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Item 8. Financial Statements and Supplementary Data

2025-03-28 compared with 2024-03-19 · 546 added, 730 removed, 1107 unchanged (54% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of National Bankshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of National Bankshares, Inc.

and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses – Collectively Evaluated Loans

Description of the Matter

As further described in Note 1 (Summary of Significant Accounting Policies) and Note 5 (Allowance for Credit Losses on Loans and Nonperforming Assets) to the consolidated financial statements, the allowance for credit losses on loans (ACLL) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms.

Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, modified by peer data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions.

The Company’s ACLL related to collectively evaluated loans represented $10.2 million of the total recorded ACLL of $10.3 million as of December 31, 2024.

The collectively evaluated ACLL consists of quantitative and qualitative components.

The Company uses a discounted cash flow method for all of its pools except for bankcards, which are measured using the historical loss rate adjusted for the forecast.

These estimates consider large amounts of data in tabulating default, loss given default, and

prepayment speeds and require complex calculations as well as management judgment in the selection of appropriate inputs.

In addition to the quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process.

Factors considered by management in developing its qualitative estimates include:

changes in lending policies;

management experience;

economic conditions;

loans past due;

competitive, legal and regulatory environment;

and other loan characteristics.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Management exercised significant judgment when estimating the ACLL on collectively evaluated loans.

We identified the estimation of the collectively evaluated ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.

The primary audit procedures we performed to address this critical audit matter included:

• Obtaining an understanding of the Company’s process for determining its ACLL, including the underlying methodology and significant inputs to the calculation.

• Substantively testing management’s process for measuring the collectively evaluated ACLL, including:

• Evaluating the conceptual soundness, assumptions, and key data inputs of the Company’s discounted cash flow methodology, including the identification of loan pools, the probability of default and loss given default rate inputs, and the prepayment/curtailment rate inputs for each pool.

• Evaluating management’s selection of forecasting inputs and testing the accuracy of management’s incorporation of its forecasts in the collectively evaluated ACLL estimate.

• Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors.

• Evaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data.

• Testing the mathematical accuracy of the ACLL for collectively evaluated loans including both the discounted cash flow and qualitative factor components of the calculations.

Business Combinations – Fair Value of Acquired Loans

Description of the Matter

As described in Note 22 (Business Combination) to the financial statements, the Company completed its acquisition of

Frontier Community Bank (“FCB”) on June 1, 2024 for total consideration of $16.3 million.

The transaction was accounted for as a business combination using the acquisition method of accounting.

Accordingly, assets acquired and liabilities assumed were recorded at fair value on the acquisition date, including acquired loans with an aggregate fair value of $118.7 million.

Determining the acquired fair values, particularly in relation to the loan portfolio, is inherently subjective and involves significant judgment regarding the methods and assumptions used to estimate fair value.

In determining the fair value of loans acquired, management must determine whether or not acquired loans have evidence of more-than-insignificant credit deterioration at acquisition, the amount and timing of cash flows expected to be collected, and market discount rates, among other assumptions.

Changes in these assumptions could have a significant impact on the fair value of the loans acquired and the amount of goodwill recorded.

We identified the acquisition date fair value of acquired loans as a critical audit matter as auditing this estimate is especially complex and requires subjective auditor judgment.

Auditing this estimate required a high level of judgment in evaluating management’s identification of loans with evidence of credit deterioration, the need for specialized skill in development and application of subjective assumptions in estimated cash flows, and the size of the acquired loan portfolio.

The primary audit procedures we performed to address this critical audit matter included:

• Obtaining an understanding of the Company’s business combination accounting practices and internal controls, including the process of:

• The appropriateness of the valuation approach and methodology.

• Review of valuation specialist valuation, including financial information, data, assumptions utilized and key inputs, specifically as it relates to the valuation for acquired loans.

• Substantively testing management’s process, including the use of our own valuation specialist to assess the Company’s methods and significant assumptions utilized in determining the fair value of the acquired loan portfolio and evaluating whether the assumptions used were reasonable with respect to market participant views and other factors.

• Testing the completeness and accuracy of loans determined to have credit deterioration at acquisition and evaluating the reasonableness of the criteria utilized by management in making the determination.

• Testing the accuracy of the data utilized in the development of acquisition date fair values by confirming, on a sample basis, select data.

/s/ Yount, Hyde & Barbour, P.C .

We have served as the Company's auditor since 2000.

Winchester, Virginia

March 28, 2025

Consolidated Balance Sheets

$ in thousands except per share data

(in thousands, except share and per share data)

December 31, 2024

December 31, 2023

Cash and due from banks

$ 12,967 $ 12,403

Interest-bearing deposits

73,636 59,026

Federal funds sold

Total cash and cash equivalents

Securities available for sale, at fair value

618,601 656,852

Restricted stock, at cost

1 unchanged sentence

Real estate construction loans

55,379 54,579

Consumer real estate loans

241,564 221,052

Commercial real estate loans

419,130 437,888

Commercial non real estate loans

41,555 57,652

Public sector and IDA loans

60,551 48,074

Consumer non real estate loans

38,996 33,948

857,175 853,193

Less unearned income and deferred fees and costs

( 529 ) ( 449 )

Loans, net of unearned income and deferred fees and costs

856,646 852,744

Less allowance for credit losses

( 9,094 ) ( 8,225 )

847,552 844,519

Less deferred fees and costs

Loans, net of deferred fees and costs

allowance for credit losses

Premises and equipment, net

11,109 10,371

Accrued interest receivable

Other real estate owned, net

Core deposit intangible, net

Bank-owned life insurance ("BOLI")

43,583 43,312

34,091 37,616

$ 1,655,370 $ 1,677,551

Liabilities and Stockholders' Equity

Noninterest-bearing demand deposits

$ 281,215 $ 327,713

Interest-bearing demand deposits

821,661 933,269

Savings deposits

177,856 214,114

Time deposits

223,240 67,629

Total deposits

1,503,972 1,542,725

Accrued interest payable

1 unchanged sentence

Total liabilities

1,514,848 1,554,864

Commitments and contingencies

2 unchanged sentences

none issued and outstanding

Common stock, $ 1.25 par value and additional paid in capital.

Authorized 10,000,000 shares;

issued and outstanding, 5,893,782 (including 4,095 unvested) shares as of December 31, 2023 and 5,889,687 as of December 31, 2022

Common stock of $ 1.25 par value and additional paid in capital.

Authorized 10,000,000

issued and outstanding 6,363,371 (including 4,961 unvested) shares as of

December 31, 2024 and 5,893,782 (including 4,095 unvested) shares as of

December 31, 2023

Retained earnings

197,984 199,091

Accumulated other comprehensive loss, net

( 64,866 ) ( 83,766 )

Total stockholders' equity

140,522 122,687

Total liabilities and stockholders' equity

$ 1,655,370 $ 1,677,551

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

Year Ended December 31,

$ in thousands, except per share data

(in thousands, except share and per share data)

Interest Income

Interest and fees on loans

Interest on federal funds sold

Interest on interest-bearing deposits

Interest and dividends on securities – taxable

Interest on securities – taxable

Interest on securities – nontaxable

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Net interest income

(Recovery of) provision for credit losses

Net interest income after (recovery of) provision for credit losses

Provision for (recovery of) credit losses

Net interest income after provision for (recovery of) credit losses

Noninterest Income

2 unchanged sentences

Credit and debit card fees, net

Gain on sale of mortgage loans

Gain on sale of investment

Gain on sale of private equity investment

Gain on sale of mortgage loans

Realized securities loss, net

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FDIC assessment

Intangible asset amortization

Net costs of other real estate owned

1 unchanged sentence

Professional services

Merger-related expenses

Contract termination

Other operating expenses

Total noninterest expense

Income before income taxes

Income before income tax expense

Income tax expense

1 unchanged sentence

Fully diluted net income per common share

Weighted average number of common shares outstanding, basic

Weighted average number of common shares outstanding, fully diluted

Dividends declared per common share

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Comprehensive Income (Loss)

Year Ended December 31,

Consolidated Statements of Comprehensive Income

For the Year Ended December 31,

(in thousands)

$ 15,691 $ 25,932

Other Comprehensive Income (Loss), Net of Tax

Unrealized holding gain (loss) on available for sale securities net of tax of $ 4,315 in 2023 and ($ 22,403 ) in 2022

16,233 ( 84,275 )

Other Comprehensive Income, Net of Tax

Unrealized holding gain on available for sale securities net of tax of $ 124 and

$ 4,315 for the periods ended December 31, 2024 and 2023, respectively

Reclassification adjustment for loss included in net income, net of tax of $ 700 in 2023

Net pension gain arising during the period, net of tax of $ 701 in 2024 and $ 9 in 2023

Other comprehensive income (loss), net of tax of $ 5,024 in 2023 and ($ 21,189 ) in 2022

18,900 ( 79,708 )

Total Comprehensive Income (Loss)

$ 34,591 $ ( 53,776 )

Other comprehensive income, net of tax

Total Comprehensive Income

The accompanying notes are an integral part of these consolidated financial statements.

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(in thousands except per share data)

and Additional

Paid-in Capital

Retained Earnings

Accumulated Other

Comprehensive Loss

Balance as of December 31, 2021

$ 7,580 $ 188,229 $ ( 4,058 ) $ 191,751

- 25,932 - 25,932

Other comprehensive loss, net of tax of ($ 21,189 )

- - ( 79,708 ) ( 79,708 )

Cash dividends of $ 1.50 per share

- ( 8,950 ) - ( 8,950 )

Stock repurchase of 174,250 shares

( 218 ) ( 6,120 ) - ( 6,338 )

Balance as of December 31, 2022

$ 7,362 $ 199,091 $ ( 83,766 ) $ 122,687

Comprehensive

Balances at December 31, 2022

Adoption of ASU 2016-13

- ( 2,014 ) - ( 2,014 )

- 15,691 - 15,691

Cash dividends of $ 2.51 per share

Other comprehensive income, net of tax of $ 5,024

- - 18,900 18,900

Stock based compensation

Balances at December 31, 2023

Acquisition of FCB

Cash dividends of $ 1.51 per share

- ( 14,784 ) - ( 14,784 )

Other comprehensive income, net of tax of $ 825

Stock based compensation

Balance as of December 31, 2023

$ 7,404 $ 197,984 $ ( 64,866 ) $ 140,522

Balances at December 31, 2024

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows

Year Ended December 31,

Consolidated Statements of Cash Flow

For the Year Ended December 31,

(in thousands)

Cash Flows from Operating Activities

Adjustment to reconcile net income to net cash provided by operating activities:

(Recovery of) provision for credit losses

Deferred income tax expense (benefit)

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for (recovery of) credit losses

Deferred income tax (benefit) expense

Depreciation of premises and equipment

Amortization of premiums and accretion of discounts, net

Gain on disposal of fixed assets

Amortization of premiums and accretion of discounts on securities, net

Loss on sale of securities available for sale, net

(Gain) loss and write-down on other real estate owned

Loss on sale of repossessed items

Income on investment in BOLI

Gain on sale of mortgage loans held for sale

Amortization of core deposit intangible

Accretion of fair value of acquired loans

Amortization of fair value of acquired time deposits and leases

Origination of mortgage loans held for sale

Sale of mortgage loans held for sale

Proceeds from sale of mortgage loans held for sale

Gain on sale of mortgage loans held for sale

Gain on other real estate owned

Loss on disposal of repossessed assets

Increase in cash value of bank-owned life insurance

Loss on disposal of premises and equipment, net

Contribution to defined benefit plan

Equity based compensation expense

7 unchanged sentences

Proceeds from calls, sales and maturities of securities available for sale

Purchases of securities available for sale

Net change in restricted stock

Purchases of loan participations

Collections of loan participations

Purchase of loan participations

Collection of loan participations

Loan originations and principal collections, net

Proceeds from disposal of other real estate owned

Proceeds from disposal of repossessed assets

Proceeds from sale of repossessed assets

Recoveries on loans charged off

BOLI settlement

Additions to premises and equipment

Purchases of premises and equipment

Proceeds from sale of premises and equipment

Net cash provided by (used in) investing activities

BOLI settlement

Cash acquired in the acquisition, net of cash paid

Net cash provided by investing activities

Cash Flows from Financing Activities

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Cash dividends paid

Shares repurchased

Net cash (used in) provided by financing activities

Net change in cash and due from banks

Cash and due from banks at beginning of year

Cash and due from banks at end of year

Repayment of borrowings

Net cash used in financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

For the Year Ended December 31,

(in thousands)

Supplemental Disclosures of Cash Flow Information

Interest paid on deposits and borrowed funds

Income taxes paid

Supplemental Disclosures of Noncash Activities

Cash payments for:

Interest on deposits and borrowings

Supplemental Disclosure of Noncash Activities

Loans charged against the allowance for credit losses

Loans transferred to repossessed assets

Unrealized gain (loss) on securities available for sale

Unrealized holding gain on securities available for sale

Minimum pension liability adjustment

Lease liabilities arising from obtaining right-of-use assets during the period

Supplemental Disclosures of Noncash Transactions Included In Acquisition

Assets acquired

Liabilities assumed

The accompanying notes are an integral part of these consolidated financial statements.

11 unchanged sentences

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, evaluation of impairment of goodwill, and pension obligations.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, loans acquired in a business combination, evaluation of impairment of goodwill, evaluation of impairment of core deposit intangibles, and pension obligations.

Reclassifications

2 unchanged sentences

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and amounts due from banks and interest-bearing deposits.

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and amounts due from banks, interest-bearing deposits and Fed funds sold.

The Company invests over-night funds in interest-bearing deposits at other banks, including the FHLB, the Federal Reserve and other entities.

2 unchanged sentences

Trading securities are recorded at fair value with changes in fair value included in earnings.

Securities not classified as held to maturity or trading, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss), net of tax.

The Company uses the interest method to recognize purchase premiums and discounts in interest income over the term of the securities.

The Company uses the interest method to

recognize in interest income purchase premiums and discounts over the term of the securities.

Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

1 unchanged sentence

For available for sale securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.

Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes.

Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes.

Credit-related impairment is recognized as an allowance for credit losses (“ACL”) on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings.

10 unchanged sentences

Changes in fair value are recognized in net income.

Equity securities without readily-determinable fair values are recorded as other assets at cost less impairment, if any, and adjusted for changes resulting from observable price changes in orderly transactions for identical or similar investment of the same issuer.

Loans Held for Sale

3 unchanged sentences

The Company, through its banking subsidiary, provides mortgage, commercial, and consumer loans to customers.

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding unpaid principal balances adjusted for the allowance for credit losses, any purchase premium or discount, unearned income and deferred fees or costs.

Interest income is accrued on the unpaid principal balance.

Unearned income on dealer-originated loans and loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Purchase premium or discount is recognized as an adjustment of the related loan yield using the interest method.

11 unchanged sentences

Construction loans are underwritten against projected cash flows from rental income, business and/or personal income from an owner-occupant or the sale of the property to an end-user.

Associated risks may be mitigated by requiring fixed-price construction contracts, performance and payment bonding, controlled disbursements, and pre-sale contracts or pre-lease agreements.

Associated risks may be mitigated by requiring fixed-price

construction contracts, performance and payment bonding, controlled disbursements, and pre-sale contracts or pre-lease agreements.

Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to value ratios for the collateral.

55 unchanged sentences

Interest accrual is discontinued at the time a commercial real estate loan or commercial non-real estate loan is 90 days delinquent unless the credit is well secured and in the process of collection.

Loans modified to provide relief from payments of interest or principle for more than 90 days are designated nonaccrual.

Loans modified to provide relief from payments of interest or principal for more than 90 days are designated nonaccrual.

Accrued interest is reversed against income when a loan is placed in nonaccrual status.

21 unchanged sentences

Modified Loans

Prior to January 1, 2023, a loan that had been modified or renewed was considered a troubled debt restructuring (“TDR”) when two conditions were met:

1 ) the borrower was experiencing financial difficulty and 2 ) concessions were made for the borrower's benefit that would not otherwise have been considered for a borrower or transaction with similar credit risk characteristics.

TDRs were evaluated individually to determine the required ACL.

Subsequent to December 31, 2022, the TDR concept, and its impact on the ACL calculation, was eliminated in favor of disclosure of loan modifications made to troubled borrowers.

Modified loans to troubled borrowers are evaluated and risk rated according to credit quality indicators as discussed above, and are subject to the Company's standard ACL process as discussed below.

Allowance for Credit Losses on Loans ( “ ACLL ” )

The Company estimates the ACLL based on amortized cost basis, which is the amount at which the loan is originated, adjusted for net deferred fees or costs, collection of cash, and charge-offs.

When a borrower requests a modification to a loan, the Company evaluates the request to determine whether the borrower is experiencing financial difficulty.

Loans modified for borrowers experiencing financial difficulty are risk rated according to credit quality indicators as discussed above, and are subject to the Company’s standard ACL process as discussed below.

Allowance for Credit Losses on Loans

The Company estimates the ACLL based on amortized cost basis, which is the amount at which a loan is originated, adjusted for net deferred fees or costs, premium or discount, collection of cash, and charge-offs.

In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner.

25 unchanged sentences

For loans using the DCF method, cash flows are projected at the instrument level and discounted using the loan’s effective interest rate.

Cash flows are generated using each loan’s payment attributes, adjusted for pool-level information on the probability of default (“PD”), loss given default and prepayment speeds.

Cash flows are generated using each loan’s payment attributes, adjusted for pool-level information on the PD, LGD and prepayment speeds.

Default is defined as full or partial charge-off, nonaccrual status or past due 90 days or more.

9 unchanged sentences

Loans that do not share risk characteristics are evaluated on an individual basis.

The Company designates loans that have been determined to meet the regulatory definitions of “special mention” or “classified” (together known as “criticized”) as individually evaluated.

The Company designates as individually evaluated loans for which foreclosure is probable, loans in nonaccrual status, and loans that exceed $ 400 and are risk graded “special mention” or “classified” (together known as “criticized”).

The fair value of individually evaluated loans is measured using the fair value of collateral (“collateral method”) or the DCF method.

28 unchanged sentences

Please see Note 5 for additional information.

Other Real Estate Owned

Real estate acquired through or in lieu of foreclosure is held for sale and is initially recorded at fair value less estimated costs to sell at the date of foreclosure, establishing the cost basis of the asset.

Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell.

Revenue and expenses from operations and changes in the valuation allowance are included in net costs of other real estate owned in the Consolidated Statements of Income.

Rate Lock Commitments

8 unchanged sentences

Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss occurs on the rate lock commitments.

Premises and Equipment

Land is carried at cost.

Premises and equipment are stated at cost, net of accumulated depreciation.

Depreciation is charged to expense over the estimated useful lives of the assets on the straight-line basis.

Depreciable lives include 40 years for premises, 3 - 10 years for furniture and equipment, and 3 years for computer software.

Costs of maintenance and repairs are charged to expense as incurred and improvements are capitalized.

Other Real Estate Owned

Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell.

Revenue and expenses from operations and changes in the valuation allowance are included in net costs of other real estate owned in the Consolidated Statements of Income.

Business Combinations

Business combinations are accounted for under Accounting Standards Codification (“ASC”) 805, Business Combinations, using the acquisition method of accounting.

Under the acquisition method of accounting, the Company identifies the acquirer and the closing date and applies applicable recognition principles and conditions.

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.

The Company's acquisition of FCB closed on June 1, 2024.

Results of operations and footnote disclosures reflect assets acquired and liabilities assumed.

Acquisition-related costs

Acquisition-related costs are costs the Company incurs to effect a business combination, including 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 are included within noninterest expenses in the consolidated statements of income.

Acquired loans

The most significant assessment of fair value in the Company’s accounting for business combinations relates to the valuation of an acquired loan portfolio.

Loans acquired in a business combination are recorded at estimated fair value on the acquisition date without the carryover of the related allowance for credit losses on loans.

The acquisition date fair value becomes the Company's original cost basis of the acquired loans.

The fair value discount is accreted to interest income over the remaining life of the loans.

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 the acquisition date, loans are classified as either (i) purchase credit-deteriorated (“PCD”) loans or (ii) non-PCD loans.

PCD loans are those for which there is more than insignificant evidence of credit deterioration since origination.

The Company designated the following indicators as more than insignificant evidence of credit deterioration since origination:

As of acquisition date:

• past due 60 days or more

• credit risk rating of criticized

Over the life of the loan:

• three or more instances of payments past due 30 days or more

• two or more instances of payments past due 60 days or more

• one or more instance of payments past due 90 days or more

At acquisition, an ACLL for PCD loans is determined based upon the Company’s methodology for estimating the ACLL.

This allowance is credited to the ACLL with a corresponding adjustment to the cost basis of the loans on the date of the acquisition.

As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of PCD loans.

The difference between the new cost basis and the unpaid principal balance is either a noncredit discount or premium.

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.

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.

Intangible assets

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.

The Company records as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired.

Goodwill is subject to at least an annual assessment for impairment by applying a fair value based test.

For December 31, 2023, the Company performed a qualitative assessment, as permitted by Accounting Standards Codification (“ASC”) 350 - 20 - 35 - 3A, to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of NBB (“reporting unit”) is less than its carrying amount, including goodwill.

For December 31, 2024, the Company performed a qualitative assessment, as permitted by ASC 350-20-35-3A, to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of NBB (“reporting unit”) is less than its carrying amount, including goodwill.

The assessment included analysis of macroeconomic conditions, industry and market conditions, overall financial performance, share price considerations, and other relevant entity-specific events and events affecting the reporting unit.

No conditions were identified that would warrant the need for a quantitative impairment analysis, and no impairment was recorded.

Core Deposit Intangibles

Core deposit intangibles are subject to at least an annual assessment for impairment by applying a fair value based test.

For December 31, 2024, the Company performed a qualitative assessment to assess the likelihood of impairment of its core deposit intangibles.

The assessment included testing model assumptions surrounding deposit retention, deposit costs and noninterest income generated.

No conditions were identified that would warrant the need for a quantitative impairment analysis, and no impairment was recorded.

Bank Owned Life Insurance

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In the event of the death of an insured individual under these policies, the Company receives a death benefit which is also recorded as income from bank owned life insurance.

The Company recognizes the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and recognizes changes in that funded status in the year in which the changes occur through other comprehensive income (loss).

The funded status of a benefit plan is measured as the difference between plan assets at fair value and the projected benefit obligation.

The Company’s actuary determines plan obligations and annual pension expense using a number of key assumptions, including the discount rate, the estimated return on plan assets and the anticipated rate of compensation increases.

The Company’s actuary determines plan obligations and annual pension expense using a number of key assumptions, including the IRS mortality table, effective interest rate, discount rate, the estimated return on plan assets and the anticipated rate of compensation increases.

Changes in these assumptions in the future, if any, or in the method under which benefits are calculated may impact pension assets, liabilities or expense.

Premises and Equipment

Land is carried at cost.

Premises and equipment are stated at cost, net of accumulated depreciation.

Depreciation is charged to expense over the estimated useful lives of the assets on the straight-line basis.

Depreciable lives include 40 years for premises, 3 - 10 years for furniture and equipment, and 3 years for computer software.

Costs of maintenance and repairs are charged to expense as incurred and improvements are capitalized.

Income tax accounting guidance results in two components of income tax expense:

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Stock Based Compensation

Compensation cost is recognized for stock based payment awards issued to employees and directors, based on the fair value of these awards at the date of grant.

Compensation cost is recognized for stock based payment awards issued to directors and employees, based on the fair value of these awards at the date of grant.

The market price of the Company’s common stock at the date of grant is used to estimate fair value for restricted stock awards, restricted stock units, and other stock awards.

3 unchanged sentences

Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period excluding nonvested restricted stock awards.

Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under restricted stock awards that have not yet vested.

Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under restricted stock awards that have no t yet vested.

Please see Note 21 for additional information.

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Revenue Recognition.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains and losses on debt securities available for sale, net of taxes, which are also recognized as a separate component of equity.

Business Combinations

On January 23, 2024, the Company entered into a merger agreement with Frontier Community Bank for an estimated aggregate purchase price of $ 16,822 of cash and stock.

The merger is projected to close during the second or third quarter of 2024, subject to regulatory approval.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income.

Other comprehensive income includes unrealized gains and losses on debt securities available for sale and the defined benefit plan, net of taxes, which are also recognized as a separate component of equity.

Segment Reporting

The Company adopted Accounting Standards Update ("ASU") 2023-07 "Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures" on January 1, 2024.

The Company has determined that all of its banking divisions meet the aggregation criteria of ASC 280, Segment Reporting, as its current operating model is structured whereby banking divisions and subsidiaries serve a similar base of commercial and consumer clients utilizing a company-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the Company's Chief Executive Officer , who has been identified as the chief operating decision maker ("CODM").

The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company's consolidated statements of income and other comprehensive income.

The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company's consolidated statements of income and other comprehensive income.

Recent Accounting Pronouncements

ASU 2023 - 09

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.

The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption of ASU 2024-03 is permitted.

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.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

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The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.

ASU 2023 - 07

In November 2023, the FASB issued ASU 2023 - 07, “Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision mark (“CODM”), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures required by FASB ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures.

Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements.

Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied retrospectively.

The Company does not expect the adoption of ASU 2023 - 07 to have a material impact on its consolidated financial statements.

ASU 2023 - 06

In October 2023, the FASB issued ASU 2023 - 06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain SEC disclosure requirements into the FASB ASC.

The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of ASC Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the ASC with the SEC’s regulations.

For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules.

For all other entities, the amendments will be effective two years later.

However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the ASC and not become effective for any entity.

The Company does not expect the adoption of ASU 2023 - 06 to have a material impact on its consolidated financial statements.

ASU 2023 - 03

In July 2023, the FASB issued ASU 2023 - 03, “Presentation of Financial Statements (Topic 205 ), Income Statement—Reporting Comprehensive Income (Topic 220 ), Distinguishing Liabilities from Equity (Topic 480 ), Equity (Topic 505 ), and Compensation—Stock Compensation (Topic 718 ).” This ASU amends the FASB ASC for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S- X:

Income or Loss Applicable to Common Stock.

ASU 2023 - 03 is effective upon addition to the FASB ASC.

The Company does not expect the adoption of ASU 2023 - 03 to have a material impact on its consolidated financial statements.

ASU 2022 - 03

In June 2022, the FASB issued ASU 2022 - 03, “Fair Value Measurement (Topic 820 ):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022 - 03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted.

The Company does not expect the adoption of ASU 2022 - 03 to have a material impact on its consolidated financial statements.

Recently Adopted Accounting Developments

ASU 2016 - 13

In June 2016, the FASB issued ASU No.

2016 - 13, “Financial Instruments – Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts.

Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration.

ASU 2016 - 13 was effective for the Company on January 1, 2023.

At adoption, the Company recorded an adjustment of $ 2,342 to the allowance for credit losses on loans, as well as an adjustment of $ 207 to the reserve for unfunded loan commitments.

The adjustment net of tax recorded to shareholders’ equity totaled $ 2,014 .

See the Allowance for Credit Losses on Loans above for further details of adoption and changes to the Company’s significant accounting policies.

ASU 2022 - 02

In March 2022, the FASB issued ASU No.

2022 - 02, “Financial Instruments-Credit Losses (Topic 326 ), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022 - 02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016 - 13 ) that introduced the CECL model.

The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of troubled debt restructurings, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

ASU 2022 - 02 was effective for the Company on January 1, 2023.

The Company adopted ASU 2022 - 02 effective January 1, 2023 on a prospective basis.

Adoption of ASU 2022 - 02 did not have a material impact on the Company's consolidated financial statements.

See Note 5 – Allowance for Credit Losses on Loans and Nonperforming Assets for new disclosures required by ASU 2022 - 02.

Restriction on Cash

3 unchanged sentences

December 31, 2024

Unrealized Gains

Unrealized Losses

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

Total securities available for sale

$ 697,786 $ - $ 79,185 $ 618,601

December 31, 2023

Unrealized Gains

Unrealized Losses

government agencies and corporations

$ 391,538 $ 39 $ 55,002 $ 336,575

States and political subdivisions

190,192 26 38,018 152,200

Mortgage-backed securities

170,694 22 9,239 161,477

Corporate debt securities

6,501 - 837 5,664

Total securities available for sale

$ 759,917 $ 87 $ 103,152 $ 656,852

No allowance for credit loss on securities available for sale was recorded as of December 31, 2023.

The deferred tax asset for the net unrealized loss on securities available for sale was $ 16,506 as of December 31, 2024 and $ 16,629 as of December 31, 2023.

5 unchanged sentences

Amortized Cost

Available for Sale:

Due in one year or less

$ 3,795 $ 3,748

Due after one year through five years

178,297 166,386

Due after five years through ten years

277,155 238,409

Due after ten years

238,539 210,058

Total securities available for sale

$ 697,786 $ 618,601

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position as of the dates indicated, follows:

3 unchanged sentences

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

Total temporarily impaired securities

$ 2,500 $ 27 $ 615,242 $ 79,158

December 31, 2023

2 unchanged sentences

government agencies and corporations

$ 144,574 $ 12,699 $ 190,950 $ 42,303

State and political subdivisions

94,657 18,373 52,134 19,645

Mortgage-backed securities

144,198 7,326 15,165 1,913

Corporate debt securities

4,843 655 821 182

Total temporarily impaired securities

$ 389,208 $ 39,109 $ 259,070 $ 64,043

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.

3 unchanged sentences

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 December 31, 2023.

No credit risk was found and no ACL on securities available for sale was recorded as of December 31, 2024 or December 31, 2023.

The unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions.

3 unchanged sentences

Realized Securities Gains and Losses

During 2024, the Company sold securities acquired from FCB shortly after the acquisition date and no gain or loss was recognized.

During 2023, the Company sold securities and realized a net loss of $ 3,332 .

The Company did not have any realized gains or losses in 2022.

Information pertaining to realized gains and losses on sold securities for the period indicated follows:

Sale of Available for Sale Securities

For the Year Ended December 31,

Available for sale

$ 43,518 $ 46,850 $ 137 $ 3,469 $ 3,332

Restricted Stock

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Related Party Transactions

In the ordinary course of business, the Company, through its banking subsidiary, has granted loans to related parties, including executive officers and directors of NBI and its subsidiaries.

In the ordinary course of business, the Company, through its banking subsidiary, grants loans to related parties, including executive officers and directors of NBI and its subsidiaries.

Total funded credit extended to related parties amounted to $ 15,131 as of December 31, 2024 and $ 15,409 as of December 31, 2023.

2 unchanged sentences

The Company held $ 15,583 in deposits for related parties as of December 31, 2024 and $ 17,117 as of December 31, 2023.

The Company leased to a director a small office space.

The lease was terminated during 2022.

The lease payments totaled $ 2 in 2022.

The Company has also contracted with a director's firm to prepare architectural plans for a new office in Roanoke, Virginia.

4 unchanged sentences

A detailed analysis showing the allowance roll-forward by portfolio segment for the periods indicated follows:

Activity in the Allowance for Credit Losses on Loans for the Year Ended December 31, 2023

Activity in the ACLL for the Year Ended December 31, 2024

Real Estate Construction

Consumer Non-

Consumer Real Estate

Commercial Real Estate

Commercial Non Real Estate

Public Sector and IDA

Consumer Non Real Estate

Balance, December 31, 2023

$ 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

- ( 17 ) - ( 214 ) - ( 247 ) - ( 478 )

- 103 45 6 - 129 - 283

(Recovery of) provision for credit losses

( 21 ) ( 384 ) ( 811 ) ( 256 ) 29 123 42 ( 1,278 )

Provision for (recovery of) credit losses

Merger adjustment (1)

Balance, December 31, 2024

$ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094

Activity in the Allowance for Loan Losses by Segment for the Year Ended December 31, 2022

Real Estate Construction

Consumer Non-

(1) Adjustment for PCD acquired loans.

Activity in the ACLL for the Year Ended December 31, 2023

Balance, December 31, 2022

$ 422 $ 1,930 $ 3,121 $ 1,099 $ 297 $ 444 $ 361 $ 7,674

- ( 13 ) - ( 2 ) - ( 352 ) - ( 367 )

- 29 49 11 - 123 - 212

Provision for (recovery of) loan losses

28 253 472 ( 178 ) 22 291 ( 182 ) 706

Adoption of ASU 2016-13

(Recovery of) provision for

credit losses

Balance, December 31, 2023

$ 450 $ 2,199 $ 3,642 $ 930 $ 319 $ 506 $ 179 $ 8,225

A detailed analysis showing the allowance and loan portfolio by segment and evaluation method as of the dates indicated follows:

Allowance for Credit Losses on Loans by Segment and Evaluation Method as of

ACLL by Segment and Evaluation Method

December 31, 2024

Real Estate Construction

Consumer Non-

Consumer Real Estate

Commercial Real Estate

Commercial Non Real Estate

Public Sector and IDA

Consumer Non Real Estate

Individually evaluated

$ - $ 74 $ 367 $ 126 $ - $ 5 $ - $ 572

Collectively evaluated

408 3,088 3,209 556 333 578 350 8,522

$ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094

Loans by Segment and Evaluation Method as of

Loans by Segment and Evaluation Method

December 31, 2024

Real Estate Construction

Consumer Real Estate

Commercial Real Estate

Commercial Non Real Estate

Public Sector and IDA

Consumer Non Real Estate

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

$ 55,379 $ 241,564 $ 419,130 $ 41,555 $ 60,551 $ 38,996 $ 857,175

Allowance for Loan Losses by Segment and Evaluation Method as of

ACLL by Segment and Evaluation Method

December 31, 2023

Real Estate Construction

Consumer Non-

Individually evaluated

$ - $ - $ - $ - $ - $ - $ - $ -

Collectively evaluated

450 2,199 3,642 930 319 506 179 8,225

$ 450 $ 2,199 $ 3,642 $ 930 $ 319 $ 506 $ 179 $ 8,225

Loans by Segment and Evaluation Method as of

Loans by Segment and Evaluation Method

December 31, 2023

Consumer Non-

Individually evaluated

$ - $ 186 $ 2,583 $ 263 $ - $ - $ 3,032

Collectively evaluated

54,579 220,866 435,305 57,389 48,074 33,948 850,161

$ 54,579 $ 221,052 $ 437,888 $ 57,652 $ 48,074 $ 33,948 $ 853,193

A summary of ratios for the allowance for credit losses, as of the dates indicated, follows:

Ratio of ACLL to the end of period loans, net of unearned income and deferred fees and costs

1.06 % 0.96 %

Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs

0.02 % 0.02 %

Ratio of ACLL to the end of period loans, net of deferred fees and costs

Ratio of net charge-offs to average loans, net of deferred fees and costs

The following table presents nonaccrual loans, by class, as of the dates indicated:

Incurred Loss

December 31, 2024

December 31, 2023

Nonaccrual Loans

Consumer Real Estate

Residential closed-end first liens

$ - $ - $ - $ 91

Commercial Real Estate

Commercial real estate owner-occupied

2,177 231 2,408 2,493

Commercial Non Real Estate

Commercial and industrial

- 221 221 263

$ 2,177 $ 452 $ 2,629 $ 2,847

In accordance with CECL, the Company identifies individually evaluated loans when their risk characteristics become different from their pool.

Under previous GAAP, the Company identified loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information.

When the Company determined that it was probable all principal and interest amounts due would not be collected in accordance with the contractual terms of the loan agreement, the loan was generally deemed impaired and individually evaluated.

For further information on the impairment process under previous GAAP, please refer to the Company’s 2022 Form 10 -K.

A summary of individually evaluated loans as of the date indicated follows.

Individually Evaluated Loans under Incurred Loss as of December 31, 2022

Investment (1)

Recorded Investment (1)

for Which There is No

Related Allowance

Investment (1) for

Which There is a

Related Allowance

Consumer Real Estate

Investor-owned residential real estate

$ 186 $ 186 $ 186 $ - $ -

Commercial Real Estate

Commercial real estate, owner occupied

3,248 2,583 2,583 - -

Commercial Non-Real Estate

Commercial and industrial

285 263 263 - -

$ 3,719 $ 3,032 $ 3,032 $ - $ -

Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

The following table shows the average recorded investment and interest income recognized for individually evaluated loans under the incurred loss model for the period indicated.

Only classes with individually evaluated loans are presented.

For the Year Ended December 31, 2022

Average Recorded Investment (1)

Interest Income Recognized

Consumer Real Estate

Investor-owned residential real estate

Commercial Real Estate

Commercial real estate, owner occupied

Commercial real estate, other

Commercial Non-Real Estate

Commercial and industrial

Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

The following tables present the aging of past due loans, by loan pool, as of the dates indicated.

2 unchanged sentences

Construction, 1-4 family residential

$ 13,442 $ - $ - $ - $ 13,442 $ -

Construction, other

41,916 21 - - 41,937 -

Consumer Real Estate

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

4,648 17 3 - 4,668 3

12,126 135 - - 12,261 -

Other consumer loans

21,934 107 26 - 22,067 26

$ 852,712 $ 1,646 $ 188 $ 2,629 $ 857,175 $ 419

December 31, 2023

1 unchanged sentence

Construction, 1-4 family residential

$ 12,538 $ - $ - $ - $ 12,538 $ -

Construction, other

42,041 - - - 42,041 -

Consumer Real Estate

15,010 16 - - 15,026 -

Residential closed-end first liens

121,807 750 - 91 122,648 91

Residential closed-end junior liens

2,446 - - - 2,446 -

Investor-owned residential real estate

80,524 408 - - 80,932 -

Commercial Real Estate

Multifamily residential real estate

127,312 - - - 127,312 -

Commercial real estate owner-occupied

126,640 - - 2,493 129,133 252

Commercial real estate, other

181,443 - - - 181,443 -

Commercial Non Real Estate

Commercial and industrial

57,373 16 - 263 57,652 -

Public Sector and IDA

States and political subdivisions

48,074 - - - 48,074 -

Consumer Non Real Estate

4,592 3 2 - 4,597 2

9,833 102 - - 9,935 -

Other consumer loans

19,317 93 6 - 19,416 6

$ 848,950 $ 1,388 $ 8 $ 2,847 $ 853,193 $ 351

Collateral Dependent Loans

6 unchanged sentences

As of December 31, 2024, three of the Company’s individually evaluated loans were considered collateral dependent, and all are secured by real estate.

The following table provides details on collateral dependent loans:

The following table provides details on collateral dependent loans as of the dates indicated:

December 31, 2024

Amortized Cost

Related Allowance

December 31, 2023

Consumer Real Estate

2 unchanged sentences

Commercial real estate, owner occupied

Commercial real estate, other

Credit Quality

7 unchanged sentences

loans with potential weaknesses due to challenging economic or financial conditions are rated special mention.

• Classified:

loans with well-defined weaknesses that heighten the risk of default are rated classified.

1 unchanged sentence

Term Loans Amortized Cost Basis by Origination Year

December 31, 2023 Prior

Revolving Converted

December 31, 2024

Construction, residential

$ - $ - $ 246 $ 158 $ 3,275 $ 5,157 $ 4,606 $ - $ 13,442

Construction, other

$ 2,741 $ 1,094 $ 1,305 $ 12,671 $ 17,397 $ 4,884 $ 1,559 $ - $ 41,651

- - - 286 - - - - 286

$ 2,741 $ 1,094 $ 1,305 $ 12,957 $ 17,397 $ 4,884 $ 1,559 $ - $ 41,937

$ 51 $ - $ - $ - $ - $ - $ 17,182 $ - $ 17,233

- - - - - - 49 - 49

$ 51 $ - $ - $ - $ - $ - $ 17,231 $ - $ 17,282

Residential closed-end first liens

$ 32,404 $ 5,806 $ 14,634 $ 31,414 $ 29,787 $ 11,208 $ - $ - $ 125,253

426 - - - - - - - 426

$ 32,830 $ 5,806 $ 14,634 $ 31,414 $ 29,787 $ 11,208 $ - $ - $ 125,679

YTD gross charge-offs

$ - $ - $ 17 $ - $ - $ - $ - $ - $ 17

Special Mention

Residential closed-end junior liens

$ 1,499 $ 116 $ - $ 172 $ 1,387 $ 1,850 $ - $ 15 $ 5,039

Investor-owned residential real estate

$ 24,556 $ 5,162 $ 23,649 $ 19,062 $ 14,166 $ 4,880 $ 1,283 $ 98 $ 92,856

708 - - - - - - - 708

$ 25,264 $ 5,162 $ 23,649 $ 19,062 $ 14,166 $ 4,880 $ 1,283 $ 98 $ 93,564

Special Mention

Multifamily residential real estate

$ 40,092 $ 1,806 $ 2,148 $ 40,544 $ 25,681 $ 8,850 $ 126 $ - $ 119,247

Commercial real estate, owner occupied

$ 41,573 $ 11,091 $ 23,407 $ 4,792 $ 16,720 $ 7,914 $ 2,919 $ - $ 108,416

Special mention

6,396 - - - - - - - 6,396

2,409 - - - - - - - 2,409

$ 50,378 $ 11,091 $ 23,407 $ 4,792 $ 16,720 $ 7,914 $ 2,919 $ - $ 117,221

Commercial real estate, other

$ 68,889 $ 21,841 $ 19,098 $ 36,157 $ 22,697 $ 13,279 $ 701 $ - $ 182,662

Commercial and industrial

$ 6,004 $ 438 $ 1,060 $ 12,667 $ 6,954 $ 6,938 $ 7,267 $ - $ 41,328

220 - - - 7 - - - 227

$ 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

$ 20,817 $ - $ 235 $ 26,702 $ 6,335 $ 6,462 $ - $ - $ 60,551

$ - $ - $ - $ - $ - $ - $ 4,668 $ - $ 4,668

YTD gross charge-offs

$ - $ - $ - $ - $ - $ - $ 39 $ - $ 39

$ 78 $ 204 $ 563 $ 1,619 $ 2,750 $ 7,047 $ - $ - $ 12,261

Special Mention

YTD gross charge-offs

$ - $ 3 $ - $ 1 $ 38 $ - $ - $ - $ 42

Other consumer

$ 93 $ 334 $ 811 $ 1,943 $ 5,815 $ 12,356 $ 672 $ - $ 22,024

Special Mention

- - - - - 17 - - 17

- - - - 11 15 - - 26

$ 93 $ 334 $ 811 $ 1,943 $ 5,826 $ 12,388 $ 672 $ - $ 22,067

YTD gross charge-offs

$ - $ - $ - $ 19 $ 52 $ 95 $ - $ - $ 166

$ 238,797 $ 47,892 $ 87,156 $ 187,901 $ 152,964 $ 90,825 $ 40,983 $ 113 $ 846,631

Special Mention

6,396 - - - - 17 - - 6,413

3,763 - - 286 18 15 49 - 4,131

$ 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

The following table presents the recorded investment of collectively evaluated loans by loan pool and credit quality as of the date indicated.

Term Loans Amortized Cost Basis by Origination Year

December 31, 2023

Special Mention

Real Estate Construction

Construction, 1-4 family residential

$ 12,538 $ - $ -

Construction, residential

Construction, other

Consumer Real Estate

Residential closed-end first liens

122,187 - 461

Residential closed-end junior liens

Investor-owned residential real estate

Commercial Real Estate

Multifamily residential real estate

Commercial real estate owner-occupied

Residential closed-end first

YTD gross charge-offs

Residential closed-end junior

Investor-owned residential real

Multifamily residential real

Commercial real estate, owner

Special mention

Commercial real estate, other

Commercial Non-Real Estate

Commercial and industrial

YTD gross charge-offs

Public sector and IDA

States and political subdivisions

Consumer Non-Real Estate

YTD gross charge-offs

Other Consumer

$ 848,768 $ - $ 1,393

Special mention

YTD gross charge-offs

Special mention

YTD gross charge-offs

Loan Modifications to Borrowers Experiencing Financial Difficulty

1 unchanged sentence

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.

If the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated and adjusted to special mention or classified, as determined appropriate.

If the loan exceeds $ 400 , if it is placed in nonaccrual, or if foreclosure is probable, the loan is individually evaluated for the ACLL.

The Company modified one loan to a borrower experiencing financial difficulty during the year ended December 31, 2024.

The following table presents information on the modification.

December 31, 2024

Financial Effect

Commercial Real Estate

Commercial real estate owner-occupied

Interest only payments

Year Ended December 31, 2023

% of Portfolio

3 months of interest only payments, following which the balance will be re-amortizd to contractual maturity

The Company closely monitors the performance of modified loans to borrowers experiencing financial difficulty.

As of December 31, 2024 , the loan was in current status, risk rated special mention and individually evaluated using the fair value of collateral method, resulting in no specific reserve.

The Company modified one loan to a borrower experiencing financial difficulty during the year ended December 31, 2023.

The following table presents information on the modification.

December 31, 2023

Financial Effect

1 unchanged sentence

Commercial real estate owner-occupied

Interest only

6 months of interest only payments, after which remaining balance will be re-amortized to the contractual maturity date.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty.

The commercial real estate owner-occupied loan is in current status as of December 31, 2023.

The loan is rated special mention and is individually evaluated using the discounted cash flow method, resulting in a specific reserve of $ 347 .

There were no loans to borrowers experiencing financial difficulty that defaulted during the year ended December 31, 2023 and were modified in the twelve months prior to that default.

As of December 31, 2023 , the loan was in current status, was rated special mention and individually evaluated using the discounted cash flow method, resulting in a specific reserve of $ 347 .

The Company analyzed its modified loan portfolio for loans that defaulted during the 12 month period ended December 31, 2024 , and that were modified within 12 months prior.

The Company designates three circumstances that indicate default:

one or more payments that occur more than 90 days past the due date, charge-off, or foreclosure after the date of modification.

Under GAAP in effect for December 31, 2022, the Company reported TDRs totaling $ 3,032 .

No new TDRs were recognized during 2022.

Of the Company’s TDRs in default status as of December 31, 2022, none were modified within 12 months prior to default.

There were no loans to borrowers experiencing financial difficulty that defaulted during the year ended December 31, 2024 or December 31, 2023 and were modified in the twelve months prior.

ACL on Unfunded Commitments

The following table presents information on the ACL for unfunded commitments for the year ended December 31, 2023:

The following table presents information on the ACL for unfunded commitments for the years ended December 31, 2024 and December 31, 2023:

Allowance for Credit Losses on Unfunded Commitments

3 unchanged sentences

Balance, December 31, 2023

Recovery of credit losses

FCB acquisition

Balance, December 31, 2024

Premises and Equipment

A summary of the cost and accumulated depreciation of premises and equipment as of the dates indicated, follows:

$ 15,724 $ 15,435

Furniture and equipment

Premises and equipment

23,586 22,093

Accumulated depreciation

( 12,477 ) ( 11,722 )

Premises and equipment, net

$ 11,109 $ 10,371

Depreciation expense for the years ended December 31, 2024 and 2023 amounted to $ 900 and $ 754 , respectively.

Premises includes construction in process.

NBB has purchased land and developed plans for a new branch building in Roanoke, Virginia.

The amount for the Roanoke location included in construction in process totaled $ 1,822 as of December 31, 2023 and $ 1,586 as of December 31, 2022.

The Company expects the building will be completed and placed in service by the end of 2024.

The amount for a new location in Roanoke, Virginia included in construction in process totaled $ 4,387 as of December 31, 2024 and $ 1,822 as of December 31, 2023 .

The Company expects the building will be completed and placed in service during the first quarter of 2025.

The aggregate amounts of time deposits in denominations of $250 or more as of December 31, 2024 and 2023 were $ 87,639 and $ 65,777 , respectively.

9 unchanged sentences

Employee contributions are matched by the employer based on a percentage of an employee’s total annual compensation contributed to the plan.

For the years ended December 31, 2023 and 2022, the Company contributed $ 446 and $ 392 respectively, included in salaries and employee benefits in the Consolidated Statements of Income.

For the years ended December 31, 2024 and 2023, the Company contributed $ 476 and $ 446 , respectively, included in salaries and employee benefits expense in the Consolidated Statements of Income.

Employee Stock Ownership Plan

11 unchanged sentences

The associated liability, included in other liabilities in the Consolidated Balance Sheets, was $ 3,445 as of December 31, 2024 and $ 3,371 as of December 31, 2023.

The expense accrued for the plans in 2023 and 2022, based on the present value of the retirement benefits, amounted to $ 317 and $ 326 respectively, included in salaries and employee benefits on the Consolidated Statements of Income.

The expense accrued for the plans in 2024 and 2023, based on the present value of the retirement benefits, amounted to $ 358 and $ 317, respectively, included in salaries and employee benefits expense on the Consolidated Statements of Income.

The plan is unfunded.

6 unchanged sentences

Projected benefit obligation at beginning of year

$ 23,128 $ 35,312

Service cost (1)

Interest cost (2)

Actuarial loss (gain) (3)

1,542 ( 11,566 )

Actuarial (gain) loss (3)

Benefits paid

( 824 ) ( 2,732 )

Projected benefit obligation at end of year

$ 25,750 $ 23,128

Change in plan assets

Fair value of plan assets at beginning of year

$ 29,746 $ 36,187

Actual return on plan assets

3,587 ( 3,709 )

Employer contribution

Benefits paid

( 824 ) ( 2,732 )

Fair value of plan assets at end of year

$ 32,509 $ 29,746

Funded status at the end of the year

$ 6,759 $ 6,618

Amounts recognized in the Consolidated Balance Sheet

Deferred tax liabilities

$ ( 1,419 ) $ ( 1,390 )

Total amounts recognized in the Consolidated Balance Sheet

$ 5,340 $ 5,228

Amounts recognized in accumulated other comprehensive loss, net

$ ( 2,924 ) $ ( 2,968 )

Deferred tax asset

Net loss (gain)

Deferred tax (liability) asset

Amount recognized

$ ( 2,310 ) $ ( 2,345 )

Accrued/Prepaid benefit cost, net

Benefit obligation

$ ( 25,750 ) $ ( 23,128 )

Fair value of assets

32,509 29,746

Unrecognized net actuarial loss

Unrecognized net actuarial (gain) loss

Deferred tax liability

( 2,033 ) ( 2,013 )

Prepaid benefit cost included in other assets

$ 7,650 $ 7,573

Components of net periodic benefit cost

Service cost (1)

$ 813 $ 1,297

Interest cost (2)

Expected return on plan assets (2)

( 2,070 ) ( 2,517 )

Recognized net actuarial loss (2)

Net periodic benefit cost

$ ( 97 ) $ 38

Other changes in plan assets and benefit obligations recognized in other comprehensive loss

$ ( 44 ) $ ( 5,781 )

Other changes in plan assets and benefit obligations recognized in other

comprehensive income

Deferred income tax expense

Total recognized

$ ( 35 ) $ ( 4,567 )

Total recognized in net periodic benefit cost and other comprehensive loss

$ ( 141 ) $ ( 5,743 )

Total recognized in net periodic benefit cost and other comprehensive

Weighted average assumptions at end of the year

Discount rate used for net periodic pension cost

5.00 % 2.50 %

Discount rate used for disclosure

4.75 % 5.00 %

Expected return on plan assets

7.50 % 7.50 %

Rate of compensation increase

3.00 % 3.00 %

(1) Cost is included in salaries and employee benefits expense on the Consolidated Statements of Income.

(2) Cost is included in other operating expense on the Consolidated Statements of Income.

Please see table below for detail on the components of actuarial loss (gain).

The following table presents the components of actuarial loss (gain):

(3) Please see table below for detail on the components of actuarial (gain) loss.

The following table presents the components of actuarial (gain) loss:

For the Year Ended December 31,

2 unchanged sentences

Gain due to change in mortality table

Loss (gain) due to change in discount rate

899 ( 11,632 )

Actuarial loss (gain)

1,542 ( 11,566 )

(Gain) loss due to asset return

( 1,517 ) 6,226

Actuarial loss (gain) with asset return

(Gain) loss due to change in discount rate

Loss due to change in rate of compensation increase

Actuarial (gain) loss

Gain due to asset return

Actuarial (gain) loss with asset return

Long-Term Rate of Return

23 unchanged sentences

Asset Category

$ 867 $ 867 $ - $ -

Equity securities:

17,540 17,540 - -

International companies

Equities mutual funds (1)

6,098 6,098 - -

State and political subdivisions

Corporate bonds – investment grade (2)

7,553 - 7,553 -

Total pension plan assets

$ 32,509 $ 24,905 $ 7,604 $ -

Fair Value Measurements as of December 31, 2023

Asset Category

$ 415 $ 415 $ - $ -

Equity securities:

15,459 15,459 - -

International companies

Equities mutual funds (1)

6,090 6,090 - -

State and political subdivisions

Corporate bonds – investment grade (2)

6,961 - 6,961 -

Total pension plan assets

$ 29,746 $ 22,734 $ 7,012 $ -

(1) This category comprises actively managed equity funds invested in large-cap and mid-cap U.S.

2 unchanged sentences

Estimated future benefit payments, which reflect expected future service, as appropriate, as of December 31, 2024 are as follows:

Year Estimated Benefit Payment

2029 - 2033 $ 11,559

Estimated Benefit Payment

The Company files United States federal income tax returns, and Virginia, West Virginia and North Carolina state income tax returns.

3 unchanged sentences

Year Ended December 31,

$ 2,234 $ 5,940

Deferred (benefit) expense

Deferred tax (benefit) expense

Total income tax expense

$ 2,984 $ 5,831

The following reconciles the “expected” income tax expense, computed by applying the U.S.

2 unchanged sentences

Computed “expected” income tax expense

$ 3,922 $ 6,670

Tax-exempt interest income

( 354 ) ( 728 )

Nondeductible interest expense

( 414 ) ( 135 )

Other, net (1)

Reported income tax expense

$ 2,984 $ 5,831

(1) Other differences stem primarily from BOLI income, non-deductible merger expenses, amortization of municipal bond premiums and dividends paid to the Company's employee stock ownership program.

The components of net deferred tax assets, included in other assets as of the dates indicated, are as follows:

Deferred tax assets:

Allowance for credit losses and unearned fee income

$ 2,155 $ 1,906

Valuation allowance on other real estate owned

Allowance for credit losses and deferred fees and costs

Defined benefit pension plan

1 unchanged sentence

Net unrealized loss on securities available for sale

16,629 21,644

Accrued expense

Lease accounting

Unvested stock-based compensation

Fair value adjustments to acquired assets

Net operating loss of FCB, acquired

Total deferred tax assets

$ 20,529 $ 25,643

Deferred tax liabilities:

$ ( 597 ) $ ( 463 )

( 1,228 ) ( 1,228 )

Defined benefit pension plan

Core deposit intangibles

Defined benefit pension plan, prepaid portion

( 2,034 ) ( 2,013 )

Lease accounting

( 230 ) ( 297 )

Discount accretion of securities

( 122 ) ( 84 )

Total deferred tax liabilities

( 4,211 ) ( 4,085 )

Net deferred tax assets

$ 16,318 $ 21,558

The Company determined that no valuation allowance for gross deferred tax assets was necessary as of December 31, 2024 and 2023 .

5 unchanged sentences

During 2024 and 2023, the Bank applied to its primary regulator and was approved to dividend to NBI an amount in excess of the regulatory maximum.

The purpose in the excess dividend was to provide cash for stock repurchases, pay regular dividends and a special one -time dividend, and provide operating cash for NBI.

As of December 31, 2023, NBB’s retained net income, which was free of such restriction, amounted to approximately $ 9,456 .

The purpose in the excess dividend was to provide cash to pay regular dividends and a special one-time dividend in 2023, and provide operating cash for NBI.

As of December 31, 2024 , NBB has paid dividends in excess of the regulatory maximum in the amount of $ 5,743 .

The Bank remains in a highly capitalized position and the Company intends to request approval for additional dividends in 2025.

29 unchanged sentences

Total Capital (to Risk Weighted Assets)

$ 195,782 18.09 % $ 113,627 10.50 % $ 108,216 10.00 %

Tier 1 Capital (to Risk Weighted Assets)

$ 186,429 17.23 % $ 91,983 8.50 % $ 86,573 8.00 %

Common Equity Tier 1 Capital (to Risk Weighted Assets)

$ 186,429 17.23 % $ 75,751 7.00 % $ 70,340 6.50 %

Common Equity Tier 1 Capital (to Risk

Weighted Assets)

Tier 1 Capital (to Average Assets)

$ 186,429 11.05 % $ 67,491 4.00 % $ 84,364 5.00 %

December 31, 2023

6 unchanged sentences

Total Capital (to Risk Weighted Assets)

$ 191,883 17.57 % $ 114,671 10.50 % $ 109,210 10.00 %

Tier 1 Capital (to Risk Weighted Assets)

$ 183,623 16.81 % $ 92,829 8.50 % $ 87,368 8.00 %

Common Equity Tier 1 Capital (to Risk Weighted Assets)

$ 183,623 16.81 % $ 76,447 7.00 % $ 70,987 6.50 %

Tier 1 Capital (to Average Assets)

$ 183,623 10.50 % $ 69,925 4.00 % $ 87,406 5.00 %

(1) Except with regard to NBB’s Tier 1 capital to average assets ratio, the minimum capital requirement includes the Basel III Capital Rules’ capital conservation buffer (2.50%) which is added to the minimum capital requirements for capital adequacy purposes.

5 unchanged sentences

Cash due from subsidiaries

$ 11,010 $ 14,927

Investments in subsidiaries

129,731 107,746

Refundable income taxes

$ 141,396 $ 123,391

Liabilities and Stockholders’ Equity

1 unchanged sentence

Stockholders’ equity

140,522 122,687

Total liabilities and stockholders’ equity

$ 141,396 $ 123,391

Condensed Statements of Income

1 unchanged sentence

Dividends from subsidiaries

$ 12,000 $ 25,000

Gain on sale of private equity investment

12,232 28,823

Other expenses

Income before income tax benefit (expense) and equity in undistributed net income of subsidiaries

10,090 27,603

Applicable income tax benefit (expense)

Income before equity (deficit) in undistributed net income of subsidiaries

10,589 27,112

Equity (deficit) in undistributed net income of subsidiaries

5,102 ( 1,180 )

$ 15,691 $ 25,932

Income before income tax benefit and equity in undistributed net income of

Applicable income tax benefit

Income before (deficit) equity in undistributed net income of subsidiaries

(Deficit) equity in undistributed net income of subsidiaries

Condensed Statements of Cash Flows

1 unchanged sentence

Cash Flows from Operating Activities

$ 15,691 $ 25,932

Adjustments to reconcile net income to net cash provided by operating activities:

(Equity) deficit in undistributed net income of subsidiaries

( 5,102 ) 1,180

Deficit (equity) in undistributed net income of subsidiaries

Net change in refundable income taxes due from subsidiaries

2 unchanged sentences

Net cash provided by operating activities

10,867 27,891

Cash Flows from Investing Activities

Cash paid in acquisition

Net cash used in investing activities

Cash Flows from Financing Activities

Cash dividends paid

( 14,784 ) ( 8,950 )

Shares repurchased

Net cash used in financing activities

( 14,784 ) ( 15,288 )

Net change in cash

( 3,917 ) 12,603

Cash due from subsidiaries at beginning of year

Cash due from subsidiaries at end of year

$ 11,010 $ 14,927

Financial Instruments with Off-Balance Sheet Risk

42 unchanged sentences

Loans secured by residential real estate were $ 307,855 , or approximately 31 % of the portfolio, and $ 241,564 , or 28 % of the portfolio as of December 31, 2024 and 2023, respectively.

Commercial real estate as of December 31, 2023 and 2022 represented approximately 49 % and 51 %, respectively, of the loan portfolio, at $ 419,130 and $ 437,888 , respectively.

Commercial real estate as of December 31, 2024 and 2023 represented approximately

48 % and 49 % , respectively, of the loan portfolio, at $ 478,078 and $ 419,130 , respectively.

Included in commercial real estate are loans for college housing and professional office buildings that comprised $ 191,026 and $ 167,794 as of December 31, 2024 and 2023 , respectively, corresponding to approximately 19 % of the loan portfolio as of December 31, 2024 and 20 % of the loan portfolio as of December 31, 2023.

19 unchanged sentences

Fair value is best determined by quoted market prices.

However, in many instances, there are no quoted market prices for the Company’s various financial instruments.

In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

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.

9 unchanged sentences

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 Federal Home Loan Bank of Atlanta stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables.

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:

2 unchanged sentences

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 -

Total securities available for sale

$ 618,601 $ - $ 618,601 $ -

Fair Value Measurement Using

1 unchanged sentence

government agencies and corporations

$ 336,575 $ - $ 336,575 $ -

States and political subdivisions

152,200 - 152,200 -

Mortgage-backed securities

161,477 - 161,477 -

Corporate debt securities

5,664 - 5,664 -

Total securities available for sale

$ 656,852 $ - $ 656,852 $ -

The Company’s securities portfolio is valued using Level 2 inputs.

19 unchanged sentences

Changes in fair value measurement impacts net income.

The Company had one rate lock commitment as of December 31, 2023, resulting in an interest rate loan contract and a forward sales commitment.

The interest rate lock commitment gave rise to an asset and the forward loan sales contracts gave rise to a liability.

The Company had one rate lock commitment as of December 31, 2022, resulting in an interest rate loan contract and forward sales commitment.

The interest rate lock was at market value as of December 31, 2022 and did not result in recognition of an asset or liability.

The Company had one rate lock commitment as of December 31, 2024, resulting in a liability for the interest rate loan contract and an asset for the forward sales commitment, and three funded loans resulting in a 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 liability for the forward sales commitment.

The following tables present information on the interest rate loan contracts and forward sale commitments as of the date indicated:

1 unchanged sentence

December 31, 2024

Forward sale commitment

Interest rate loan contract

December 31, 2024

Valuation Technique

Unobservable Input

Range (Weighted Average)

Interest rate loan contract

Market approach

Pull-through rate

96.00 % (1)(2)

Forward sale commitment

Market approach

Pull-through rate

96.00 % (1)(2)

Interest rate loan contract

Market approach

Current reference price

100.44 % (1)(2)

Forward sale commitment

Market approach

Current reference price

100.44 % (1)(2)

(1) All contracts are valued using the same pull-through rate

(2) Comprised of only one loan.

Fair Value Measurement Using

December 31, 2023

Interest rate loan contract

Forward sale commitment

December 31, 2023

Valuation Technique

29 unchanged sentences

Collateral dependent loans are measured on a non-recurring basis for the ACL.

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 December 31, 2024 , three commercial real estate loans totaling $ 9,259 were measured under the fair value of collateral method using third party appraisals (Level 2).

None of the measurements resulted in a specific allocation.

As of December 31, 2023 , the Company evaluated three collateral dependent loans.

None of the loans had a specific allocation.

Other Real Estate Owned

Certain assets such as OREO are measured at fair value less cost to sell.

Valuation of OREO is determined using current appraisals from independent parties, a Level 2 input.

The Company works with a realtor to determine the list price, which may be set at appraised value or at a different amount based on the realtor’s advice and management’s judgement of marketability.

Discounts to appraisals for selling costs or for marketability result in a Level 3 estimate.

The Company did not have any OREO as of December 31, 2023.

The following table summarizes the Company’s OREO measured at fair value on a nonrecurring basis as of December 31, 2022.

Carrying Value

December 31, 2022

OREO net of valuation allowance

$ 662 $ - $ - $ 662

The following table presents information about OREO and Level 3 fair value measurements as of the dates indicated.

Valuation Technique

Unobservable Input

December 31, 2022

Discounted appraised value

December 31, 2022

Discounted appraised value

Discount for lack of marketability

As of December 31, 2022, the Company held a single OREO property, measured using appraised value, discounted by selling costs.

During 2022, the Company reduced the list price as part of a marketing strategy and recorded an additional discount for marketability.

Fair Value Summary

6 unchanged sentences

Cash and due from banks

$ 12,967 $ 12,967 $ - $ -

Federal funds sold

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

847,552 - - 793,800

Accrued interest receivable

6,313 - 6,313 -

Bank-owned life insurance

43,583 - 43,583 -

Interest rate loan contract

Forward sale commitment

Financial liabilities:

$ 1,503,972 $ - $ 1,280,732 $ 222,374

Accrued interest payable

1,416 - 1,416 -

Forward sale commitment

Interest rate loan contract

Estimated Fair Value

3 unchanged sentences

Cash and due from banks

$ 12,403 $ 12,403 $ - $ -

Interest-bearing deposits

59,026 59,026 - -

Securities available for sale

656,852 - 656,852 -

Restricted stock, at cost

844,519 - - 781,749

Mortgage loans held for sale

Accrued interest receivable

6,001 - 6,001 -

Bank-owned life insurance

43,312 - 43,312 -

Interest rate loan contract

Financial liabilities:

$ 1,542,725 $ - $ 1,475,096 $ 67,542

Accrued interest payable

Forward sale commitment

Components of Accumulated Other Comprehensive Loss

The following table summarizes the activity related to each component of accumulated other comprehensive loss for the years ended December 31, 2024 and 2023:

Net Unrealized

Gain (Loss) on

Adjustments Related

to Pension Benefits

Accumulated Other

Comprehensive

Balance as of December 31, 2021

$ 2,854 $ ( 6,912 ) $ ( 4,058 )

Unrealized holding loss on available for sale securities net of tax of ($22,403)

( 84,275 ) - ( 84,275 )

Net pension gain, net of tax of $1,214

- 4,567 4,567

Balance as of December 31, 2022

$ ( 81,421 ) $ ( 2,345 ) $ ( 83,766 )

Unrealized holding gain on available for sale securities net of tax of $4,315

16,233 - 16,233

Balance at December 31, 2022

Unrealized holding gain on available for sale securities, net of

tax of $ 4,315

Reclassification adjustment, net of tax of $ 700

2,632 - 2,632

Net pension gain, net of tax of $ 9

Balance as of December 31, 2023

$ ( 62,556 ) $ ( 2,310 ) $ ( 64,866 )

Balance at December 31, 2023

Unrealized holding gain on available for sale securities, net of

Net pension gain, net of tax of $ 701

Balance at December 31, 2024

The following table provides detail on reclassifications out of accumulated other comprehensive loss for the years indicated:

Component of Accumulated Other Comprehensive Loss

Reclassification out of unrealized losses on available for sale securities:

Reclassification out of unrealized gain on available for sale securities:

Realized securities loss, net

$ ( 3,332 ) $ -

Income tax benefit

Realized loss on available for sale securities, net of tax, reclassified out of accumulated other comprehensive loss

$ ( 2,632 ) $ -

In accounting for goodwill, the Company conducts an impairment review at least annually and more frequently if certain impairment indicators are evident.

As of December 31, 2023 and December 31, 2022, the gross carrying value of goodwill was $ 5,848 .

Testing for 2023 and 2022 did not indicate impairment.

Realized loss on available for sale securities, net of tax, reclassified out of

accumulated other comprehensive loss

Goodwill and Other Intangibles

The following table presents information on goodwill and core deposit intangible assets during the year ended December 31, 2024 .

Beginning Balance

Measurement Period Adjustment

Accumulated Amortization

Ending Balance

Core deposit intangible

In accounting for goodwill and core deposit intangibles, the Company conducts an impairment review at least annually and more frequently if certain impairment indicators are evident.

Testing for 2024 and 2023 did no t indicate impairment.

The aggregate amortization expense for the year ended December 31, 2024 was $ 237 .

As of December 31, 2024, estimated future remaining amortization of the core deposit intangible within the years ending December 31, is as follows:

Amortization Expense

Total amortizing core deposit intangible

Revenue Recognition

9 unchanged sentences

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

12 unchanged sentences

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.

Payment is generally received a few days after the end of the month through a direct charge to customers’ accounts.

The Company does not earn performance-based incentives.

15 unchanged sentences

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2024 and 2023.

Year Ended December 31,

Noninterest Income

1 unchanged sentence

Service charges on deposit accounts

$ 2,518 $ 2,425

Other service charges and fees

3 unchanged sentences

Noninterest Income (in-scope of Topic 606)

$ 7,072 $ 6,994

Noninterest Income (out-of-scope of Topic 606)

Total noninterest income

$ 9,359 $ 12,401

(1) Included within other income in the Consolidated Statements of Income.

(2) Included within net costs of other real estate owned on the Consolidated Statements of Income .

The Company’s leases are recorded under ASC Topic 842, “Leases”.

The Company examines its contracts to determine whether they are or contain a lease.

A contract with a lease is further examined to determine whether the lease is a short-term, operating or finance lease.

As permitted by ASC Topic 842, the Company elected not to capitalize short-term leases, defined by the standard as leases with terms of 12 months or less.

The Company also elected the practical expedient not to separate non-lease components from lease components within a single contract.

Right-of-use assets and lease liabilities are recognized for operating and finance leases.

Right-of-use 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 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.

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

Lease payments for short-term leases 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.

Payments for leases with terms longer than 12 months are included in the determination of the lease liability.

Payments may be fixed for the term of the lease or variable.

Variable payments result when the lease agreement includes a clause providing for escalation of lease payments at specified dates.

If the escalation factor 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.

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.

One of the Company’s leases provides a known escalator that is included in the determination of the lease liability.

The remaining leases do not have variable payments during the term of the lease.

Options to Extend, Residual Value Guarantees, and Restrictions and Covenants

Of the Company’s six operating leases as of December 31, 2023, four leases offer the option to extend the lease term.

Two of the leases have two options of five years each and one lease has two options of three years each.

At the time of capitalization, the Company was not reasonably certain whether it would exercise the options and did not include the time period in the calculation of the lease liability.

Another lease has one option to extend the term for an additional five years.

The Company exercised a previous option in 2020 to extend the lease.

The lease agreement provides that the lease payment will increase at the exercise date based on the Consumer Price Index for All Urban Consumers (“CPI-U”).

Because the CPI-U at the exercise date is unknown, the increase is not included in the cash flows determining the lease liability.

None of the Company’s leases provide for residual value guarantees and none provide restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The contracts in which the Company is lessee are with parties external to the Company and not related parties.

The Company’s lease right of use asset as of the dates and for the periods indicated is included in other assets and the lease liability is included in other liabilities.

The following tables present information about leases:

December 31, 2023

December 31, 2022

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 dates and periods indicated:

Lease liability

$ 1,127 $ 1,444

Right-of-use asset

$ 1,096 $ 1,415

Weighted average remaining lease term (in years)

Weighted average discount rate

3.29 % 3.29 %

For the Year Ended December 31,

4 unchanged sentences

Cash paid for amounts included in lease liabilities

Right-of-use assets obtained in exchange for operating lease liabilities commencing during the period

Right-of-use assets obtained in exchange for operating lease

liabilities commencing during the period

The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability as of the dates indicated:

Undiscounted Cash Flow for the

Undiscounted Cash Flow for the Period

December 31, 2024

10 unchanged sentences

The maximum number of shares available for issuance under the Plan is 120,000 shares.

The restricted stock has voting rights and rights to dividends, which are paid upon vest date.

For further information on the Plan, refer to the Company’s Proxy Statement filed with the SEC on March 10, 2023 and the Company’s S-8 filed with the SEC on June 7, 2023.

Restricted Stock Awards

Under the Plan, part of the 2023 semi-annual retainer for non-employee directors was paid in restricted stock awards (“RSAs”).

Under the Plan, part of the 2023 and 2024 semi-annual retainer for non-employee directors was paid in restricted stock awards (“RSAs”).

A summary of changes in the Company’s nonvested RSAs under the Plan for the year ended December 31, 2024 follows:

Year Ended December 31, 2023

Weighted-Average Grant-Date Fair Value

Weighted-Average

Nonvested at January 1, 2024

Vested and released

Nonvested at December 31, 2024

4,095 $ 30.73

The RSAs vest on the one year anniversary of the grant date.

The RSAs are fair valued on the grant date and expense recognized over the vesting period.

Stock based compensation expense was $ 42 for the year ended December 31, 2023.

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 was $ 128 for the year ended December 31, 2024 and $ 42 for the year ended December 31, 2023.

As of December 31, 2024 , expense of $ 102 related to the non-vested RSAs is expected to be recognized over the coming 11 months.

2 unchanged sentences

For the Year Ended December 31,

$ in thousands, except per share amounts

Shares Weighted Average Outstanding

(Denominator)

Shares Weighted Average Outstanding

(Denominator)

Basic earnings per share

$ 15,691 5,889,687 $ 2.66 $ 25,932 5,989,601 $ 4.33

Dilutive shares for restricted stock awards:

Diluted earnings per share

$ 15,691 5,889,953 $ 2.66 $ 25,932 5,989,601 $ 4.33

Weighted average outstanding

Basic net income per

Dilutive shares for restricted stock

Diluted net income per

RSA grants are disregarded in the computation of diluted earnings per share if they are determined to be anti-dilutive.

There were no anti-dilutive RSAs for the year ended December 31, 2023.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of National Bankshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of National Bankshares, Inc.

and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Adoption of New Accounting Standard

As discussed in Notes 1 and 5 to the financial statements, the Company changed its method of accounting for credit losses in 2023 due to the adoption of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , including all related amendments.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Collectively Evaluated Loans

Description of the Matter

As described in Note 1 (Summary of Significant Accounting Policies) and Note 5 (Allowance for Credit Losses on Loans and Nonperforming Assets) to the consolidated financial statements, the Company changed its method of accounting for credit losses on January 1, 2023, due to the adoption of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as amended.

The allowance for credit losses on loans (ACLL) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms.

The Company’s ACLL related to collectively evaluated loans represented $8.5 million of the total recorded ACLL of $9.1 million as of December 31, 2023.

The collectively evaluated ACLL consists of quantitative and qualitative components.

The Company uses a discounted cash flow method for all of its pools except for bankcards, which are measured using the historical loss rate adjusted for the forecast.

These estimates consider large amounts of data in tabulating default, loss given default, and prepayment speeds and require complex calculations as well as management judgment in the selection of appropriate inputs.

Factors considered by management in developing its qualitative estimates include:

changes in lending policies;

management experience;

economic conditions;

loans past due;

competitive, legal and regulatory environment;

and other loan characteristics.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Management exercised significant judgment when estimating the ACLL on collectively evaluated loans.

The primary audit procedures we performed to address this critical audit matter included:

Obtaining an understanding of the Company’s process for determining its ACLL, including the underlying methodology and significant inputs to the calculation.

Substantively testing management’s process for measuring the collectively evaluated ACLL, including:

Evaluating the conceptual soundness, assumptions, and key data inputs of the Company’s discounted cash flow methodology, including the identification of loan pools, the probability of default and loss given default rate inputs, and the prepayment/curtailment rate inputs for each pool.

Evaluating management’s selection of forecasting inputs and testing the accuracy of management’s incorporation of its forecasts in the collectively evaluated ACLL estimate.

Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors.

Evaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data.

Testing the mathematical accuracy of the ACLL for collectively evaluated loans including both the discounted cashflow and qualitative factor components of the calculations.

/s/ Yount, Hyde & Barbour, P.C.

We have served as the Company's auditor since 2000.

Winchester, Virginia

March 19, 2024

There were no anti-dilutive RSAs for the years ended December 31, 2024 or December 31, 2023 .

Business Combination

On June 1, 2024, the Company acquired 100 % 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.

The acquisition enabled to Company to expand its branch footprint and improve market penetration in attractive banking markets, increase earnings and realize cost synergies.

Immediately following the acquisition, FCB was merged with and into NBB.

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 in accordance with ASC 805, Business Combinations, and accordingly, assets acquired, liabilities assumed, and consideration paid were recorded at fair value on the acquisition date.

The fair values of assets and liabilities were preliminary and subject to refinement for up to one year after acquisition date as additional information relative to the acquisition date fair values becomes available.

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 following table presents the consideration paid, the fair value of the identifiable assets acquired and liabilities assumed, and the resulting goodwill.

As Recorded by FCB

Estimated Fair Value Adjustments

Estimated Fair Values as Recorded by NBI

Purchase Price Consideration:

Stock consideration (1)

Cash consideration (2)

Total purchase price consideration

Identifiable assets:

Cash and cash equivalents

Loans, gross, purchased performing

Loans, gross, purchased credit deteriorated

Loans in process

Deferred fees and costs on loans

Allowance for credit losses on loans

Premises and equipment

Core deposit intangible

Total identifiable assets acquired

Identifiable Liabilities

Other liabilities

Total identifiable liabilities assumed

Provisional fair value of net assets acquired

Provisional goodwill

(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.

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.

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.

Credit risk was quantified using a PD/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:

Non-PCD Loans

Number of loans

FCB recorded value

Discount for credit risk

Discount for non-credit factors

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

The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction.

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.

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 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 comparable terms.

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.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data