NATIONAL BANKSHARES INC 10-Q

Item 1. Financial Statements National Bankshares, Inc. Consol idated Balance Sheets (Unaudited) (in thousands, except share and per share data) March 31, 2025 December 31, 2024 Assets Cash and due from banks $ 14,892 $ 13,564 Interest-bearing deposits 107,385 94,254 Federal funds sold 258 299 Total cash and cash equivalents 122,535 108,117 Securities available for sale, at fair value 596,253 601,898 Restricted stock, at cost 1,848 1,848 Mortgage loans held for sale 938 619 Loans: Real estate construction loans 42,942 50,798 Consumer real estate loans 311,549 307,855 Commercial real estate loans 497,072 478,078 Commercial non real estate loans 53,156 51,844 Public sector and IDA loans 56,981 57,171 Consumer non real estate loans 42,205 42,867 Total loans 1,003,905 988,613 Less: deferred fees and costs ( 641 ) ( 663 ) Loans, net of deferred fees and costs 1,003,264 987,950 Less: allowance for credit losses ( 10,490 ) ( 10,262 ) Loans, net 992,774 977,688 Premises and equipment, net 17,593 16,878 Accrued interest receivable 6,673 6,469 Goodwill 10,718 10,718 Core deposit intangible, net 1,766 1,863 Bank-owned life insurance ("BOLI") 47,661 47,369 Other assets 36,958 38,169 Total assets $ 1,835,717 $ 1,811,636 Liabilities and Stockholders' Equity Noninterest-bearing demand deposits $ 301,149 $ 290,088 Interest-bearing demand deposits 879,215 864,753 Savings deposits 178,737 177,297 Time deposits 298,659 312,614 Total deposits 1,657,760 1,644,752 Accrued interest payable 1,434 1,462 Other liabilities 9,245 9,013 Total liabilities 1,668,439 1,655,227 Commitments and contingencies Stockholders' Equity Preferred stock, no par value, 5,000,000 shares authorized; no ne issued and outstanding - - Common stock of $ 1.25 par value and additional paid in capital. Authorized 10,000,000 shares; issued and outstanding 6,363,371 (including 4,961 unvested) shares as of March 31, 2025 and December 31, 2024 21,874 21,831 Retained earnings 199,579 196,343 Accumulated other comprehensive loss, net ( 54,175 ) ( 61,765 ) Total stockholders' equity 167,278 156,409 Total liabilities and stockholders' equity $ 1,835,717 $ 1,811,636 See accompanying notes to consolidated financial statements. 3 Table of Contents National Bankshares, Inc. Consoli dated Statements of Income (Unaudited) Three Months Ended March 31, (in thousands, except share and per share data) 2025 2024 Interest Income Interest and fees on loans $ 12,942 $ 10,277 Interest on federal funds sold 3 - Interest on interest-bearing deposits 1,039 1,129 Interest on securities – taxable 3,883 4,276 Interest on securities – nontaxable 336 339 Total interest income 18,203 16,021 Interest Expense Interest on time deposits 3,145 2,552 Interest on other deposits 4,802 5,224 Total interest expense 7,947 7,776 Net interest income 10,256 8,245 Provision for (recovery of) credit losses 276 ( 10 ) Net interest income after provision for (recovery of) credit losses 9,980 8,255 Noninterest Income Service charges on deposit accounts 736 675 Other service charges and fees 63 46 Credit and debit card fees, net 417 374 Trust income 579 503 BOLI income 292 258 Gain on sale of mortgage loans held for sale 25 24 Other income 443 319 Total noninterest income 2,555 2,199 Noninterest Expense Salaries and employee benefits 5,188 4,466 Occupancy, furniture and fixtures 656 539 Data processing and ATM 1,078 867 FDIC assessment 207 187 Intangible asset amortization 97 - Franchise taxes 373 350 Professional services 299 240 Merger-related expense - 484 Conversion expense 46 - Other operating expenses 689 629 Total noninterest expense 8,633 7,762 Income before income tax expense 3,902 2,692 Income tax expense 666 518 Net Income $ 3,236 $ 2,174 Basic net income per common share $ 0.51 $ 0.37 Diluted net income per common share $ 0.51 $ 0.37 Weighted average number of common shares outstanding, basic 6,358,410 5,889,687 Weighted average number of common shares outstanding, diluted 6,360,392 5,891,651 See accompanying notes to consolidated financial statements. 4 Table of Contents National Bankshares, Inc. Consolidate d Statements of Comprehensive Income (Loss) Three Months Ended March 31, 2025 and 2024 (Unaudited) For the Three Months Ended March 31, (in thousands) 2025 2024 Net Income $ 3,236 $ 2,174 Other Comprehensive Income (Loss), Net of Tax Unrealized holding gain (loss) on available for sale securities net of tax of $ 2,017 and ($ 887 ) for the periods ended March 31, 2025 and 2024, respectively 7,590 ( 3,338 ) Other comprehensive income (loss), net of tax 7,590 ( 3,338 ) Total Comprehensive Income (Loss) $ 10,826 $ ( 1,164 ) See accompanying notes to consolidated financial statements. 5 Table of Contents National Bankshares, Inc. Consolidated Statem ents of Changes in Stockholders’ Equity Three Months Ended March 31, 2025 and 2024 (Unaudited) (in thousands except per share data) Common Stock and Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Balances at December 31, 2023 $ 7,404 $ 197,984 $ ( 64,866 ) $ 140,522 Net income – 2,174 – 2,174 Other comprehensive loss, net of tax of ($ 887 ) – – ( 3,338 ) ( 3,338 ) Stock based compensation 32 – – 32 Balances at March 31, 2024 $ 7,436 $ 200,158 $ ( 68,204 ) $ 139,390 Balances at December 31, 2024 $ 21,831 $ 196,343 $ ( 61,765 ) $ 156,409 Net income – 3,236 – 3,236 Other comprehensive income, net of tax of $ 2,017 – – 7,590 7,590 Stock based compensation 43 – – 43 Balances at March 31, 2025 $ 21,874 $ 199,579 $ ( 54,175 ) $ 167,278 See accompanying notes to consolidated financial statements. 6 Table of Contents National Bankshares, Inc. Consolidat ed Statements of Cash Flows Three Months Ended March 31, 2025 and 2024 (Unaudited) For the Three Months Ended March 31, (in thousands) 2025 2024 Cash Flows from Operating Activities Net income $ 3,236 $ 2,174 Adjustments to reconcile net income to net cash provided by operating activities: Provision for (recovery of) credit losses 276 ( 10 ) Depreciation of premises and equipment 248 210 Amortization of premiums and accretion of discounts on securities, net 275 259 Amortization of core deposit intangible 97 - Accretion of fair value of acquired loans ( 251 ) - Amortization of fair value of acquired time deposits and leases 53 - Origination of mortgage loans held for sale ( 1,442 ) ( 1,023 ) Proceeds from sale of mortgage loans held for sale 1,148 1,453 Gain on sale of mortgage loans held for sale ( 25 ) ( 24 ) Increase in cash value of bank-owned life insurance ( 292 ) ( 258 ) Equity based compensation expense 43 32 Net change in: Accrued interest receivable ( 204 ) ( 165 ) Other assets ( 395 ) 44 Accrued interest payable ( 28 ) 1,098 Other liabilities ( 173 ) 50 Net cash provided by operating activities 2,566 3,840 Cash Flows from Investing Activities Proceeds from repayments of mortgage-backed securities 2,977 3,149 Proceeds from calls, sales and maturities of securities available for sale 12,000 1,000 Net change in restricted stock - 16 Purchase of loan participations ( 15,977 ) ( 5,609 ) Collection of loan participations 1,482 610 Loan originations and principal collections, net ( 680 ) ( 2,012 ) Recoveries on loans charged off 63 65 Purchases of premises and equipment ( 963 ) ( 315 ) Net cash used in investing activities ( 1,098 ) ( 3,096 ) Cash Flows from Financing Activities Net change in time deposits ( 14,013 ) 16,661 Net change in other deposits 26,963 17,175 Net cash provided by financing activities 12,950 33,836 Net change in cash and cash equivalents 14,418 34,580 Cash and cash equivalents at beginning of period 108,117 86,603 Cash and cash equivalents at end of period $ 122,535 $ 121,183 7 Table of Contents For the Three Months Ended March 31, (in thousands) 2025 2024 Supplemental Disclosures of Cash Flow Information Cash payments for: Interest on deposits and borrowings $ 7,975 $ 6,678 Income taxes - 260 Supplemental Disclosure of Noncash Activities Loans charged against the allowance for credit losses $ 112 $ 109 Unrealized holding gains (losses) on securities available for sale 9,607 ( 4,225 ) See accompanying notes to consolidated financial statements. 8 Table of Contents National Bankshares, Inc. Notes t o Consolidated Financial Statements March 31, 2025 (Unaudited) $ in thousands, except per share data Note 1: General and Summary of Significant Accounting Policies The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (the “Bank” or “NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. All intercompany accounts and transactions between the Company and its subsidiaries have been eliminated. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of the Company’s management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included. Application of the principles of GAAP and practices within the banking industry require management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statement; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance of credit losses on loans and acquisition accounting. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of results of operations for the full year or any other interim period. The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”). The Company’s significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the Company's 2024 Form 10-K. All amounts and disclosures included in this quarterly report as of December 31, 2024, were derived from the Company’s audited consolidated financial statements. Certain items in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications had no effect on prior year net income or stockholders’ equity. The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com . Risks and Uncertainties The Company is closely monitoring risks that may impact its business, including high inflation, along with U.S. monetary policy maneuvers to reduce inflation. Inflation and U.S. monetary policy maneuvers to reduce it may impact the Company’s customers’ demand for banking services and ability to qualify for and/or repay loans. These risks could adversely affect the Company’s business, financial condition, results of operations, cash flows, credit risk, asset valuations and capital position. Recent Accounting Pronouncements ASU 2023-09 In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements. ASU 2024-03 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 9 Table of Contents amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements. Note 2: Business Combination On June 1, 2024 (the “Acquisition Date”), the Company completed its acquisition of Frontier Community Bank ("FCB"), a Virginia chartered commercial bank headquartered in Waynesboro, Virginia, in accordance with the definitive merger agreement entered on January 23, 2024, by and among the Company, the Bank and FCB. Upon completion of the merger, FCB merged with and into the Bank. Each share of FCB common stock was converted into either $ 14.48 in cash or 0.4250 shares of the Company’s common stock, with FCB shareholders having the ability to elect the merger consideration to be received, subject to the allocation and proration procedures set forth in the FCB Merger Agreement. The Company issued 464,855 shares of common stock and paid cash consideration of $ 2,050 to former FCB shareholders in the acquisition. As a result of the transaction, the Bank expanded its operations into the Waynesboro, Staunton and Lynchburg, Virginia markets. The acquisition of FCB was accounted for as a business combination using the acquisition method of accounting. Assets acquired, liabilities assumed, and consideration paid were recorded at estimated fair value on the Acquisition Date. The excess of the purchase price over the fair value of the net assets was recorded as provisional goodwill and represents the benefit from the transaction that is not otherwise quantifiable, including expected management and operational synergies and intangible assets that do not qualify for separate recognition. The Company does not expect that any portion of goodwill will be deductible. Please refer to the Company’s 2024 Form 10-K, Note 22: Business Combinations for additional information of the acquisition of FCB. The following table presents the calculation of the purchase price and the fair value of the identifiable assets and liabilities as of the Acquisition Date. June 1, 2024 As Recorded by FCB Estimated Fair Value Adjustments Estimated Fair Values as Recorded by NBI Purchase Price Consideration: Stock consideration (1) $ 14,299 Cash consideration (2) 2,050 Total purchase price consideration $ 16,349 Identifiable assets: Cash and cash equivalents $ 8,993 $ ( 59 ) $ 8,934 Securities 9,325 ( 5 ) 9,320 Loans, gross, purchased performing 115,589 ( 7,720 ) 107,869 Loans, gross, purchased credit deteriorated 11,157 ( 822 ) 10,335 Loans in process 539 – 539 Deferred fees and costs on loans 34 ( 34 ) – Allowance for credit losses on loans ( 881 ) 881 – Premises and equipment 3,003 449 3,452 Core deposit intangible – 2,100 2,100 Other assets 4,998 966 5,964 Total identifiable assets acquired $ 152,757 $ ( 4,244 ) $ 148,513 Identifiable Liabilities Deposits $ 130,323 $ ( 606 ) $ 129,717 Borrowings 5,250 ( 20 ) 5,230 Other liabilities 1,960 131 2,091 Total identifiable liabilities assumed $ 137,533 $ ( 495 ) $ 137,038 Fair value of net assets acquired $ 11,475 Goodwill (3) $ 4,874 10 Table of Contents (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 . (3) The Company kept the measurement of goodwill open until December 31, 2024 in order to reflect any adjustments to the fair value of assets acquired and liabilities assumed that arose during the Company’s final review procedures. The Company recorded a small measurement period adjustment to goodwill between the acquisition date and December 31, 2024. For more information, please refer to the Company’s 2024 Form 10-K, Note 17: Goodwill and Other Intangibles. Note 3: Loans and Allowance for Credit Losses Loans Loans include acquired loans and originated loans. Acquired loans are presented at their outstanding principal balance, net of the remaining purchase discount of $ 7,312 as of March 31, 2025 and $ 7,564 as of December 31, 2024. Originated loans as of March 31, 2025 and December 31, 2024 are presented at amortized cost, net of deferred fees and costs. The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated. March 31, December 31, 2025 2024 Real estate construction $ 42,942 $ 50,798 Consumer real estate 311,549 307,855 Commercial real estate 497,072 478,078 Commercial non real estate 53,156 51,844 Public sector and IDA 56,981 57,171 Consumer non real estate 42,205 42,867 Gross loans $ 1,003,905 $ 988,613 Less deferred fees and costs ( 641 ) ( 663 ) Loans, net of deferred fees and costs $ 1,003,264 $ 987,950 Allowance for credit losses on loans ( 10,490 ) ( 10,262 ) Total loans, net $ 992,774 $ 977,688 Accrued interest receivable of $ 3,384 at March 31, 2025 and $ 3,299 at December 31, 2024 is not included in total loans above. 11 Table of Contents Past Due and Nonaccrual Loans The following tables present the aging of past due loans, by loan pool, as of the dates indicated. March 31, 2025 Accruing Current Loans Accruing Loans 30 – 89 Days Past Due Accruing Loans 90 or More Days Past Due Nonaccrual Loans Total Loans Accruing and Nonaccrual 90 or More Days Past Due Real Estate Construction Construction, 1-4 family residential $ 14,605 $ - $ - $ - $ 14,605 $ - Construction, other 28,323 14 - - 28,337 - Consumer Real Estate Equity line 22,783 - - - 22,783 - Residential closed-end first liens 174,969 209 - - 175,178 - Residential closed-end junior liens 9,283 8 - - 9,291 - Investor-owned residential real estate 104,175 122 - - 104,297 - Commercial Real Estate Multifamily residential real estate 158,965 196 - - 159,161 - Commercial real estate owner-occupied 136,829 147 - 2,173 139,149 204 Commercial real estate, other 198,217 545 - - 198,762 - Commercial Non Real Estate Commercial and industrial 52,680 338 138 - 53,156 138 Public Sector and IDA States and political subdivisions 56,981 - - - 56,981 - Consumer Non Real Estate Credit cards 4,402 2 3 - 4,407 3 Automobile 12,662 161 5 - 12,828 5 Other consumer loans 24,822 128 20 - 24,970 20 Total $ 999,696 $ 1,870 $ 166 $ 2,173 $ 1,003,905 $ 370 December 31, 2024 Accruing Current Loans Accruing Loans 30 – 89 Days Past Due Accruing Loans 90 or More Days Past Due Nonaccrual Loans Total Loans Accruing and Nonaccrual 90 or More Days Past Due Real Estate Construction Construction, 1-4 family residential $ 16,162 $ - $ - $ - $ 16,162 $ - Construction, other 34,636 - - - 34,636 - Consumer Real Estate Equity line 22,551 67 - - 22,618 - Residential closed-end first liens 170,110 949 323 - 171,382 323 Residential closed-end junior liens 8,565 9 - - 8,574 - Investor-owned residential real estate 104,756 347 178 - 105,281 178 Commercial Real Estate Multifamily residential real estate 143,444 186 - - 143,630 - Commercial real estate owner-occupied 138,284 147 - 2,222 140,653 209 Commercial real estate, other 193,249 546 - - 193,795 - Commercial Non Real Estate Commercial and industrial 51,547 253 44 - 51,844 44 Public Sector and IDA States and political subdivisions 57,171 - - - 57,171 - Consumer Non Real Estate Credit cards 4,696 2 - - 4,698 - Automobile 12,802 193 - - 12,995 - Other consumer loans 24,921 250 3 - 25,174 3 Total $ 982,894 $ 2,949 $ 548 $ 2,222 $ 988,613 $ 757 12 Table of Contents The following table presents nonaccrual loans, by loan class, as of the dates indicated: March 31, 2025 December 31, 2024 With No Allowance With an Allowance Total With No Allowance With an Allowance Total Commercial Real Estate Commercial real estate owner-occupied $ 1,969 $ 204 $ 2,173 $ 2,013 $ 209 $ 2,222 Total $ 1,969 $ 204 $ 2,173 $ 2,013 $ 209 $ 2,222 No accrued interest receivable was reversed against interest income during the three months ended March 31, 2025 or March 31, 2024. Allowance for Credit Losses on Loans (“ACLL”) The following tables present the activity in the ACLL by portfolio segment for the periods indicated: Activity in the ACLL for the Three Months Ended March 31, 2025 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2024 $ 348 $ 3,926 $ 4,299 $ 655 $ 336 $ 648 $ 50 $ 10,262 Charge-offs - ( 3 ) - - - ( 109 ) - ( 112 ) Recoveries - - 8 30 - 25 - 63 Provision for (recovery of) credit losses ( 18 ) ( 32 ) 284 ( 22 ) 15 65 ( 15 ) 277 Balance, March 31, 2025 $ 330 $ 3,891 $ 4,591 $ 663 $ 351 $ 629 $ 35 $ 10,490 Activity in the ACLL for the Three Months Ended March 31, 2024 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2023 $ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094 Charge-offs - - - - - ( 109 ) - ( 109 ) Recoveries - - 16 2 - 47 - 65 Provision for (recovery of) credit losses ( 59 ) ( 194 ) 264 ( 37 ) ( 12 ) 12 31 5 Balance, March 31, 2024 $ 349 $ 2,968 $ 3,856 $ 647 $ 321 $ 533 $ 381 $ 9,055 Activity in the ACLL for the Year Ended December 31, 2024 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2023 $ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094 Charge-offs - - - ( 166 ) - ( 353 ) - ( 519 ) Recoveries - - 53 79 - 138 - 270 Provision for (recovery of) credit losses ( 70 ) 667 615 56 3 271 ( 300 ) 1,242 Merger adjustment (1) 10 97 55 4 - 9 - 175 Balance, December 31, 2024 $ 348 $ 3,926 $ 4,299 $ 655 $ 336 $ 648 $ 50 $ 10,262 (1) Adjustment for PCD acquired loans. The following tables present information about the ACLL for individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated. ACLL by Segment and Evaluation Method March 31, 2025 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Individually evaluated $ – $ 29 $ 47 $ – $ – $ – $ – $ 76 Collectively evaluated 330 3,862 4,544 663 351 629 35 10,414 Total $ 330 $ 3,891 $ 4,591 $ 663 $ 351 $ 629 $ 35 $ 10,490 13 Table of Contents ACLL 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 Unallocated Total Individually evaluated $ - $ 31 $ 49 $ - $ - $ - $ - $ 80 Collectively evaluated 348 3,895 4,250 655 336 648 50 10,182 Total $ 348 $ 3,926 $ 4,299 $ 655 $ 336 $ 648 $ 50 $ 10,262 The following tables present information about individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated. Loans by Segment and Evaluation Method March 31, 2025 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Total Individually evaluated $ – $ 486 $ 9,928 $ – $ – $ – $ 10,414 Collectively evaluated 42,942 311,063 487,144 53,156 56,981 42,205 993,491 Total $ 42,942 $ 311,549 $ 497,072 $ 53,156 $ 56,981 $ 42,205 $ 1,003,905 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 Total Individually evaluated $ - $ 497 $ 10,024 $ - $ - $ - $ 10,521 Collectively evaluated 50,798 307,358 468,054 51,844 57,171 42,867 978,092 Total $ 50,798 $ 307,855 $ 478,078 $ 51,844 $ 57,171 $ 42,867 $ 988,613 Collateral Dependent Loans Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually evaluated. The Company measures the ACLL on collateral dependent loans based upon the fair value of the collateral. Fair value of the collateral is adjusted for liquidation costs/discounts. If the fair value of the collateral falls below the amortized cost of the loan, the shortfall is recognized in the ACLL. If the fair value of the collateral exceeds the amortized cost, no ACLL is required. As of March 31, 2025, three of the Company’s individually evaluated loans were collateral dependent. As of December 31, 2024, three of the Company’s individually evaluated loans were collateral dependent. All collateral dependent loans were secured by real estate as of March 31, 2025 and December 31, 2024. The following table provides detail on collateral dependent loans as of the dates indicated: March 31, 2025 December 31, 2024 Balance Related Allowance Balance Related Allowance Commercial Real Estate Commercial real estate, owner occupied $ 8,313 $ - $ 8,387 $ - Commercial real estate, other 686 - 872 - Total Loans $ 8,999 $ - $ 9,259 $ - Credit Quality The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, payment history, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. General descriptions of risk ratings are as follows: • Pass: loans with acceptable credit quality are rated pass. • Special mention: loans with potential weakness 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. The following tables present the amortized cost basis of the loan portfolio by year of origination, loan class and credit quality as of March 31, 2025 and December 31, 2024, and gross charge-offs by year of origination for the three months ended March 31, 2025 and the year ended December 31, 2024. 14 Table of Contents Term Loans Amortized Cost Basis by Origination Year Revolving Loans Converted March 31, 2025 Prior 2021 2022 2023 2024 2025 Revolving to Term Total Construction, residential Pass $ - $ - $ 397 $ 877 $ 3,181 $ 277 $ 9,873 $ - $ 14,605 Construction, other Pass $ 3,988 $ 791 $ 1,717 $ 10,152 $ 3,228 $ 3,146 $ 5,315 $ - $ 28,337 Equity lines Pass $ 598 $ 372 $ 569 $ 720 $ 482 $ - $ 20,042 $ - $ 22,783 Residential closed-end first liens Pass $ 57,640 $ 33,634 $ 34,962 $ 22,239 $ 22,212 $ 3,599 $ 406 $ - $ 174,692 Special Mention 364 - - - - - - - 364 Classified - - - 122 - - - - 122 Total $ 58,004 $ 33,634 $ 34,962 $ 22,361 $ 22,212 $ 3,599 $ 406 $ - $ 175,178 YTD gross charge-offs $ 3 $ - $ - $ - $ - $ - $ - $ - $ 3 Residential closed-end junior liens Pass $ 1,588 $ 269 $ 2,031 $ 1,552 $ 2,974 $ 846 $ 31 $ - $ 9,291 Investor-owned residential real estate Pass $ 50,550 $ 18,435 $ 15,512 $ 9,303 $ 4,158 $ 3,359 $ 2,257 $ - $ 103,574 Special Mention - - 136 - - - - - 136 Classified 587 - - - - - - - 587 Total $ 51,137 $ 18,435 $ 15,648 $ 9,303 $ 4,158 $ 3,359 $ 2,257 $ - $ 104,297 Multifamily residential real estate Pass $ 41,106 $ 39,272 $ 40,252 $ 6,075 $ 13,163 $ 19,141 $ 152 $ - $ 159,161 Commercial real estate, owner occupied Pass $ 74,921 $ 7,328 $ 27,677 $ 10,327 $ 5,825 $ 1,573 $ 2,143 $ - $ 129,794 Special mention 6,344 - - - - - - - 6,344 Classified 3,003 - - - - - 8 - 3,011 Total $ 84,268 $ 7,328 $ 27,677 $ 10,327 $ 5,825 $ 1,573 $ 2,151 $ - $ 139,149 Commercial real estate, other Pass $ 103,602 $ 36,074 $ 32,213 $ 16,895 $ 6,301 $ 1,332 $ 1,659 $ - $ 198,076 Classified 686 - - - - - - - 686 Total $ 104,288 $ 36,074 $ 32,213 $ 16,895 $ 6,301 $ 1,332 $ 1,659 $ - $ 198,762 Commercial and industrial Pass $ 8,115 $ 11,410 $ 5,118 $ 5,467 $ 6,913 $ 2,811 $ 13,226 $ - $ 53,060 Special Mention - - - - - - 96 - 96 Total $ 8,115 $ 11,410 $ 5,118 $ 5,467 $ 6,913 $ 2,811 $ 13,322 $ - $ 53,156 Public sector and IDA Pass $ 19,730 $ 24,934 $ 5,826 $ 6,491 $ - $ - $ - $ - $ 56,981 Credit cards Pass $ - $ - $ - $ - $ - $ - $ 4,407 $ - $ 4,407 YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ 11 $ - $ 11 Automobile Pass $ 202 $ 550 $ 1,385 $ 3,736 $ 5,273 $ 1,669 $ - $ - $ 12,815 Special Mention - - - 4 - - - - 4 Classified - 3 - 6 - - - - 9 Total $ 202 $ 553 $ 1,385 $ 3,746 $ 5,273 $ 1,669 $ - $ - $ 12,828 YTD gross charge-offs $ - $ - $ - $ 20 $ - $ - $ - $ - $ 20 Other consumer Pass $ 509 $ 699 $ 1,941 $ 4,330 $ 12,076 $ 3,792 $ 1,586 $ - $ 24,933 Special Mention - 1 - - 8 5 - - 14 Classified - - 2 13 8 - - - 23 Total $ 509 $ 700 $ 1,943 $ 4,343 $ 12,092 $ 3,797 $ 1,586 $ - $ 24,970 YTD gross charge-offs $ - $ - $ 6 $ - $ 45 $ 27 $ - $ - $ 78 Total Loans Pass $ 362,549 $ 173,768 $ 169,600 $ 98,164 $ 85,786 $ 41,545 $ 61,097 $ - $ 992,509 Special Mention 6,708 1 136 4 8 5 96 - 6,958 Classified 4,276 3 2 141 8 - 8 - 4,438 Total $ 373,533 $ 173,772 $ 169,738 $ 98,309 $ 85,802 $ 41,550 $ 61,201 $ - $ 1,003,905 YTD gross charge-offs $ 3 $ - $ 6 $ 20 $ 45 $ 27 $ 11 $ - $ 112 15 Table of Contents Term Loans Amortized Cost Basis by Origination Year Revolving Loans Converted December 31, 2024 Prior 2019 2020 2022 2023 2024 Revolving to Term Total Construction, residential Pass $ - $ - $ - $ 337 $ 2,312 $ 3,328 $ 10,185 $ - $ 16,162 Construction, other Pass $ 2,938 $ 1,138 $ 805 $ 10,795 $ 8,669 $ 6,194 $ 4,097 $ - $ 34,636 Equity lines Pass $ 363 $ 249 $ 387 $ 470 $ 816 $ 402 $ 19,894 $ 12 $ 22,593 Classified - - - - - - 25 - 25 Total $ 363 $ 249 $ 387 $ 470 $ 816 $ 402 $ 19,919 $ 12 $ 22,618 Residential closed-end first liens Pass $ 42,211 $ 18,111 $ 33,630 $ 35,557 $ 21,593 $ 18,991 $ - $ 303 $ 170,396 Special mention 367 - - - - - - - 367 Classified 441 - - 178 - - - - 619 Total $ 43,019 $ 18,111 $ 33,630 $ 35,735 $ 21,593 $ 18,991 $ - $ 303 $ 171,382 Residential closed-end junior liens Pass $ 1,596 $ - $ 277 $ 2,048 $ 1,597 $ 3,004 $ 31 $ 21 $ 8,574 Investor-owned residential real estate Pass $ 28,919 $ 22,946 $ 19,280 $ 16,242 $ 8,175 $ 3,266 $ 1,907 $ 3,668 $ 104,403 Special mention - - - 138 - - - - 138 Classified 740 - - - - - - - 740 Total $ 29,659 $ 22,946 $ 19,280 $ 16,380 $ 8,175 $ 3,266 $ 1,907 $ 3,668 $ 105,281 Multifamily residential real estate Pass $ 39,665 $ 2,055 $ 39,879 $ 40,198 $ 8,470 $ 13,205 $ 158 $ - $ 143,630 Commercial real estate, owner occupied Pass $ 52,916 $ 24,539 $ 7,432 $ 28,753 $ 10,351 $ 3,810 $ 3,422 $ 83 $ 131,306 Special mention 6,375 - - - - - - - 6,375 Classified 2,222 738 - - - - 12 - 2,972 Total $ 61,513 $ 25,277 $ 7,432 $ 28,753 $ 10,351 $ 3,810 $ 3,434 $ 83 $ 140,653 Commercial real estate, other Pass $ 90,358 $ 17,919 $ 36,777 $ 23,775 $ 16,990 $ 5,583 $ 1,703 $ - $ 193,105 Classified 690 - - - - - - - 690 Total $ 91,048 $ 17,919 $ 36,777 $ 23,775 $ 16,990 $ 5,583 $ 1,703 $ - $ 193,795 Commercial and industrial Pass $ 6,437 $ 2,070 $ 11,849 $ 5,528 $ 5,903 $ 8,407 $ 11,644 $ - $ 51,838 Classified - - - 6 - - - - 6 Total $ 6,437 $ 2,070 $ 11,849 $ 5,534 $ 5,903 $ 8,407 $ 11,644 $ - $ 51,844 YTD gross charge-offs $ 125 $ - $ - $ - $ - $ 22 $ 19 $ - $ 166 Public sector and IDA Pass $ 19,309 $ 218 $ 25,232 $ 5,922 $ 6,490 $ - $ - $ - $ 57,171 Credit cards Pass $ - $ - $ - $ - $ - $ - $ 4,698 $ - $ 4,698 YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ 53 $ - $ 53 Automobile Pass $ 36 $ 243 $ 727 $ 1,640 $ 4,474 $ 5,832 $ - $ - $ 12,952 Special mention - - - - 4 - - - 4 Classified - - - - 28 11 - - 39 Total $ 36 $ 243 $ 727 $ 1,640 $ 4,506 $ 5,843 $ - $ - $ 12,995 YTD gross charge-offs $ - $ - $ 6 $ 14 $ 16 $ 11 $ - $ - $ 47 Other Consumer Pass $ 184 $ 401 $ 874 $ 2,274 $ 4,804 $ 15,846 $ 760 $ - $ 25,143 Special mention - - 1 - - 9 - - 10 Classified - - - 2 14 5 - - 21 Total $ 184 $ 401 $ 875 $ 2,276 $ 4,818 $ 15,860 $ 760 $ - $ 25,174 YTD gross charge-offs $ - $ 4 $ 15 $ 19 $ 94 $ 121 $ - $ - $ 253 Total Loans Pass $ 284,932 $ 89,889 $ 177,149 $ 173,539 $ 100,644 $ 87,868 $ 58,499 $ 4,087 $ 976,607 Special mention 6,742 - 1 138 4 9 - - 6,894 Classified 4,093 738 - 186 42 16 37 - 5,112 Total $ 295,767 $ 47,892 $ 87,156 $ 188,187 $ 152,982 $ 90,857 $ 41,032 $ 113 $ 988,613 YTD gross charge-offs $ 125 $ 4 $ 21 $ 33 $ 110 $ 154 $ 72 $ - $ 519 16 Table of Contents Loan Modifications to Borrowers Experiencing Financial Difficulty On the date a loan is modified, the Company assesses whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan is risk rated 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. During the three months ended March 31, 2025, no loans were modified for borrowers experiencing financial difficulty. During the three months ended March 31, 2024, the Company modified two loans to borrowers experiencing financial difficulty. The following table presents information as of March 31, 2024 about loans modified for borrowers experiencing financial difficulty during the three months ended March 31, 2024. March 31, 2024 Amortized Cost Basis % of Class Type of Modification Financial Effect Commercial Real Estate Commercial real estate owner-occupied $ 6,396 5.57 % Interest only payments 6 months of interest only payments, re-amortization of the balance to contractual maturity Commercial Non real estate Commercial and industrial $ 7 0.02 % Term extension Renewal of single-payment note for an additional 3 months The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty. As of March 31, 2024, the loans were in current status and individually evaluated. There were no modified loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2025 and 2024 and that were modified in the twelve months prior. Default occurs when a payment is 90 days past due, the loan is fully or partially charged off or the Company forecloses on the collateral. Consumer Real Estate Loans In Process of Foreclosure As of March 31, 2025 , the Company had one consumer real estate loan with an amortized cost of $ 122 in process of foreclosure. As of December 31, 2024 , three consumer real estate loans totaling $ 37 were in process of foreclosure. ACL for Unfunded Commitments The following tables present the balance and activity in the ACL for unfunded commitments for the three months ended March 31, 2025 and 2024: Allowance for Credit Losses on Unfunded Commitments Balance, December 31, 2024 $ 251 Recovery of credit losses ( 1 ) Balance, March 31, 2025 $ 250 Balance, December 31, 2023 $ 259 Recovery of credit losses ( 15 ) Balance, March 31, 2024 $ 244 17 Table of Contents Note 4: Securities The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses as of the dates indicated are summarized as follows: March 31, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government agencies and corporations $ 340,195 $ - $ 33,268 $ 306,927 States and political subdivisions 177,944 - 30,332 147,612 Mortgage-backed securities 140,597 29 4,698 135,928 Corporate debt securities 6,508 - 722 5,786 Total securities available for sale $ 665,244 $ 29 $ 69,020 $ 596,253 December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government agencies and corporations $ 351,136 $ - $ 40,012 $ 311,124 States and political subdivisions 178,106 - 32,372 145,734 Mortgage-backed securities 143,747 24 5,473 138,298 Corporate debt securities 6,507 - 764 5,743 U.S. treasury 1,000 - 1 999 Total securities available for sale $ 680,496 $ 24 $ 78,622 $ 601,898 No allowance for credit losses on securities available for sale was recorded as of March 31, 2025 or December 31, 2024. Accrued interest receivable on securities, included in accrued interest receivable on the Consolidated Balance Sheets, totaled $ 3,289 at March 31, 2025 and $ 3,170 at December 31, 2024. The deferred tax asset for the net unrealized loss on securities available for sale was $ 14,488 as of March 31, 2025 and $ 16,506 as of December 31, 2024. The deferred tax asset is included in other assets on the Consolidated Balance Sheets. The amortized cost and fair value of securities available for sale at March 31, 2025, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities included in these totals are categorized by final maturity. March 31, 2025 Amortized Cost Fair Value Available for Sale: Due in one year or less $ 28,966 $ 28,715 Due after one year through five years 220,924 208,049 Due after five years through ten years 233,126 199,321 Due after ten years 182,228 160,168 Total securities available for sale $ 665,244 $ 596,253 Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous loss position, as of the dates indicated, follows. March 31, 2025 Less Than 12 Months 12 Months or More Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. government agencies and corporations $ - $ - $ 306,927 $ 33,268 State and political subdivisions - - 147,612 30,332 Mortgage-backed securities 1,386 18 109,515 4,680 Corporate debt securities - - 5,786 722 Total temporarily impaired securities $ 1,386 $ 18 $ 569,840 $ 69,002 18 Table of Contents December 31, 2024 Less Than 12 Months 12 Months or More Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. government agencies and corporations $ - $ - $ 311,124 $ 40,012 State and political subdivisions 885 118 144,849 32,254 Mortgage-backed securities 5,336 28 115,011 5,445 Corporate debt securities - - 5,743 764 U.S. treasury - - 999 1 Total temporarily impaired securities $ 6,221 $ 146 $ 577,726 $ 78,476 The Company evaluates securities available for sale that are in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. At March 31, 2025, the Company had 545 securities with a fair value of $ 571,226 in an unrealized loss position. The Company reviews securities in an unrealized loss position to evaluate credit risk. The Company considers payment history, risk ratings from external parties, financial statements for municipal and corporate securities, public statements from issuers and other available credible published sources in evaluating credit risk. No credit losses were found and no ACL on securities available for sale was recorded as of March 31, 2025. The unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions. The Company does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the cost basis of the investments. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Restricted Stock. The Company held restricted stock of $ 1,848 as of March 31, 2025 and December 31, 2024. Restricted stock is reported separately from available for sale securities. As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. The Company purchases stock from or sells stock back to the correspondents based on their calculations. The stock is held by member institutions only and is not actively traded. Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling $ 517,038 at March 31, 2025. The Company’s management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at March 31, 2025, did not determine any impairment. Realized Securities Gains and Losses There were no sales of securities during the three months ended March 31, 2025 or 2024. Note 5: Defined Benefit Plan The following table presents components of net periodic benefit cost (income) for the periods indicated: Net Periodic Benefit Cost (Income) Three Months Ended March 31, 2025 2024 Service cost $ 248 $ 261 Interest cost 324 302 Expected return on plan assets ( 692 ) ( 608 ) Recognized net actuarial loss - 33 Net periodic benefit income $ ( 120 ) $ ( 12 ) The service cost component of net periodic benefit cost is included in salaries and employee benefits expense in the Consolidated Statements of Income. All other components are included in other operating expense in the Consolidated Statements of Income. Note 6: Fair Value Measurements 19 Table of Contents Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of the observable inputs and minimize the use of the unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are: Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities. Level 2 – Valuation is based on observable inputs including: • quoted prices in active markets for similar assets and liabilities, • quoted prices for identical or similar assets and liabilities in less active markets, • inputs other than quoted prices that are observable, and • model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. Level 3 – Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. Fair value is best determined by quoted market prices. However, in cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements. Financial Instruments Measured at Fair Value on a Recurring Basis Securities Available for Sale Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables. The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated. Fair Value Measurement Using March 31, 2025 Balance Level 1 Level 2 Level 3 U.S. government agencies and corporations $ 306,927 $ - $ 306,927 $ - States and political subdivisions 147,612 - 147,612 - Mortgage-backed securities 135,928 - 135,928 - Corporate debt securities 5,786 - 5,786 - Total securities available for sale $ 596,253 $ - $ 596,253 $ - Fair Value Measurement Using December 31, 2024 Balance Level 1 Level 2 Level 3 U.S. government agencies and corporations $ 311,124 $ - $ 311,124 $ - States and political subdivisions 145,734 - 145,734 - Mortgage-backed securities 138,298 - 138,298 - Corporate debt securities 5,743 - 5,743 - U.S. treasury 999 - 999 - Total securities available for sale $ 601,898 $ - $ 601,898 $ - The Company’s securities portfolio is valued using Level 2 inputs. The Company relies on an independent third party vendor to provide market valuations. The inputs used to determine value include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio. 20 Table of Contents Level 2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any, may impact securities fair value, deferred tax assets or liabilities, or expense. Financial Instruments Measured at Fair Value on a Non-Recurring Basis Certain financial instruments are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements. Loans Held for Sale Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale at March 31, 2025 or December 31, 2024. Collateral Dependent Loans Collateral dependent loans are measured on a non-recurring basis for the ACLL. If the fair value of the collateral is lower than the loan’s amortized cost basis, the shortfall is recognized in the ACLL. When repayment is expected from the operation of the collateral, fair value is estimated as the present value of expected cash flows from the operation of the collateral. When repayment is expected from the sale of the collateral, fair value is estimated using measurement techniques discussed below and discounted by the estimated cost to sell. The ACLL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. For loans secured by real estate, fair value of collateral is determined by the “as-is” value of appraisals or third party evaluations that are less than 24 months of age. Appraisals are prepared by independent, licensed appraisers. Appraisals are based upon observable market data analyzed through an income or sales valuation approach. Valuation falls within Level 2 categorization. The Company may further discount appraisals for marketing strategies, which results in Level 3 categorization. The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). As of March 31, 2025 , three commercial real estate loans totaling $ 8,999 were collateral dependent. Valuation was based upon outside appraisals (Level 2). None of the measurements resulted in a specific allocation. 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. Fair Value Summary The following presents the recorded amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of the dates indicated. Fair values are estimated using the exit price notion. Estimated Fair Value March 31, 2025 Carrying Amount Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 14,892 $ 14,892 $ - $ - Interest-bearing deposits 107,385 107,385 - - Federal funds sold 258 258 - - Securities available for sale 596,253 - 596,253 - Restricted stock, at cost 1,848 - 1,848 - Mortgage loans held for sale 938 - 938 - Loans, net 992,774 - - 948,390 Accrued interest receivable 6,673 - 6,673 - Bank-owned life insurance 47,661 - 47,661 - Financial liabilities: Deposits $ 1,657,760 $ - $ 1,359,101 $ 298,759 Accrued interest payable 1,434 - 1,434 - 21 Table of Contents Estimated Fair Value December 31, 2024 Carrying Amount Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 13,564 $ 13,564 $ - $ - Interest-bearing deposits 94,254 94,254 - - Federal funds sold 299 299 - - Securities available for sale 601,898 - 601,898 - Restricted stock, at cost 1,848 - 1,848 - Mortgage loans held for sale 619 - 619 - Loans, net 977,688 - - 927,581 Accrued interest receivable 6,469 - 6,469 - Bank-owned life insurance 47,369 - 47,369 - Financial liabilities: Deposits $ 1,644,752 $ - $ 1,332,138 $ 312,811 Accrued interest payable 1,462 - 1,462 - Note 7: Components of Accumulated Other Comprehensive Loss The following tables provide information about components of accumulated other comprehensive loss as of the dates indicated: Net Unrealized Loss on Securities Adjustments Related to Pension Benefits Accumulated Other Comprehensive Loss Balance at December 31, 2023 $ ( 62,556 ) $ ( 2,310 ) $ ( 64,866 ) Unrealized holding loss on available for sale securities, net of tax of ($ 887 ) ( 3,338 ) - ( 3,338 ) Balance at March 31, 2024 $ ( 65,894 ) $ ( 2,310 ) $ ( 68,204 ) Balance at December 31, 2024 $ ( 62,093 ) $ 328 $ ( 61,765 ) Unrealized holding gain on available for sale securities, net of tax of $ 2,017 7,590 - 7,590 Balance at March 31, 2025 $ ( 54,503 ) $ 328 $ ( 54,175 ) Note 8: Revenue Recognition Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams such as service charges on deposit accounts, other service charges and fees, credit and debit card fees, trust income, and annuity and insurance commissions are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance. Noninterest revenue streams within the scope of Topic 606 are discussed below. Service Charges on Deposit Accounts Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. 22 Table of Contents Other Service Charges and Fees Other service charges include safe deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transaction based and therefore, the Company’s performance obligation is satisfied and related revenue recognized at a point in time. Credit and Debit Card Fees Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa and MasterCard. Merchant services income mainly represents commission fees based upon merchant processing volume. The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. In compliance with Topic 606, credit and debit card fee income is presented net of associated expense. Trust Income Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Estate management fees are based upon the size of the estate. A partial fee is recognized half-way through the estate administration and the remainder of the fee is recognized when remaining assets are distributed and the estate is closed. Insurance and Investment Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. Investment income consists of recurring revenue streams such as commissions from sales of mutual funds, annuities and other investments. Commissions from the sale of mutual funds, annuities and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated. Three Months Ended March 31, Noninterest Income 2025 2024 In-scope of Topic 606: Service charges on deposit accounts $ 736 $ 675 Other service charges and fees 63 46 Credit and debit card fees, net 417 374 Trust income 579 503 Insurance and Investment (1) 354 305 Noninterest Income (in-scope of Topic 606) $ 2,149 $ 1,903 Noninterest Income (out-of-scope of Topic 606) 406 296 Total noninterest income $ 2,555 $ 2,199 (1) Included within other income in the Consolidated Statements of Income 23 Table of Contents Note 9: Leases The Company’s leases are recorded under ASC Topic 842, “Leases”. The Company categorizes leases as short-term, operating or finance leases. Leases with terms of 12 months or less are designated as short-term and are not capitalized. Operating and finance leases are capitalized as right-of-use assets and lease liabilities. Right-of-use assets, included in other assets, represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Lease liabilities, included in other liabilities, represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The Company does not separate non-lease components from lease components within a single contract. Counterparties for the Company’s lease contracts are external to the Company and not related parties. On June 1, 2024, the Company’s acquisition of FCB added two long-term branch leases. At the Acquisition Date, the leases were remeasured using the Company’s incremental borrowing rate and remaining lease terms, resulting in an increase of $ 548 to the right of use asset and the lease liability. Lease payments Short-term lease payments are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Operating and finance lease payments may be fixed for the term of the lease or variable. If the escalation factor for a variable lease payment is known, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability. Options to Extend, Residual Value Guarantees, Restrictions and Covenants Certain of the Company’s operating leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. The following tables present information about leases as of the dates and for the periods indicated: March 31, December 31, 2025 2024 Lease liability $ 1,422 $ 1,523 Right-of-use asset $ 1,209 $ 1,305 Weighted average remaining lease term (in years) 4.63 4.76 Weighted average discount rate 3.89 % 3.87 % For the Three Months Ended March 31, Lease Expense 2025 2024 Operating lease expense $ 111 $ 89 Short-term lease expense - 5 Total lease expense $ 111 $ 94 Cash paid for amounts included in lease liabilities $ 112 $ 95 The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability: 24 Table of Contents Undiscounted Cash Flow for the Period As of March 31, 2025 Twelve months ending March 31, 2026 $ 366 Twelve months ending March 31, 2027 330 Twelve months ending March 31, 2028 303 Twelve months ending March 31, 2029 273 Twelve months ending March 31, 2030 115 Thereafter 156 Total undiscounted cash flows $ 1,543 Less: discount ( 121 ) Lease liability $ 1,422 Note 10: Stock Based Compensation The Company’s 2023 Stock Incentive Plan (“the Plan”) provides for the grant of various forms of stock-based compensation awards that may be settled in, or based upon the value of, the Company’s common stock. The maximum number of shares available for issuance under the Plan is 120,000 shares. The restricted stock has voting rights and rights to dividends, which are paid upon vest date. For further information on the Plan, please refer to the Company’s 2024 Form 10-K. Restricted Stock Awards Under the Plan, restricted stock awards (“RSAs”) were granted to non-employee directors as part of the semi-annual retainer and restricted stock units ("RSUs") were granted to certain executives. The RSAs and RSUs were valued at the closing stock price on the grant date and expensed over a one-year vesting period. Stock based compensation expense charged against income was $ 43 for the three months ended March 31, 2025 and $ 32 for the three months ended March 31, 2024. As of March 31, 2025 , expense of $ 103 related to the nonvested RSAs and RSUs is expected to be recognized over the coming 12 months. A summary of changes in the Company’s nonvested RSAs under the Plan for the three months ended March 31, 2025 follows: Shares Weighted-Average Grant-Date Fair Value Nonvested at January 1, 2025 4,961 $ 30.98 Nonvested at March 31, 2025 4,961 $ 30.98 Note 11: Net Income Per Common Share The factors used in the computation of net income per common share for the periods indicated are presented below: For the Three Months Ended March 31, 2025 2024 Net Income (Numerator) Common Shares Weighted Average Outstanding (Denominator) Per Share Net Income (Numerator) Common Shares Weighted Average Outstanding (Denominator) Per Share Basic net income per common share $ 3,236 6,358,410 $ 0.51 $ 2,174 5,889,687 $ 0.37 Dilutive shares for restricted stock awards: 1,982 1,964 Diluted net income per common share $ 3,236 6,360,392 $ 0.51 $ 2,174 5,891,651 $ 0.37 RSA grants are disregarded in the computation of diluted net income per share if they are determined to be anti-dilutive. There were no anti-dilutive RSAs for the three months ended March 31, 2025 and March 31, 2024 . 25 Table of Contents Note 12 – Goodwill and Other Intangibles The aggregate amortization expense was $ 97 for the three months ended March 31, 2025. The following table provides information on the significant components of goodwill and other acquired intangible assets at March 31, 2025. Beginning Balance Additions Accumulated Amortization Ending Balance Goodwill $ 10,718 $ - $ - $ 10,718 Core deposit intangible $ 1,863 $ - $ ( 97 ) $ 1,766 As of March 31, 2025, estimated future remaining amortization of the core deposit intangible within the years ending December 31, is as follows: Amortization Expense 2025 $ 276 2026 331 2027 290 2028 248 2029 207 2030 165 Thereafter 249 Total amortizing core deposit intangible $ 1,766 26 Table of Contents