What changed in this filing

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Item 1. Business

2025-03-28 compared with 2024-03-19 · 72 added, 75 removed, 262 unchanged (36% of the section changed)

12 unchanged sentences

In May 2006, Bank of Tazewell County, a Virginia bank which since 1996 was a wholly-owned subsidiary of NBI, was merged with and into NBB.

Headquartered in Blacksburg, Virginia, NBB is community-oriented and offers a full range of retail and commercial banking services to individuals, businesses, non-profits and local governments.

Twenty-four banking locations are located throughout southwest Virginia, and three loan production offices are located in Roanoke, Charlottesville, and Staunton, Virginia.

Construction on a branch in Roanoke, Virginia is underway, with a planned completion date during the fourth quarter of 2024.

On June 1, 2024, NBB purchased Frontier Community Bank ("FCB"), a Virginia bank.

NBB is a community-oriented financial institution headquartered in Blacksburg, Virginia.

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.

NBB offers telephone, mobile and internet banking and it operates 25 automated teller machines (“ATMs”) in its service area.

17 unchanged sentences

NBFS works cooperatively with Osaic, Inc.

to provide investments and with Bankers Insurance, LLC for insurance products.

to provide investments and with Bearing Insurance Group, LLC for insurance products.

NBFS does not significantly contribute to NBI’s net income.

Proposed Acquisition of Frontier Community Bank

On January 23, 2024, the Company, the Bank and Frontier Community Bank, a Virginia chartered commercial bank headquartered in Waynesboro, Virginia (“Frontier”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Frontier will merge with and into the Bank (the “Merger”).

Under the terms of the Merger Agreement, upon completion of the proposed Merger, each outstanding share of Frontier’s common stock will be exchanged, at the election of each Frontier shareholder for either (i) $14.48 in cash, or (ii) 0.4250 shares of the Company’s common stock, plus cash in lieu of any fractional shares, provided that 90% of Frontier’s common stock will be exchanged for the Company’s common stock and 10% of Frontier’s common stock will be exchanged for cash.

If Frontier shareholders elect stock in excess of the 90% limit, then the stock elections will be prorated and converted to cash elections to the extent necessary to reduce the stock elections to the 90% limit;

provided, however, that the Company has the right to increase the limit so that greater than 90% of Frontier’s common stock will be exchanged for the Company’s common stock and the remaining percentage of Frontier’s common stock will be exchanged for cash.

Completion of the transaction remains subject to certain conditions, including approval of the transaction by appropriate federal and state banking regulatory agencies and approval of the transaction by the shareholders of Frontier.

The Company expects to complete the Merger in the second quarter of 2024.

Acquisition of Frontier Community Bank

On June 1, 2024 (the "acquisition date"), the Company completed its acquisition of FCB, a Virginia chartered commercial bank, in accordance with the definitive merger agreement, dated January 23, 2024, by and among the Company, the Bank, and FCB.

For more information on the completed acquisition, see Note 22:

Business Combination.

Operating Revenue

5 unchanged sentences

Interest on Investments

Noninterest Income

The Company serves customers through its offices in southwest and central Virginia.

Although largely rural, the market area is home to several major state-supported universities, including Virginia Polytechnic Institute and State University (“Virginia Tech”) and Radford University.

Recently opened loan production offices in Charlottesville and Staunton also service areas that contain the University of Virginia, James Madison University, Virginia Military Institute, Washington and Lee University, and Mary Baldwin University.

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.

2 unchanged sentences

Tazewell County is largely dependent on the coal mining industry and on agriculture for its economic base.

Montgomery County, Bluefield in Tazewell County, Abingdon in Washington County and the cities of Roanoke, Charlottesville and Staunton are regional retail centers and have facilities to provide basic health care for the regions.

Montgomery County, Bluefield in Tazewell County, Abingdon in Washington County and the cities of Roanoke, Charlottesville, Waynesboro, Lynchburg and Staunton are regional retail centers and have facilities to provide basic health care for the regions.

NBI’s market area offers the advantages of a good quality of life, scenic beauty, moderate climate and historical and cultural attractions.

11 unchanged sentences

As of December 31, 2024, NBB had 242 full time equivalent employees and NBFS had 3 full time equivalent employees.

NBB performs services and charges commensurate fees to NBI and NBFS.

NBB performs services for and charges commensurate fees to NBI and NBFS.

Regulation, Supervision and Government Policy

5 unchanged sentences

As such, NBI is subject to the supervision, examination, and reporting requirements of the BHCA and the regulations of the Federal Reserve.

NBI is required to furnish to the Federal Reserve an annual report of its operations at the end of each fiscal year and such additional information as the Federal Reserve may require pursuant to the BHCA.

NBI is required to furnish to the Federal Reserve an annual report of its operations at the end of each fiscal year and such additional

information as the Federal Reserve may require pursuant to the BHCA.

The Federal Reserve is authorized to examine NBI and its subsidiaries.

22 unchanged sentences

Capital and Related Requirements.

In August 2018, the Federal Reserve updated the Small Bank Holding Company Policy Statement (the “Statement”), in compliance with the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”).

The Statement, among other things, exempts qualified bank holding companies that have consolidated total assets of less than $3 billion from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements.

The Federal Reserve's Small Bank Holding Company Policy Statement (the "Statement") sets forth requirements for designation as a small bank holding company and related expectations for capital and reporting requirements.

Qualified bank holding companies that have consolidated total assets of less than $3 billion are exempt from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements.

The Company qualifies as a small bank holding company.

2 unchanged sentences

Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Dodd-Frank Act was signed into law on July 21, 2010.

Its wide ranging provisions affect all federal financial regulatory agencies and nearly every aspect of the American financial services industry.

The Dodd-Frank Act created an independent Consumer Financial Protection Bureau (the “CFPB”) which has the ability to write rules for consumer protections governing all financial institutions.

All consumer protection responsibility formerly handled by other banking regulators was consolidated in the CFPB.

It oversees the enforcement of all federal laws intended to ensure fair access to credit.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") sets forth requirements for consumer mortgage lending, provisions for corporate governance and executive compensation, directed rule-making by the Federal Reserve limiting fees charged to merchants for credit and debit card transactions and established the Consumer Financial Protection Bureau (the “CFPB”).

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 Dodd-Frank Act contains provisions designed to reform mortgage lending, which includes the requirement of additional disclosures for consumer mortgages, and the CFPB implemented many mortgage lending regulations to carry out its mandate.

Additionally, in response to the Dodd-Frank Act, the Federal Reserve issued rules in 2011 which had the effect of limiting the fees charged to merchants by credit card companies for debit card transactions.

The Dodd-Frank Act also contains provisions that affect corporate governance and executive compensation.

The Dodd-Frank Act provisions are extensive and have required the Company and the Bank to deploy resources to comply with them.

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.

5 unchanged sentences

The Economic Growth, Regulatory Reform and Consumer Protection Act of 2018.

In May 2018 the EGRRCPA amended provisions of the Dodd-Frank Act and other statutes administered by banking regulators.

Among these amendments are provisions to tailor applicability of certain of the enhanced prudential standards for Systemically Important Financial Institutions (“SIFI’s”) and to increase the $50 billion asset threshold in two stages to $250 billion to which these enhanced standards apply.

The EGRRCPA exempts insured depository institutions (and their parent companies) with less than $10 billion in consolidated assets and that meet certain tests from the Volker Rule (which prohibits banks from conducting certain investment activities with their own accounts).

As discussed below, pursuant to EGRRCPA, regulators finalized an optional, simplified measure of capital adequacy, which is commonly known as the “community bank leverage ratio” (“CBLR”) framework, for qualifying financial institutions with less than $10 billion in consolidated assets.

If the financial institution maintains its tangible equity above the CBLR, it will be deemed in compliance with the various regulatory capital requirements currently in effect.

The 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.

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.

The EGRRCPA exempts insured depository institutions (and their parent companies) with less than $10

billion in consolidated assets and that meet certain tests from the Volker Rule (which prohibits banks from conducting certain investment activities with their own accounts) .

The EGRRCPA 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 changes numerous other regulatory requirements based on the size and complexity of financial institutions, particularly benefiting smaller institutions like the Company.

The EGRRCPA addressed numerous other regulatory requirements based on the size and complexity of financial institutions, particularly benefiting smaller institutions like the Company.

The National Bank of Blacksburg

15 unchanged sentences

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.

The final rules are likely to make it more challenging and/or costly for the Bank to receive a rating of at least “satisfactory” on its CRA evaluation.

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 .

3 unchanged sentences

These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.

In October 2023, the CFPB proposed a new rule that would require a provider of payment accounts or products, such as the Bank, to make certain data available to consumers upon request regarding the products or services they obtain from the provider.

The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products and services.

For banks with over $850 million and less than $50 billion in total assets, such as the Bank, compliance would be required approximately two and one-half years after adoption of the final rule.

In October 2024, the CFPB issued a final rule regarding personal financial data rights that is designed to promote “open banking.” The final rule requires, among other things, that data providers, including any financial institution, make available to consumers and certain authorized third parties, upon request, certain covered transaction, account, and payment information.

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.

This legal challenge has since been paused to allow time for the CFPB to assess the rule and determine whether it aligns with the agency’s current policy objectives.

Consumer Laws and Regulations.

21 unchanged sentences

Minimum Ratio

Minimum Ratio With Capital

Conservation Buffer

Minimum Ratio With

Capital Conservation Buffer

Total Capital to Risk Weighted Assets

16 unchanged sentences

NBB exceeded the thresholds to be considered well capitalized as of December 31, 2024.

Pursuant to the EGRRCPA, regulators have provided for an optional, simplified measure of capital adequacy, the CBLR framework, for qualifying community banking organizations with consolidated assets of less than $10 billion.

Banks that qualify, including NBB, may opt in to the CBLR framework.

The CBLR framework eliminates the requirement to comply with capital ratios disclosed above and, instead, requires the disclosure of a single leverage ratio, with a minimum requirement of 9%.

The Bank has not opted in to the CBLR framework at this time.

Limits on Dividend Payments.

20 unchanged sentences

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.

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.

To comply with these obligations, the Company has implemented appropriate internal practices, procedures, and controls.

5 unchanged sentences

Incentive Compensation.

In June 2010, the federal bank regulatory agencies issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging excessive risk-taking.

The Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of a financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.

The Interagency Guidance on Sound Incentive Compensation Policies, issued by federal banking agencies, covers all employees that have the ability to materially affect the risk profile of a financial institution, either individually or as part of a group, and is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.

Section 956 of the Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity.

1 unchanged sentence

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.

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.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements.

3 unchanged sentences

As of December 31, 2024, the Company had not been made aware of any instances of non-compliance with the final guidance.

The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, enacted a listing rule that became effective in 2023 requiring that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.

The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, enacted a listing rule that became effective in 2023 requiring listed companies to adopt policies mandating the recovery or “clawback” of excess incentive compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.

The 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.

7 unchanged sentences

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.

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.

In July 2023, the SEC issued a final rule to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Exchange Act.

1 unchanged sentence

Cybersecurity of this Form 10-K for a discussion of the Company’s cybersecurity risk management, strategy and governance.

The Company’s systems and those of its customers and third-party service providers are under constant threat.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by the Company and its customers.

Please see Item 1C, Cybersecurity, in this Form 10-K for a discussion of the Company’s cybersecurity risk management strategy and governance.

Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act (the “ CARES Act ” ).

In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 and the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law on December 27, 2020.

Among other things, the CARES Act created, and the CAA extended, the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”).

Under the PPP, money was authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt.

The loans were provided through participating financial institutions, such as the Bank, that processed loan applications and service the loans.

Monetary Policy

2 unchanged sentences

The spread between the interest paid on deposits and that which is charged on loans is the most important component of the bank’s earnings.

In addition, interest earned on investments held by NBI and NBB has a significant effect on earnings.

In addition, interest earned on securities investments has a significant effect on earnings.

fiscal policy, including deficits requiring increased governmental borrowing also can affect interest rates.

8 unchanged sentences

The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are made available on its website as soon as is practical after the material is electronically filed with the SEC.

The Company’s proxy materials for the 2024 annual meeting of stockholders are also posted on a separate website at www.investorvote.com/NKSH .

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.

6 unchanged sentences

Offices and Positions Held

Year Elected an Officer

National Bankshares, Inc.:

Chairman, President and Chief Executive Officer (“CEO”), May 2019 to Present;

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;

2 unchanged sentences

Chairman, September 2017 to Present;

President and CEO, July 2014 to Present;

Executive Vice President/Chief Operating Officer, October 2002 – July 2014.

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 of National Bankshares Financial Services, Inc., September 2017 to Present;

Chairman, President and CEO, September 2017 to Present;

Treasurer, June 2011 to Present.

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.

The National Bank of Blacksburg:

Senior Vice President/Senior Operations, Risk and Technology Officer, May 2022 to present;

Senior Vice President/Operations and Risk Management and CFO, January 2009 – May 2022;

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;

1 unchanged sentence

National Bankshares, Inc.:

Treasurer and Chief Financial Officer (“CFO”), January 2009 to May 2022.

National Bankshares, Inc.:

President, January 1, 2025 to Present;

Corporate Secretary, June 2016 to Present;

The National Bank of Blacksburg:

Executive Vice President and Chief Operating Officer, May 2022 to present;

Senior Vice President/Administration, January 2018 – May 2022.

National Bankshares, Inc.:

Executive Vice President/COO May 2022 to December 31, 2024;

Senior Vice President/Administration, June 2011 – December 2017;

National Bankshares, Inc.:

Vice President/Human Resources, January 2001 – June 2011.

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.

National Bankshares, Inc.:

Executive Vice President/Chief Lending Officer, November 2019 to Present;

The National Bank of Blacksburg:

Senior Vice President/Chief Lending Officer, August 2016 – November 2019

The National Bank of Blacksburg:

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.

National Bankshares, Inc.:

Treasurer and Chief Financial Officer (“CFO”), May 2022 to Present.

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.

The National Bank of Blacksburg:

Senior Vice President/CFO and Cashier, May 2022 to Present;

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.

National Bankshares, Inc.:

Senior Vice President/Chief Credit Officer, March 2022 to Present.

The National Bank of Blacksburg:

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business