What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-12 compared with 2026-05-13 · 216 added, 109 removed, 318 unchanged (51% of the section changed)

27 unchanged sentences

• the Company’s technology initiatives,

• geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S.

or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts,

• geopolitical conditions, including trade restrictions and tariffs, acts or threats of terrorism and/or military conflicts, or actions taken by the U.S.

or other governments in response to trade restrictions and tariffs, acts or threats of terrorism and/or military conflicts,

• the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events,

16 unchanged sentences

The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred.

A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability.

A variety of factors could affect the ultimate value obtained when earning income, recognizing expense, recovering an asset or relieving a liability.

Although the economics of the Company’s transactions may not change, the timing of events that would impact the transactions could change.

6 unchanged sentences

The results are also dependent upon management's selection of methodologies, loan credit risk ratings, and determination of the impact of internal and external variables.

The Company employs a discounted cash flow ("DCF") model whereby cash flows are projected according to each loan's contractual terms and modified by internal historical prepayment rates.

Cash flows are then discounted at the loan's effective interest rate, modified by loss rates determined using the probability of default ("PD") and loss given default ("LGD") sourced from internal and peer historical experience, and a forecast variable.

Application of historical prepayment rates to project cash flows lowers the ACLL.

Historical prepayment rates may not be representative of realized prepayment rates.

Similarly, historical loss experience modified by the forecast variable may not be representative of realized loss experience.

The Company employs a cash flow ("CF") model whereby each loan’s cash flows are projected according to contractual terms and modified by prepayment rates and loss rates.

Prepayment rates are sourced from the Company’s historical experience.

Loss rates are calculated using the probability of default ("PD") and loss given default ("LGD") sourced from internal and peer historical experience, and adjusted for a forecast variable.

The modified cash flows are then discounted at the loan's contractual interest rate.

Application of historical prepayment rates lowers the ACL and may not be representative of realized prepayment rates.

Historical loss experience and the impact of the forecast variable may not be representative of realized loss experience.

Key to loss rate application is the Company's risk grading system, which is governed by a robust policy.

3 unchanged sentences

If management determines that a borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral.

Specific reserves for other individually evaluated loans are estimated using a DCF approach.

Specific reserves for other individually evaluated loans are estimated using a CF approach.

Cash flows are determined by analyzing the borrower's ability to repay and economic conditions affecting the borrower's industry, discounted at loss rates appropriate to the risk grade.

The ultimate recoverability of the loan may be higher or lower than the specific reserve.

The Company adjusts collectively-evaluated DCF model results for qualitative risk factors that are not inherent in historical losses, but are relevant in assessing expected credit losses within the loan portfolio.

The Company adjusts collectively-evaluated CF model results for qualitative risk factors that are not inherent in historical losses, but are relevant in assessing expected credit losses within the loan portfolio.

Risks considered include the impact of changes in (i) economic conditions, (ii) the nature and volume of the loan portfolio, (iii) the existence, growth and effect of any concentrations in credit, (iv) lending policies and procedures, including underwriting standards and practices, (v) the quality of the credit review function, (vi) the experience, ability and depth of lending management and staff, (vii) the volume and severity of past due loans, (viii) the value of underlying collateral for collateral-dependent loans, and (ix) other factors such as the regulatory, legal and competitive environments.

1 unchanged sentence

Management assesses each factor and determines the adjustment to the ACLL based upon a documented and consistently applied methodology.

Management's assessment my be higher or lower than actual impact.

Management's assessment may be higher or lower than actual impact.

The estimation of the ACLL involves analysis of internal and external variables, methodologies, assumptions and management’s judgment and experience.

These judgments are inherently subjective and actual losses could be greater or less than the estimate.Future estimates of the ACLL could increase or decrease based on changes in the financial condition of individual borrowers,concentrations of various types of loans, economic conditions or the markets in which collateral may be sold.

These judgments are inherently subjective and actual losses could be greater or less than the estimate.

Future estimates of the ACLL could increase or decrease based on changes in the financial condition of individual borrowers, concentrations of various types of loans, economic conditions or the markets in which collateral may be sold.

The estimate of the ACLL determines the amount of provision expense and directly affects our financial results.

Pension obligations are determined through actuarial calculations based upon significant assumptions, including the IRS mortality table, an effective interest rate of 5.35% for 2026 and 5.32% for 2025, a discount rate of 5.25% for 2026 and 5.50% for 2025, anticipated rate of compensation increases of 4% for both 2026 and 2025, and an expected long-term rate of return of 7.50% for 2026 and 2025.

rate of compensation increases of 4% for both 2026 and 2025, and an expected long-term rate of return of 7.50% for 2026 and 2025.

Actual outcomes could vary from the assumptions and result in underaccrual or overaccrual of pension obligations.

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Performance Summary

Key to understanding the Company’s results of operations and financial position is the interest rate environment.

The Federal Reserve's interest rate cuts between September 2025 and December 2025 eased deposit pricing pressure but remain at a level that allows adjustable rate loans to reprice higher than their previous rates.

The Company completed the core system conversion during the second quarter of 2025, with related expenses presented in core system conversion expense on the Consolidated Statements of Income.

Expanded discussion is provided in subsequent sections.

The Company’s results of operations and financial position are heavily influenced by the interest rate environment.

The Federal Reserve's interest rate cuts between September 2024 and September of 2025 eased deposit pricing pressure but remain at a level that allows adjustable rate loans to reprice higher than their previous rates.

Also influential to the Company's results are a gain on the sale of an equity investment offset by a loss on the sale of securities in 2026, and a core system conversion completed during the second quarter of 2025, with core system conversion expense presented on the Consolidated Statements of Income.

Expanded discussion of significant items for 2026 and 2025 is provided in subsequent sections.

The following table presents the Company’s key performance indicators for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30,

Return on average assets

Adjusted return on average assets (1)

Return on average equity

Adjusted return on average equity (1)

Basic net income income per common share

Diluted net income income per common share (2)

Net interest margin (1)

Efficiency ratio (1)

Six Months Ended June 30,

Summary Key Performance Indicators

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(1) See “Non-GAAP Financial Measures” below.

(2) Average dilutive common shares were 2,783 and 1,982 for the three months ended March 31, 2026 and 2025, respectively.

(2) Average dilutive common shares were 3,241 and 3,013 for the three and six months ended June 30, 2026, and 2,665 and 2,325 for the three and six months ended June 30, 2025.

Dilutive common shares stem from unvested restricted stock.

Net income for the three months ended March 31, 2026 increased when compared with the comparable period of 2025, due to net interest margin expansion.

Analysis of the net interest margin as well as key noninterest income and expense items are presented below.

Net income for the three and six months ended June 30, 2026 increased when compared with the comparable periods of 2025, due to net interest margin expansion and core conversion related expenses in 2025.

The net interest margin as well as key noninterest income and expense items are discussed below.

Non-GAAP Financial Measures

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The following tables present the reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30,

Net Interest Margin, FTE

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Average balance of interest-earning assets

Net interest margin

Six Months Ended June 30,

Net Interest Margin, FTE

Interest income (GAAP)

FTE adjustment

Interest income, FTE (non-GAAP)

Interest expense (GAAP)

Net interest income, FTE (non-GAAP)

Average balance of interest-earning assets

Net interest margin (non-GAAP)

Efficiency Ratio

The efficiency ratio is computed by dividing noninterest expense by the sum of FTE net interest income and noninterest income, excluding certain items the Company’s management deems unusual or non-recurring.

The efficiency ratio (non-GAAP) is computed by dividing noninterest expense by the sum of FTE net interest income and noninterest income, excluding certain items the Company’s management deems unusual or non-recurring.

This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency.

The components of the efficiency ratio calculation for the periods indicated are summarized in the following table.

For the Three Months Ended March 31,

Three Months Ended June 30,

Efficiency Ratio

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Noninterest income (GAAP)

gain on sale of equity investment

loss on sale of securities, net

Adjusted noninterest income (non-GAAP)

Net interest income, FTE (non-GAAP)

Total income for efficiency ratio (non-GAAP)

Efficiency ratio

Six Months Ended June 30,

Efficiency Ratio

Noninterest expense (GAAP)

core system conversion expense

Adjusted noninterest expense (non-GAAP)

Noninterest income (GAAP)

gain on sale of equity investment

loss on sale of securities, net

Adjusted noninterest income (non-GAAP)

Net interest income, FTE (non-GAAP)

Total income for efficiency ratio (non-GAAP)

Efficiency ratio (non-GAAP)

Adjusted Return on Average Assets and Adjusted Return on Average Equity

The adjusted return on average assets and adjusted return on average equity are measures of profitability, calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively.

The adjusted return on average assets (non-GAAP) and adjusted return on average equity (non-GAAP) are measures of profitability, calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively.

Significant income or expenses that are unusual or not expected to recur during the year are not annualized, in order to reduce distortion within the ratios.

The tables below present the reconciliation of adjusted annualized net income, which is not a measurement under GAAP, for the periods indicated.

Three Months Ended March 31,

Three Months Ended June 30,

Annualized Net Income for Ratio Calculation

Net income per GAAP

items not annualized:

Partnership loss net of tax of $8 for the peiod ended June 30, 2025

Gain on sale of equity investment, net of tax of ($1,379) for the period ended June 30, 2026

Loss on sale of securities, net, net of tax of $1,375 for the period ended June 30, 2026

Core system conversion expense, net of tax of $415 for the period ended June 30, 2025

Total non-annualized items

Adjusted net income

Adjusted net income, annualized

total non-annualized items

Annualized net income for ratio calculation (non-GAAP)

Return on average assets (GAAP)

Adjusted return on average assets (non-GAAP)

Return on average equity (GAAP)

Adjusted return on average equity (non-GAAP)

Six Months Ended June 30,

Annualized Net Income for Ratio Calculation

Net income per GAAP

Less items not annualized:

Partnership income net of tax of ($49) and ($52) for the periods ended March 31, 2026 and 2025, respectively

Core system conversion expense, net of tax of $10 for the period ended March 31, 2025

Partnership income net of tax of ($49) and ($44) for the periods ended June 30, 2026 and 2025, respectively

Gain on sale of equity investment, net of tax of ($1,379) for the period ended June 30, 2026

Loss on sale of securities, net, net of tax of $1,375 for the period ended June 30, 2026

Core system conversion expense, net of tax of $425 for the period ended June 30, 2025

Total non-annualized items

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Net Interest Income

The following tables show interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net interest margin for the periods indicated.

Three Months Ended March 31,

The following tables present interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net interest margin for the periods indicated.

Three Months Ended June 30,

($ in thousands)

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Total interest-bearing liabilities

Net interest income and interest rate spread

Net interest margin

(1) Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.

(2) Included in interest income are loan fees of $169 and $113 for the three months ended June 30, 2026 and 2025, respectively.

Also included in interest income is accretion of discounts on acquired loans of $177 and $363 for the three months ended June 30, 2026 and 2025, respectively.

(3) Nonaccrual loans are included in average balances for yield computations.

(4) Includes loans held for sale.

(5) Daily averages are shown at amortized cost.

(6) Included in interest expense is amortization of premium on acquired time deposits of $16 and $43 for the three months ended June 30, 2026 and 2025, respectively.

Six Months Ended June 30,

($ in thousands)

Interest-earning assets:

Loans (1)(2)(3)(4)(5)

Taxable securities (5)

Nontaxable securities (1)(5)

Federal funds sold

Interest-bearing deposits

Total interest-earning assets

Interest-bearing liabilities:

Interest-bearing demand deposits

Savings deposits

Time deposits (6)

Total interest-bearing liabilities

Net interest income and interest

1 unchanged sentence

(1) Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.

(2) Included in interest income are loan fees of $202 and $87 for the three months ended March 31, 2026 and 2025, respectively.

Also included in interest income is accretion of discounts on acquired loans of $417 and $251 for the three months ended March 31, 2026 and 2025.

(2) Included in interest income are loan fees of $371 and $199 for the six months ended June 30, 2026 and 2025, respectively.

Also included in interest income is accretion of discounts on acquired loans of $594 and $615 for the six months ended June 30, 2026 and 2025, respectively.

(3) Nonaccrual loans are included in average balances for yield computations.

1 unchanged sentence

(5) Daily averages are shown at amortized cost.

(6) Included in interest expense is amortization of premium on acquired time deposits of $18 and $58 for the three months ended March 31, 2026 and 2025, respectively.

When the three months ended March 31, 2026 and 2025 are compared, the yield on earning assets increased and the cost of interest bearing liabilities decreased, improving the net interest margin.

(6) Included in interest expense is amortization of premium on acquired time deposits of $34 and $101 for the six months ended June 30, 2026 and 2025, respectively.

When the three and six months ended June 30, 2026 and 2025 are compared, improvement in the net interest margin stemmed from higher yields on loans and securities and lower cost of time deposits and interest bearing demand deposits, somewhat offset by lower yield on interest-bearing deposit assets.

The Federal Reserve's interest rate cuts between September 2024 and December 2025 immediately reduced expense for deposits with pricing based on the prime interest rate.

1 unchanged sentence

Noninterest Income

Three Months Ended March 31,

Three Months Ended June 30,

Service charges on deposits

2 unchanged sentences

Gain on sale of mortgage loans

Gain on sale of equity investment

Loss on sale of securities, net

Total noninterest income

Service charges on deposit accounts decreased when the three months ended March 31, 2026 are compared with the comparable period of 2025, while other service charges and fees increased.

The increase in other service charges and fees is due to a change in the way the Company recognizes safe deposit box rent.

Prior to the core system conversion during the second quarter of 2025, safe deposit box rent was recognized on an accrual basis.

Following the core system conversion, safe deposit box rent is recognized upon receipt.

Credit and debit card fees, net, increased when the three months ended March 31, 2026 are compared with the comparable period of 2025, due to contract re-negotiation associated with the core system conversion.

Other income includes revenue from investment and insurance sales, adjustments to partnership basis and other miscellaneous components.

Securities sales, FHLB dividends and derivatives income account for the increase when the three months ended March 31, 2026 is compared with the comparable period of 2025.

Six Months Ended June 30,

Service charges on deposits

Other service charges and fees

Credit and debit card fees, net

Gain on sale of mortgage loans

Gain on sale of equity investment

Loss on sale of securities, net

Total noninterest income

When the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, noninterest income increased.

Other service charges and fees increased when the six months ended June 30, 2026 are compared with the comparable periods of 2025, primarily due to a change in recognition method for safe deposit box rent.

Credit and debit card fees, net, increased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, due to improved terms for interchange fee income stemming from the the core system conversion in May of 2025.

Trust income increased when the three and six months ended June 30, 2026 are compared with the comparable period of 2025 due to higher estate fee income in 2026.

Gain on sale of mortgage loans increased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, due to higher volume.

Other income increased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, due to higher commissions on securities sales and income from equity investments.

During the second quarter of 2026, the Company recorded a gain on the sale of its equity interest in a community-bank insurance consortium.

The Company also executed a plan to partially reposition the securities portfolio to enhance profitability and manage interest rate risk.

Improvement in earnings as a result of the repositioning is expected to earn back the loss on sale of securities within 1.8 years, and will continue to add value after the recovery period.

Noninterest Expense

Three Months Ended March 31,

Three Months Ended June 30,

Salaries and employee benefits

8 unchanged sentences

Total noninterest expense

Noninterest expense increased when the three months ended March 31, 2026 are compared with the comparable period of 2025.

Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when the three months ended March 31, 2026 is compared with the comparable period of 2025, driven by higher incentive and insurance expense.

Occupancy, furniture and fixtures expense increased when the three months ended March 31, 2026 are compared with the comparable period of 2025 due to depreciation of assets placed in service after the first quarter of 2025 and additional lease expense.

Data processing expenses decreased when the three months ended March 31, 2026 are compared with the comparable period of 2025 due to savings related to the core system conversion.

Professional services include legal, audit and consulting expenses, which increased when the three months ended March 31, 2026 are compared with the comparable period of 2025 due to higher audit and consulting fees.

Core system conversion expense includes payments made to vendors in advance of the system upgrade completed during the second quarter of 2025.

Other operating expense decreased when the three months ended March 31, 2026 are compared with the comparable period of 2025.

The category of other operating expenses includes expense for marketing and business development, supplies, non-service pension cost and charitable donations, among others.

Included in various categories of noninterest expense are expenses to manage cybersecurity risk.

The cost of these measures was $131 for the three months ended March 31, 2026 and $81 for the three months ended March 31, 2025.

Six Months Ended June 30,

Salaries and employee benefits

Occupancy, furniture and fixtures

Data processing

FDIC assessment

Intangible asset amortization

Franchise taxes

Professional services

Core system conversion expense

Other operating expenses

Total noninterest expense

Total noninterest expense decreased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025.

During 2025, the Company recorded specific expense for the core system conversion, as well as associated marketing and mailing expense included in other noninterest expense.

Salaries and employee benefits include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation.

When the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, the increase was driven by higher incentive and medical insurance expense.

Occupancy, furniture and fixtures expense increased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025 due to depreciation and amortization of assets placed into service for the core system conversion in May 2025 and the Company's Roanoke and Lynchburg branch locations, opened in March 2025 and November 2025, respectively.

Data processing expense increased when three and six months ended June 30, 2026 are compared with the comparable periods of 2025 due to higher maintenance and communications infrastructure expense, as well as expenses to manage cybersecurity risk.

The cost of these measures was $151 for the three months ended June 30, 2026 and $100 for the three months ended June 30, 2025.

For the six months ended June 30, 2026, total cybersecurity expense was $283 compared with $141 for the six months ended June 30, 2025.

The Company places high priority on cybersecurity.

The decrease in expense reflects renegotiation of contracts and licensing.

The Company’s income tax expense for the three months ended March 31, 2026 was $1,066 and effective tax rate was 17.63%.

For the three months ended March 31, 2025, the Company’s income tax expense was $666 and effective tax rate was 17.07%.

The effective tax rate increased due to comparable levels of nontaxable income while pre-tax earnings increased during the period.

Professional services include legal, audit and consulting expenses, which decreased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025 due to lower legal expense.

Other operating expenses decreased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025 due to improvement in the non-service component of pension cost.

The category of other operating expenses also includes expense for marketing and business development, supplies, and charitable donations, among others.

The Company’s income tax expense was $1,048 for the three months ended June 30, 2026 compared with $362 for the same period in 2025.The Company's income tax expense was $2,114 for the six months ended June 30, 2026 and effective tax rate was 17.44%.

For the six months ended June 30, 2025, the Company’s income tax expense was $1,028 and effective tax rate was 15.69%.

The effective tax rate increased due to comparable levels of nontaxable income while pre-tax earnings increased.

Asset Quality

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Summary of Significant Accounting Policies.

The Company’s risk analysis as of March 31, 2026 determined an ACLL of $9,739, or 0.98% of loans net of deferred fees and costs.

This compares with an ACLL of $9,892 as of December 31, 2025, or 0.99% of loans.

To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of collectively evaluated loans.

The Company’s risk analysis as of June 30, 2026 determined an ACLL of $10,047, or 0.99% of loans net of deferred fees and costs.

This compares with an allowance of $9,892 as of December 31, 2025, or 0.99% of loans.

To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of loans evaluated collectively.

Individually Evaluated Loans

Individually evaluated loans were $8,898 as of March 31, 2026 and $8,802 as of December 31, 2025.

Individually evaluated loans were $10,030 as of June 30, 2026 and $8,802 as of December 31, 2025.

As of both reporting dates, two individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation.

The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $106.

The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $138 as of June 30, 2026 and $106 as of December 31, 2025.

Collectively Evaluated Loans

Collectively evaluated loans totaled $987,166, with an ACLL of $9,633 as of March 31, 2026.

Collectively evaluated loans totaled $1,005,382, with an ACLL of $9,909 as of June 30, 2026.

As of December 31, 2025, collectively evaluated loans totaled $991,124, with an allowance of $9,786.

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The Company applies national unemployment forecasts to project cash flows.

The Company determined that 12 months represents a reasonable and supportable forecast period as of March 31, 2026, and set a period of 12 months to revert to historical losses on a straight-line basis.

The forecast applied as of March 31, 2026 projects that unemployment will increase slightly over the next 12 months, higher than the forecast applied as of December 31, 2025.

The higher unemployment forecast increased the required level of the ACLL when March 31, 2026 is compared with December 31, 2025.

The Company determined that 12 months represents a reasonable and supportable forecast period as of June 30, 2026, and set a period of 12 months to revert to historical losses on a straight-line basis.

The forecast applied as of June 30, 2026 projects that unemployment will slightly decrease over the next 12 months at a lower level than the forecast applied as of December 31, 2025.

The lower unemployment forecast decreased the required level of the ACLL when June 30, 2026 is compared with December 31, 2025.

Qualitative Factors:

1 unchanged sentence

Higher bankruptcy filings indicate heightened credit risk and increase the ACLL, while lower bankruptcy filings have a beneficial impact on credit risk.

Compared with data available as of December 31, 2025, business bankruptcy filings increased while personal bankruptcies filings decreased.

Residential vacancy rates and housing inventory are used to measure the health of the housing market.

Compared with data available as of December 31, 2025, business bankruptcy filings increased and personal bankruptcies filings decreased.

Residential vacancy rates and housing inventory are used to measure the housing market.

The housing market directly or indirectly affects all loan classes.

Higher vacancy and inventory levels increase credit risk.

The residential vacancy rate available as of March 31, 2026 was at a lower level than the data incorporated into the December 31, 2025 calculation.

Housing data available as of March 31, 2026 showed slightly lower inventory than as of December 31, 2025, resulting in a lower allocation.

The residential vacancy rate available as of June 30, 2026 decreased compared to the data incorporated into the December 31, 2025 calculation, resulting in a lower allocation.

Housing inventory increased when June 30, 2026 is compared with December 31, 2025, resulting in a higher allocation.

Qualitative Factors:

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Increases in past due loans indicate heightened credit risk.

Accruing loans past due 30-89 days were 0.29% of total loans as of March 31, 2026, a decrease from 0.35% as of December 31, 2025.

Accruing loans past due 30-89 days were 0.30% of total loans as of June 30, 2026, a decrease from 0.35% as of December 31, 2025.

Qualitative Factors:

2 unchanged sentences

Competitive, legal and regulatory environments were evaluated for changes that would affect credit risk.

Higher competition for loans is deemed to increase credit risk, while lower competition decreases credit risk.

Competition remained at similar levels to those at December 31, 2025.

The legal and regulatory environments also remain in a similar posture to December 31, 2025.

Higher competition for loans is deemed to increase credit risk, while lower competition is deemed to decrease credit risk.

The Company's evaluation found slightly lower competitive pressure when compared with December 31, 2025.

The legal and regulatory environments remain in a similar posture to December 31, 2025.

Lending policies, loan review procedures and management’s experience influence credit risk.

3 unchanged sentences

Total high risk loans increased from the level at December 31, 2025.

The Company monitors local economic news and internal indicators to consider the presence of risk that may not be reflected in its designated qualitative factors above.

As of March 31, 2026, management identified elevated local unemployment data and collection activity, similar to December 31, 2025.

The Company maintained its allocation from December 31, 2025.

The calculation of the appropriate level for the ACLL incorporates analysis of multiple factors and requires management’s prudent and informed judgment.

Based on analysis of historical indicators, asset quality and economic factors, management believes the level of ACLL is reasonable for the credit risk in the loan portfolio as of March 31, 2026.

The Company considers changes in experience and leadership of lending and credit risk management.

During the second quarter of 2026, the Company's Chief Lending Officer announced his resignation and the Company promoted a seasoned lender to the position.

The new CLO's long tenure and alignment with the Company's credit risk appetite and lending culture do not indicate a measurable increase in credit risk.

However, due to the unexpected nature of the change, the Company determined an allocation was appropriate to recognize uncertainty.

The Company removed an allocation associated with lending staff obtained through a 2024 acquisition.

The Company monitors local economic news and internal indicators to consider the presence of risk that may not be reflected in its standard analysis of qualitative factors.

As of June 30, 2026, management identified elevated local unemployment data and collection activity, similar to December 31, 2025, as well as geopolitical concerns that impact inflation.

The Company increased its allocation from December 31, 2025.

The estimate of the appropriate level for the ACLL requires management’s prudent and informed judgment.

The Company's estimate is based on quantitative and qualitative analysis of historical indicators, asset quality and economic factors and represents a reasonable estimate of the credit risk in the loan portfolio as of June 30, 2026.

ACL on Unfunded Commitments

The ACL on unfunded commitments was $288, or 0.15% of unfunded commitments as of March 31, 2026.

The ACL on unfunded commitments was $282, or 0.16 % of unfunded commitments as of June 30, 2026.

The ACL on unfunded commitments was $298, or 0.17% as of December 31, 2025.

2 unchanged sentences

The adequacy of the ACLL is reviewed quarterly and adjustments are made as determined necessary.

The Company recorded a recovery of credit losses on loans of $63 and a recovery of credit losses on unfunded commitments of $10 for the three months ended March 31, 2026, compared with a provision for credit losses on loans of $277 and a recovery of $1 for unfunded commitments for the three months ended March 31, 2025.

Changes in loss rates, qualitative factors and a lower balance of loans accounted for the difference in (recovery of) provision for credit losses.

The Company recorded a provision for credit losses on loans of $260 and a recovery credit losses on unfunded commitments of $16 for the six months ended June 30, 2026, compared with a provision for credit losses on loans of $322 and a recovery of $10 for unfunded commitments for the six months ended June 30, 2025.

For the three month period ended June 30, 2026, the Company recorded a provision for credit losses on loans of $323 and a recovery of credit losses on unfunded commitments of $6.

For the three months ended June 30, 2025, the Company recorded a provision for credit losses on loans of $45 and a recovery of credit losses on unfunded commitments of $9.

Loan Modifications

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Loans and Allowance for Credit Losses in Part I, Item 1 of this report for more information on loans modified for borrowers experiencing financial difficulty.

During the three months ended March 31, 2026 and 2025, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty.

During the three months ended March 31, 2026, the Company modified 70 loans totaling $27,988.

During the three months ended March 31, 2025, the Company provided 195 modifications to loans totaling $24,105.

During the three and six months ended June 30, 2026 and 2025, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty.

During the three months ended June 30, 2026, the Company modified 57 loans totaling $11,908.

During the six months ended June 30, 2026, the Company modified 127 loans totaling $39,896.

During the three and six months ended June 30, 2025, the Company provided 173 modifications to loans totaling $17,750 and 368 modifications totaling $41,855, respectively.

Key Assets and Liabilities

NBI’s key assets and liabilities and their change from March 31, 2025 are shown in the following table.

NBI’s key assets and liabilities and their change from December 31, 2025 are shown in the following table.

Interest-bearing deposits

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Stockholders’ equity

Increased customer deposits resulted in increased investment in interest bearing deposit assets.

Lower interest bearing deposit assets reflect strategic investment in securities available for sale.

Changes in securities, loans, deposits and stockholders’ equity are discussed below.

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Securities available for sale, at fair value

The Company purchased bonds totaling $19,555 during the first quarter of 2026.

The Company repositioned a portion of the securities portfolio during the second quarter of 2026, selling securities with an amortized cost of $131,866 and weighted average yield of 1.80%, resulting in a loss of $6,549.

The Company invested the proceeds in securities totalling $127,327 with a weighted average yield of 5.26%.

The unrealized loss in the Company’s investment portfolio is due to interest rate risk.

The fair value of bonds moves inversely to interest rate changes and expectations of interest rate changes.

A large percentage of the Company’s securities were purchased during the period prior to the Federal Reserve’s interest rate increases that began in March of 2022.

The Company’s analysis of the securities portfolio determined no identifiable credit risk as of March 31, 2026 and no ACL has been recorded.

The Company’s analysis of the securities portfolio determined no identifiable credit risk as of June 30, 2026 and no ACL has been recorded.

Please refer to Note 1:

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Loans, net of deferred fees and costs

Lower demand and increased competition resulted in a slight decrease in the loan portfolio when March 31, 2026 is compared with December 31, 2025.

The Company anticipated the increase in real estate construction loans, as projects underlying previously approved loans reached development phases for advances.

The Company is positioned to make every loan that meets its underwriting standards.

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The Company continues to focus on providing new deposit products that provide additional functionality and marketing opportunity, enabled by the core system conversion completed in 2025.

During the first quarter of 2026, the Company implemented a treasury management suite for commercial and municipal deposit customers, with additional product releases planned throughout 2026.

During the first half of 2026, the Company implemented a treasury management suite for commercial and municipal deposit customers and a new account opening platform, with additional product releases planned throughout 2026.

The Company’s depositors within its market area are diverse, including individuals, businesses and municipalities.

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Municipal deposits, which account for approximately 22% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation.

Uninsured non-municipal deposits are approximately 20% of total deposits.

As of March 31, 2026, the Company's largest deposit relationship was 5.15% of total deposits.

Of the Company’s non-municipal deposits, approximately 27% are uninsured.

Capital Resources

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Total stockholders’ equity

The increase in stockholders’ equity reflects net income for the three months ended March 31, 2026, partially offset by a decrease in market value of securities available for sale when March 31, 2026 is compared with December 31, 2025.

The increase in stockholders’ equity reflects an improvement in the unrealized losses on securities available for sale, primarily due to the sale of securities discussed previously, and net income during the period.

The Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $5 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements.

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Risk-based capital ratios are calculated in compliance with OCC rules based on the Basel III Capital Rules.

Capital ratios for NBB are shown in the following table.

March 31, 2026

Capital ratios for NBB are shown in the following tables:

June 30, 2026

December 31, 2025

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The Company has diverse liquidity sources, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing, short-term borrowing, and FHLB advances.

As of March 31, 2026, the Company had $303,165 of borrowing capacity from the FHLB and $184,437 of borrowing capacity at the Federal Reserve Bank discount window.

As of March 31, 2026, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.

As of June 30, 2026, the Company had $300,885 of borrowing capacity from the FHLB and the Company had $127,215 of available capacity at the Federal Reserve Bank discount window.

As of June 30, 2026, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.

The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters.

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Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve Bank discount window.

As of March 31, 2026, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve Bank discount window.

As of June 30, 2026, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve Bank discount window.

The Company monitors factors that may increase its liquidity needs.

Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments and loan growth.

As of March 31, 2026, the Company’s liquidity is sufficient to meet projected trends.

As of June 30, 2026, the Company’s liquidity is sufficient to meet projected trends.

To monitor and estimate liquidity levels, the Company performs stress testing under varying assumptions on credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows.

The Company’s Contingency Funding Plan sets forth avenues for rectifying liquidity shortfalls.

As of March 31, 2026, the analysis indicated adequate liquidity under the tested scenarios.

As of June 30, 2026, the analysis indicated adequate liquidity under the tested scenarios.

The Company utilizes several other strategies to maintain sufficient liquidity.

Loan and deposit growth are managed to keep the loan to deposit ratio within the Company’s internally-set target range.

As of March 31, 2026, the loan to deposit ratio was 61.08%.

As of June 30, 2026, the loan to deposit ratio was 62.27%.

The investment strategy takes into consideration the term of the investment, and securities in the available for sale portfolio are laddered based upon projected funding needs.

As of March 31, 2026, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity.

As of March 31, 2026, the Company has no material commitments for long-term debt or for capital expenditures.

As of June 30, 2026, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity.

As of June 30, 2026, the Company has no material commitments for long-term debt for capital expenditures.

Off-Balance Sheet Arrangements

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The Bank also issues two types of standby letters of credit to customers:

financial standby letters of credit that guarantee payment to facilitate customer purchases and performance letters of credit that guarantee payment if the customer fails to perform a specific obligation.

financial standby letters of credit that guarantee payments to facilitate customer purchases and performance letters of credit that guarantee payment if the customer fails to complete a specific obligation.

Amounts drawn upon these lines and letters of credit vary at any given time depending on the business needs of the customers.

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Contractual Obligations

The Company had no finance lease or purchase obligations and no long-term debt at March 31, 2026.

The Company had no finance lease or purchase obligations and no long-term debt at June 30, 2026.

Quantitative a nd Qualitative Disclosures About Market Risk

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The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report.

Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2026 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the three months ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2026 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the three months ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.

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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-Q

Item 2. Management’s Discussion and Analysis