IDA Pass $ 20,817 $ – $ 235 $ 26,702 $ 6,335 $ 6,462 $ – $ – $ 60,551 Credit cards Pass $ – $ – $ – $ – $ – $ – $ 4,668 $ – $ 4,668 YTD gross charge-offs $ – $ – $ – $ – $ – $ – $ 39 $ – $ 39 Automobile Pass $ 78 $ 204 $ 563 $ 1,619 $ 2,750 $ 7,047 $ – $ – $ 12,261 YTD gross charge-offs $ – $ 3 $ – $ 1 $ 38 $ – $ – $ – $ 42 Other Consumer Pass $ 93 $ 334 $ 811 $ 1,943 $ 5,815 $ 12,356 $ 672 $ – $ 22,024 Special mention – – – – – 17 – – 17 Classified – – – – 11 15 – – 26 Total $ 93 $ 334 $ 811 $ 1,943 $ 5,826 $ 12,388 $ 672 $ – $ 22,067 YTD gross charge-offs $ – $ – $ – $ 19 $ 52 $ 95 $ – $ – $ 166 Total Loans Pass $ 238,797 $ 47,892 $ 87,156 $ 187,901 $ 152,964 $ 90,825 $ 40,983 $ 113 $ 846,631 Special mention 6,396 – – – – 17 – – 6,413 Classified 3,763 – – 286 18 15 49 – 4,131 Total $ 248,956 $ 47,892 $ 87,156 $ 188,187 $ 152,982 $ 90,857 $ 41,032 $ 113 $ 857,175 YTD gross charge-offs $ – $ 15 $ 17 $ 20 $ 90 $ 107 $ 229 $ – $ 478 Loan Modifications to Borrowers Experiencing Financial Difficulty The Company modifies loans for a variety of reasons. At the date of modification, the Company assesses whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated and is typically changed to special mention or classified, which results in individual evaluation of the loan for the ACLL. Two loans were modified for borrowers experiencing financial difficulty during the first three months of 2024. These loans were modified again during the three months ended September 30, 2024. There was one loan to a borrower experiencing financial difficulty that was modified during the nine months ended September 30, 2023. 19 Table of Contents The following table presents information as of September 30, 2024 about loans modified for borrowers experiencing financial difficulty during the nine months ended September 30, 2024. September 30, 2024 Amortized Cost Basis % of Class Type of Modification Financial Effect Commercial Real Estate Commercial real estate owner-occupied $ 6,396 4.40 % Interest only payments 3 months of interest only payments, re-amortization of the balance to contractual maturity. Commercial Non real estate Commercial and industrial $ 6 0.01 % Term extension Renewal of single-payment note for an additional 3 months. The following table presents information as of September 30, 2023 about loans modified for borrowers experiencing financial difficulty during the nine months ended September 30, 2023. September 30, 2023 Amortized Cost Basis % of Class Type of Modification Financial Effect Commercial Real Estate Commercial real estate owner-occupied $ 6,396 5.38 % Interest only payments 6 months of interest only payments, re-amortization of the balance to contractual maturity. The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty. Both loans are in current status as of September 30, 2024. There were no loans to borrowers experiencing financial difficulty that had a payment default during the three or nine months ended September 30, 2024 and 2023 and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly. Consumer Real Estate Loans In Process of Foreclosure As of September 30, 2024 , the Company had three consumer real estate loans totaling $ 397 in process of foreclosure. As of December 31, 2023 , one consumer real estate loan of $ 7 was in process of foreclosure. ACL for Unfunded Commitments The following tables present the balance and activity in the ACL for unfunded commitments for the nine months ended September 30, 2024 and 2023: Allowance for Credit Losses on Unfunded Commitments Balance, December 31, 2023 $ 259 Recovery of credit losses ( 25 ) FCB acquisition 7 Balance, September 30, 2024 $ 241 Allowance for Credit Losses on Unfunded Commitments Balance, December 31, 2022 $ 35 Adoption of ASU 2016-13 207 Recovery of credit losses 21 Balance, September 30, 2023 $ 263 20 Table of Contents Note 4: Securities The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses as of the dates indicated are summarized as follows: September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government agencies and corporations $ 353,077 $ - $ 32,645 $ 320,432 States and political subdivisions 178,270 - 25,542 152,728 Mortgage-backed securities 146,619 53 4,427 142,245 Corporate debt securities 6,507 - 631 5,876 U.S. treasury 999 - 9 990 Total securities available for sale $ 685,472 $ 53 $ 63,254 $ 622,271 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government agencies and corporations $ 353,904 $ - $ 42,060 $ 311,844 States and political subdivisions 179,507 - 29,614 149,893 Mortgage-backed securities 156,875 - 6,724 150,151 Corporate debt securities 6,504 - 754 5,750 U.S. treasury 996 - 33 963 Total securities available for sale $ 697,786 $ - $ 79,185 $ 618,601 No allowance for credit loss on securities available for sale was recorded as of September 30, 2024 or December 31, 2023. Accrued interest receivable on securities, included in accrued interest receivable on the Consolidated Balance Sheets, totaled $ 3,379 at September 30, 2024 and $ 3,281 at December 31, 2023. The deferred tax asset for the net unrealized loss on securities available for sale was $ 13,272 as of September 30, 2024 and $ 16,629 as of December 31, 2023. The deferred tax asset is included in other assets on the Consolidated Balance Sheets. The amortized cost and fair value of single maturity securities available for sale at September 30, 2024, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities included in these totals are categorized by final maturity. September 30, 2024 Amortized Cost Fair Value Available for Sale: Due in one year or less $ 30,957 $ 30,674 Due after one year through five years 202,285 191,613 Due after five years through ten years 249,367 217,742 Due after ten years 202,863 182,242 Total securities available for sale $ 685,472 $ 622,271 21 Table of Contents Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous loss position, as of the dates indicated, follows. September 30, 2024 Less Than 12 Months 12 Months or More Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. government agencies and corporations $ - $ - $ 320,432 $ 32,645 State and political subdivisions 924 78 151,803 25,464 Mortgage-backed securities 3 - 119,869 4,427 Corporate debt securities - - 5,876 631 U.S. treasury - - 990 9 Total temporarily impaired securities $ 927 $ 78 $ 598,970 $ 63,176 December 31, 2023 Less Than 12 Months 12 Months or More Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. government agencies and corporations $ - $ - $ 311,844 $ 42,060 State and political subdivisions 884 1 148,763 29,613 Mortgage-backed securities 1,616 26 147,922 6,698 Corporate debt securities - - 5,750 754 U.S. treasury - - 963 33 Total temporarily impaired securities $ 2,500 $ 27 $ 615,242 $ 79,158 The Company evaluates securities available for sale that are in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. At September 30, 2024, the Company had 563 securities with a fair value of $ 599,897 in an unrealized loss position. The Company reviews securities in an unrealized loss position to evaluate credit risk. The Company considers payment history, risk ratings from external parties, financial statements for municipal and corporate securities, public statements from issuers and other available credible published sources in evaluating credit risk. No credit risk was found and no ACL on securities available for sale was recorded as of September 30, 2024. The unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions. The Company does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the cost basis of the investments. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Restricted Stock. The Company holds restricted stock that is reported separately from available for sale securities. As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. The Company purchases stock from or sells stock back to the correspondents based on their calculations. The stock is held by member institutions only and is not actively traded. Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling $ 507,498 at September 30, 2024. The Company’s management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at September 30, 2024, did not determine any impairment. Realized Securities Gains and Losses The Company initiated sale of FCB’s securities portfolio upon completion of the acquisition, and no gain or loss was recorded. During the first nine months of 2023, the Company realized net securities losses of $ 3,332 on the sale of securities with an amortized cost basis of $ 46,850 . The sales were part of the Company’s interest rate risk management strategy. 22 Table of Contents Note 5: Defined Benefit Plan The following table presents components of Net Periodic Benefit Cost for the periods indicated: Pension Benefits Three Months Ended September 30, 2024 2023 Service cost $ 261 $ 203 Interest cost 302 273 Expected return on plan assets ( 608 ) ( 518 ) Recognized net actuarial loss 33 17 Net periodic benefit income $ ( 12 ) $ ( 25 ) Pension Benefits Nine Months Ended September 30, 2024 2023 Service cost $ 783 $ 609 Interest cost 906 819 Expected return on plan assets ( 1,824 ) ( 1,553 ) Recognized net actuarial loss 99 52 Net periodic benefit income $ ( 36 ) $ ( 73 ) The service cost component of net periodic benefit cost is included in salaries and employee benefits expense in the Consolidated Statements of Income. All other components are included in other operating expense in the Consolidated Statements of Income. In April of 2024, the Company made a contribution of $ 3,000 to the defined benefit plan. Note 6: Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of the observable inputs and minimize the use of the unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are: Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities. Level 2 – Valuation is based on observable inputs including: • quoted prices in active markets for similar assets and liabilities, • quoted prices for identical or similar assets and liabilities in less active markets, • inputs other than quoted prices that are observable, and • model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. Level 3 – Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. Fair value is best determined by quoted market prices. However, in cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements. 23 Table of Contents Financial Instruments Measured at Fair Value on a Recurring Basis Securities Available for Sale Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables. The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated. Fair Value Measurement Using September 30, 2024 Balance Level 1 Level 2 Level 3 U.S. government agencies and corporations $ 320,432 $ - $ 320,432 $ - States and political subdivisions 152,728 - 152,728 - Mortgage-backed securities 142,245 - 142,245 - Corporate debt securities 5,876 - 5,876 - U.S. treasury 990 - 990 - Total securities available for sale $ 622,271 $ - $ 622,271 $ - Fair Value Measurement Using December 31, 2023 Balance Level 1 Level 2 Level 3 U.S. government agencies and corporations $ 311,844 $ - $ 311,844 $ - States and political subdivisions 149,893 - 149,893 - Mortgage-backed securities 150,151 - 150,151 - Corporate debt securities 5,750 - 5,750 - U.S. treasury 963 - 963 - Total securities available for sale $ 618,601 $ - $ 618,601 $ - The Company’s securities portfolio is valued using Level 2 inputs. The Company relies on an independent third party vendor to provide market valuations. The inputs used to determine value include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio. Level 2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any, may impact securities fair value, deferred tax assets or liabilities, or expense. Interest Rate Loan Contracts and Forward Sale Commitments The Company originates consumer real estate loans which it intends to sell to a correspondent lender. Interest rate loan contracts and forward sale commitments result from originating loans held for sale and are derivatives reported at fair value. The Company enters interest rate lock commitments with customers who apply for a loan which the Company intends to sell to a correspondent lender. The interest rate loan contract ends when the loan closes or the customer withdraws their application. Fair value of the interest rate loan contract is based upon the correspondent lender’s pricing quotes at the report date. Fair value is adjusted for the estimated probability of the loan closing with the borrower. At the time the Company enters into an interest rate loan contract with a customer, it also enters into a best efforts forward sales commitment with the correspondent lender. If the loan is closed and funded, the best efforts commitment converts to a mandatory forward sales commitment. Fair value is based on the gain or loss that would occur if the Company were to pair-off the transaction with the investor at the measurement date. This is a Level 3 input. The Company measures and reports best efforts commitments at fair value. Interest rate loan contracts and forward sale commitments are valued based on quotes from the correspondent lender at the reporting date. Pricing changes daily and if a loan has not been sold to the correspondent by the next reporting date, the fair value may be different from that reported currently. Changes in fair value measurement impacts net income. As of September 30, 2024, three funded loans gave rise to a liability for the forward sales commitment. The Company had one rate lock commitment as of December 31, 2023, resulting in an asset for the interest rate loan contract and a liability for the forward sales commitment, and one funded loan resulting in a forward sales commitment. The following tables present information on the interest rate loan contracts and forward sale commitments as of the date indicated: 24 Table of Contents Fair Value Measurement Using September 30, 2024 Balance (Level 1) (Level 2) (Level 3) Forward sale commitment $ ( 3 ) $ - $ - $ ( 3 ) September 30, 2024 Valuation Technique Unobservable Input Range (Weighted Average) Forward sale commitment Market approach Pull-through rate 100 % (1) Forward sale commitment Market approach Current reference price 101.99 % - 102.63 % ( 102.14 ) (2) Fair Value Measurement Using December 31, 2023 Balance (Level 1) (Level 2) (Level 3) Interest rate loan contract $ 3 $ - $ - $ 3 Forward sale commitment $ ( 4 ) $ - $ - $ ( 4 ) December 31, 2023 Valuation Technique Unobservable Input Range (Weighted Average) Interest rate loan contract Market approach Pull-through rate 100 % (1) Forward sale commitment Market approach Pull-through rate 100 % (1) Interest rate loan contract Market approach Current reference price 102.64 % (3) Forward sale commitment Market approach Current reference price 101.60 % - 102.64 % ( 101.98 %) (2) (1) All contracts are valued using the same pull-through rate (2) Current reference prices were weighted by the relative amount of the loan (3) Comprised of only one loan. Financial Instruments Measured at Fair Value on a Non-Recurring Basis Certain financial instruments are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements. Loans Held for Sale Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. A liability of $ 3 for the fair value of loans held for sale was recorded as of September 30, 2024 . No nonrecurring fair value adjustments were recorded on loans held for sale at December 31, 2023. Collateral Dependent Loans Collateral dependent loans are measured on a non-recurring basis for the ACLL. If the fair value of the collateral is lower than the loan’s amortized cost basis, the shortfall is recognized in the ACLL. When repayment is expected from the operation of the collateral, fair value is estimated as the present value of expected cash flows from the operation of the collateral. When repayment is expected from the sale of the collateral, fair value is estimated using measurement techniques discussed below and discounted by the estimated cost to sell. The ACLL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. For loans secured by real estate, fair value of collateral is determined by the “as-is” value of appraisals or third party evaluations that are less than 24 months of age. Appraisals are prepared by independent, licensed appraisers. Appraisals are based upon observable market data analyzed through an income or sales valuation approach. Valuation falls within Level 2 categorization. The Company may further discount appraisals for marketing strategies, which results in Level 3 categorization. The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). As of September 30, 2024 , one consumer real estate loan totaling $ 84 and three commercial real estate loans totaling $ 9,344 were collateral dependent. Valuation of the consumer real estate loan and two of the commercial real estate loans were based upon third party evaluations (Level 2). Valuation for one commercial real estate loan was based upon an internal evaluation (Level 3). None of the measurements resulted in a specific allocation. 25 Table of Contents Fair Value Summary The following presents the recorded amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of the dates indicated. Fair values are estimated using the exit price notion. Estimated Fair Value September 30, 2024 Carrying Amount Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 15,990 $ 15,990 $ - $ - Interest-bearing deposits 33,707 33,707 Federal funds sold 73 73 - - Securities available for sale 622,271 - 622,271 - Restricted stock, at cost 1,849 - 1,849 - Mortgage loans held for sale 457 - 457 - Loans, net 991,331 - - 934,186 Accrued interest receivable 6,648 - 6,648 - Bank-owned life insurance 47,071 - 47,071 - Financial liabilities: Deposits $ 1,602,953 $ - $ 1,292,876 $ 310,116 Accrued interest payable 2,074 - 2,074 - Forward sale commitment 3 - - 3 Estimated Fair Value December 31, 2023 Carrying Amount Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 12,967 $ 12,967 $ - $ - Interest-bearing deposits 73,636 73,636 - - Securities available for sale 618,601 - 618,601 - Restricted stock, at cost 1,264 - 1,264 - Mortgage loans held for sale 406 - 406 - Loans, net 847,552 - - 793,800 Accrued interest receivable 6,313 - 6,313 - Bank-owned life insurance 43,583 - 43,583 - Interest rate loan contract 3 - - 3 Financial liabilities: Deposits $ 1,503,972 $ - $ 1,280,732 $ 222,374 Accrued interest payable 1,416 - 1,416 - Forward sale commitment 4 - - 4 26 Table of Contents Note 7: Components of Accumulated Other Comprehensive Loss The following tables provide information about components of accumulated other comprehensive loss as of the dates indicated: Net Unrealized Loss on Securities Adjustments Related to Pension Benefits Accumulated Other Comprehensive Loss Balance at June 30, 2023 $ ( 71,898 ) $ ( 2,345 ) $ ( 74,243 ) Unrealized holding loss on available for sale securities, net of tax of ($ 4,099 ) ( 15,421 ) - ( 15,421 ) Balance at September 30, 2023 $ ( 87,319 ) $ ( 2,345 ) $ ( 89,664 ) Balance at June 30, 2024 $ ( 66,044 ) $ ( 2,310 ) $ ( 68,354 ) Unrealized holding loss on available for sale securities, net of tax of $ 4,284 16,115 - 16,115 Balance at September 30, 2024 $ ( 49,929 ) $ ( 2,310 ) $ ( 52,239 ) Net Unrealized Loss on Securities Adjustments Related to Pension Benefits Accumulated Other Comprehensive Loss Balance at December 31, 2022 $ ( 81,421 ) $ ( 2,345 ) $ ( 83,766 ) Unrealized holding gain on available for sale securities, net of tax of ($ 2,268 ) ( 8,530 ) - ( 8,530 ) Reclassification adjustment, net of tax of $ 700 2,632 - 2,632 Balance at September 30, 2023 $ ( 87,319 ) $ ( 2,345 ) $ ( 89,664 ) Balance at December 31, 2023 $ ( 62,556 ) $ ( 2,310 ) $ ( 64,866 ) Unrealized holding loss on available for sale securities, net of tax of $ 3,357 12,627 - 12,627 Balance at September 30, 2024 $ ( 49,929 ) $ ( 2,310 ) $ ( 52,239 ) Note 8: Revenue Recognition Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams such as service charges on deposit accounts, other service charges and fees, credit and debit card fees, trust income, and annuity and insurance commissions are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance. Noninterest revenue streams within the scope of Topic 606 are discussed below. Service Charges on Deposit Accounts Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Other Service Charges and Fees Other service charges include safe deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since 27 Table of Contents rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transactional based, and therefore the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Credit and Debit Card Fees Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa and MasterCard. Merchant services income mainly represents commission fees based upon merchant processing volume. The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. In compliance with Topic 606, credit and debit card fee income is presented net of associated expense. Trust Income Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Estate management fees are based upon the size of the estate. A partial fee is recognized half-way through the estate administration and the remainder of the fee is recognized when remaining assets are distributed and the estate is closed. Insurance and Investment Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. Investment income consists of recurring revenue streams such as commissions from sales of mutual funds, annuities and other investments. Commissions from the sale of mutual funds, annuities and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined. OREO Gains and Losses The Company records a gain or loss from the sale of other real estate owned (“OREO”) when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated. Three Months Ended September 30, Noninterest Income 2024 2023 In-scope of Topic 606: Service charges on deposit accounts $ 753 $ 642 Other service charges and fees 82 151 Credit and debit card fees, net 344 395 Trust income 580 505 Insurance and Investment (included within Other Income in the Consolidated Statements of Income) 126 142 Noninterest Income (in-scope of Topic 606) $ 1,885 $ 1,835 Noninterest Income (out-of-scope of Topic 606) 387 280 Total noninterest income $ 2,272 $ 2,115 28 Table of Contents Nine Months Ended September 30, Noninterest Income 2024 2023 In-scope of Topic 606: Service charges on deposit accounts $ 2,150 $ 1,871 Other service charges and fees 176 253 Credit and debit card fees, net 1,141 1,276 Trust income 1,596 1,431 Insurance and Investment (included within Other Income in the Consolidated Statements of Income) 558 539 Noninterest Income (in-scope of Topic 606) $ 5,621 $ 5,370 Noninterest Income (out-of-scope of Topic 606) 1,096 1,735 Total noninterest income $ 6,717 $ 7,105 Note 9: Leases The Company’s leases are recorded under ASC Topic 842, “Leases”. The Company categorizes leases as short-term, operating or finance leases. Leases with terms of 12 months or less are designated as short-term and are not capitalized. Operating and finance leases are capitalized as right-of-use assets and lease liabilities. Right-of-use assets, included in other assets, represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Lease liabilities, included in other liabilities, represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The Company does not separate non-lease components from lease components within a single contract. Counterparties for the Company’s lease contracts are external to the Company and not related parties. On June 1, 2024, the Company’s acquisition of FCB added two long-term branch leases. At the Acquisition Date, the leases were remeasured using the Company’s incremental borrowing rate and remaining lease terms, resulting in an increase of $ 548 to the right of use asset and the lease liability. Lease payments Short-term lease payments are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Operating and finance lease payments may be fixed for the term of the lease or variable. If the escalation factor for a variable lease payment is known, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability. Options to Extend, Residual Value Guarantees, Restrictions and Covenants Certain of the Company’s operating leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. The following tables present information about leases as of the dates and for the periods indicated: September 30, 2024 December 31, 2023 Lease liability $ 1,626 $ 1,127 Right-of-use asset $ 1,404 $ 1,096 Weighted average remaining lease term (in years) 4.89 4.39 Weighted average discount rate 3.85 % 3.29 % For the Three Months Ended September 30, Lease Expense 2024 2023 Operating lease expense $ 127 $ 91 Short-term lease expense 5 10 Total lease expense $ 132 $ 101 Cash paid for amounts included in lease liabilities $ 131 $ 100 29 Table of Contents For the Nine Months Ended September 30, Lease Expense 2024 2023 Operating lease expense $ 315 $ 275 Short-term lease expense 16 11 Total lease expense $ 331 $ 286 Cash paid for amounts included in lease liabilities $ 330 $ 286 Right-of-use assets obtained in exchange for operating lease liabilities commencing during the period $ 548 $ – The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability: Undiscounted Cash Flow for the Period As of September 30, 2024 Twelve months ending September 30, 2025 $ 397 Twelve months ending September 30, 2026 352 Twelve months ending September 30, 2027 303 Twelve months ending September 30, 2028 304 Twelve months ending September 30, 2029 178 Thereafter 239 Total undiscounted cash flows $ 1,773 Less: discount ( 147 ) Lease liability $ 1,626 Note 10: Stock Based Compensation The Company’s 2023 Stock Incentive Plan (“the Plan”) was approved by shareholders at the annual shareholders meeting on May 9, 2023. The Plan provides for the grant of various forms of stock-based compensation awards that may be settled in, or based upon the value of, the Company’s common stock. The maximum number of shares available for issuance under the Plan is 120,000 shares. For further information on the Plan, refer to the Company’s Proxy Statement filed with the SEC on March 28, 2024 and the Company’s S-8 filed with the SEC on June 7, 2023. Restricted Stock Awards Under the Plan, non-employee directors receive restricted stock awards (“RSAs”) each June and December. The RSAs are valued at the closing stock price on the grant date and expensed over the one-year vesting period. Stock based compensation expense charged against income was $ 28 and $ 93 for the three and nine months ended September 30, 2024. As of September 30, 2024 , expense of $ 61 related to the nonvested RSAs is expected to be recognized over the coming 12 months. A summary of changes in the Company’s nonvested RSAs under the Plan for the nine months ended September 30, 2024 follows: Shares Weighted-Average Grant-Date Fair Value Nonvested at January 1, 2024 4,095 $ 30.73 Granted 2,796 30.00 Vested and released ( 2,052 ) 30.70 Forfeited ( 460 ) 30.38 Nonvested at September 30, 2024 4,379 $ 30.32 30 Table of Contents Note 11: Net Income Per Common Share The factors used in the computation of net income per common share for the periods indicated are presented below: For the Three Months Ended September 30, 2024 2023 Net Income (Numerator) Common Shares 1 (Denominator) Per Share Net Income (Numerator) Common Shares 1 (Denominator) Per Share Basic net income per common share $ 2,676 6,356,594 $ 0.42 $ 3,074 5,889,687 $ 0.52 Dilutive shares for restricted stock awards: 1,758 252 Diluted net income per common share $ 2,676 6,358,352 $ 0.42 $ 3,074 5,889,939 $ 0.52 For the Nine Months Ended September 30, 2024 2023 Net Income (Numerator) Common Shares 1 (Denominator) Per Share Net Income (Numerator) Common Shares 1 (Denominator) Per Share Basic net income per common share $ 4,544 6,092,468 $ 0.75 $ 11,506 5,889,687 $ 1.95 Dilutive shares for restricted stock awards: 1,974 91 Diluted net income per common share $ 4,544 6,094,442 $ 0.75 $ 11,506 5,889,778 $ 1.95 (1) Weighted average outstanding RSA grants are disregarded in the computation of diluted net income per share if they are determined to be anti-dilutive. There were no anti-dilutive RSAs for the three and nine months ended September 30, 2024 and September 30, 2023 . Note 12 – Goodwill and Other Intangibles The aggregate amortization expense was $ 102 and $ 137 for the three and nine months ended September 30, 2024. The following table provides information on the significant components of goodwill and other acquired intangible assets at September 30, 2024. Gross Carrying Amount Additions Measurement Period Adjustment Accumulated Amortization Net Carrying Amount Goodwill $ 5,848 $ 4,874 $ ( 4 ) $ - $ 10,718 Core deposit intangible $ - $ 2,100 $ - $ ( 137 ) $ 1,963 As of September 30, 2024, estimated future remaining amortization of the core deposit intangible within the years ending December 31, is as follows: Amortization Expense 2024 $ 100 2025 373 2026 331 2027 290 2028 248 Thereafter 621 Total amortizing core deposit intangible $ 1,963 31 Table of Contents