What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-13 · 338 added, 215 removed, 1229 unchanged (31% of the section changed)

Financial Statements   

Financial Information

1 unchanged sentence

Consolidated Balance Sheets

September 30,

(in thousands, except share and per share data)

56 unchanged sentences

Authorized 10,000,000 shares;

issued and outstanding 6,170,058 at June 30, 2021 and 6,432,020 shares at December 31, 2020

issued and outstanding 6,096,958 at September 30, 2021 and 6,432,020 shares at December 31, 2020

Retained earnings

11 unchanged sentences

Consolidated Statements of Income

Three Months Ended June 30, 2021 and 2020

Three Months Ended September 30, 2021 and 2020

(in thousands, except share and per share data)

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Interest Income

Interest and fees on loans

$ 9,088  

$ 8,606  

Interest on interest-bearing deposits

2 unchanged sentences

Total interest income

11,656  

10,708  

Interest Expense

3 unchanged sentences

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

10,937  

Provision for (recovery of) loan losses

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

11,329  

Noninterest Income

10 unchanged sentences

FDIC assessment

Net costs of (gains on) other real estate owned

Net costs of other real estate owned

Franchise taxes

3 unchanged sentences

Income tax expense

$ 5,752  

$ 4,168  

Basic net income per common share

$ 0.94  

$ 0.64  

Fully diluted net income per common share

$ 0.94  

$ 0.64  

Weighted average number of common shares outstanding, basic and diluted

6,142,538  

6,489,574  

Dividends declared per common share

2 unchanged sentences

Consolidated Statements of Comprehensive Income

Three Months Ended June 30, 2021 and 2020

Three Months Ended September 30, 2021 and 2020

September 30,

(in thousands)

1 unchanged sentence

$ 4,168  

Other Comprehensive Income, Net of Tax

Unrealized holding gain on available for sale securities net of tax of $ 1,922 and $ 1,498 for the periods ended June 30, 2021 and June 30, 2020, respectively

Reclassification adjustment for gain included in net income, net of tax of ($ 13 ) for the period ended June 30, 2020

Other comprehensive income, net of tax

Other Comprehensive Income (Loss), Net of Tax

Unrealized holding gain (loss) on available for sale securities net of tax of ($ 905 ) and $ 601 for the periods ended September 30, 2021 and September 30, 2020, respectively

Reclassification adjustment for gain included in net income, net of tax of ($ 3 ) for the period ended September 30, 2020

Other comprehensive income (loss), net of tax

Total Comprehensive Income

4 unchanged sentences

Consolidated Statements of Income

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

(in thousands, except share and per share data)

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Interest Income

Interest and fees on loans

$ 26,104  

$ 25,491  

Interest on interest-bearing deposits

2 unchanged sentences

Total interest income

33,435  

32,846  

Interest Expense

3 unchanged sentences

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

31,027  

28,032  

Provision for (recovery of) loan losses

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

31,365  

26,047  

Noninterest Income

7 unchanged sentences

Salaries and employee benefits

11,767  

10,882  

Occupancy, furniture and fixtures

5 unchanged sentences

Total noninterest expense

19,350  

18,664  

Income before income taxes

18,282  

13,189  

Income tax expense

$ 15,131  

$ 11,129  

Basic net income per common share

$ 2.42  

$ 1.71  

Fully diluted net income per common share

$ 2.42  

$ 1.71  

Weighted average number of common shares outstanding, basic and diluted

6,253,796  

6,489,574  

Dividends declared per common share

$ 0.70  

$ 0.67  

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Comprehensive Income

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

September 30,

(in thousands)

2 unchanged sentences

Other Comprehensive Income (Loss), Net of Tax

Unrealized holding gain (loss) on available for sale securities net of tax of ($ 1,349 ) and $ 2,526 for the periods ended June 30, 2021 and June 30, 2020, respectively

Reclassification adjustment for gain included in net income, net of tax of ($ 1 ) and ($ 17 ), for the periods ended June 30, 2021 and June 30, 2020, respectively

Unrealized holding gain (loss) on available for sale securities net of tax of ($ 2,254 ) and $ 3,127 for the periods ended September 30, 2021 and September 30, 2020, respectively

11,763  

Reclassification adjustment for gain included in net income, net of tax of ($ 1 ) and ($ 20 ), for the periods ended September 30, 2021 and September 30, 2020, respectively

Other comprehensive income (loss), net of tax

11,687  

Total Comprehensive Income

4 unchanged sentences

Consolidated Statements of Changes in Stockholders’

Three Months Ended June 30, 2021 and 2020

(in thousands except per share and share data)

Three Months Ended September 30, 2021 and 2020

(in thousands except share data)

Comprehensive

Income (Loss)

Balances at March 31, 2020

Balances at June 30, 2020

$ 8,112  

1 unchanged sentence

$ 195,781  

Dividends $ 0.67 per share

Other comprehensive income, net of tax of $ 598

Balances at June 30, 2020

Balances at September 30, 2020

$ 8,112  

1 unchanged sentence

$ 3,181  

Balances at March 31, 2021

$ 202,194  

Balances at June 30, 2021

$ 7,713  

$ 185,580  

$ 191,235  

Common stock repurchased, 73,100 shares

Dividends $ 0.70 per share

Other comprehensive income, net of tax of $ 1,922

Balances at June 30, 2021

Other comprehensive loss, net of tax of ($ 905 )

Balances at September 30, 2021

$ 7,621  

2 unchanged sentences

See accompanying notes to consolidated financial statements.

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

(in thousands except per share and share data)

5 unchanged sentences

$ 183,726  

11,129  

Dividends $ 0.67 per share

Other comprehensive income, net of tax of $ 3,107

Balances at June 30, 2020

11,687  

Balances at September 30, 2020

$ 8,112  

$ 190,901  

$ 3,181  

$ 202,194  

Balances at December 31, 2020

3 unchanged sentences

$ 200,607  

15,131  

Common stock repurchased, 335,062 shares

1 unchanged sentence

Other comprehensive loss, net of tax of ($ 2,255 )

Balances at June 30, 2021

Balances at September 30, 2021

$ 7,621  

4 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

September 30,

(in thousands)

Cash Flows from Operating Activities

$ 15,131  

$ 11,129  

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

Provision for loan losses

Provision for (recovery of) loan losses

Depreciation of bank premises and equipment

7 unchanged sentences

Proceeds from sale of mortgage loans held for sale

14,238  

25,560  

Gain on sale of mortgage loans held for sale

4 unchanged sentences

Net cash provided by operating activities

17,679  

10,150  

Cash Flows from Investing Activities

1 unchanged sentence

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

46,887  

116,567  

Purchase of securities available for sale

12 unchanged sentences

Net change in other deposits

142,718  

118,849  

Common stock repurchased

1 unchanged sentence

Net cash provided by financing activities

119,187  

89,481  

Net change in cash and due from banks

Cash and due from banks at beginning of period

13,147  

10,290  

Cash and due from banks at end of period

$ 11,728  

$ 10,593  

Supplemental Disclosures of Cash Flow Information

Interest paid on deposits

$ 2,418  

$ 4,872  

Income taxes paid

4 unchanged sentences

Unrealized gain (loss) on securities available for sale

14,794  

Lease liabilities arising from obtaining right-of-use assets

2 unchanged sentences

Notes to Consolidated Financial Statements

June 30, 2021

September 30, 2021

$ in thousands, except per share data

5 unchanged sentences

The accompanying interim period consolidated financial statements are unaudited;

however, in the opinion of management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.  The results of operations for the three and six month periods ended June 30, 2021 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 2020 Form 10 -K.  The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com .

however, in the opinion of management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.  The results of operations for the three and nine month periods ended September 30, 2021 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 the consolidated financial statements included in the Company’s 2020 Form 10 -K.  The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com .

Reclassifications

2 unchanged sentences

Risks and Uncertainties

Over the past 15 months, the COVID- 19 pandemic and efforts to reduce its spread have caused significant disruptions in the U.S.

Since the beginning of 2020, the COVID- 19 pandemic and efforts to reduce its spread have caused significant disruptions in the U.S.

economy and negatively impacted financial activity in the Company’s market.

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.

If the pandemic escalates further, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

Some measures appear to indicate a positive trajectory, however if the pandemic escalates, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

While it is not possible to know the full extent of the impact COVID- 19 will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.

3 unchanged sentences

Interest income was impacted by modification requests and by a decreased interest rate environment.

During the first six months of 2021, the number of modification requests that reduce interest income vastly decreased, though loan refinance and securities call activity spurred by the low interest rates continue to impact interest income, with reinvestment opportunities at lower rates.

During the first nine months of 2021, the number of modification requests that reduce interest income vastly decreased, though loan refinance and securities call activity spurred by the low interest rates continue to impact interest income, with reinvestment opportunities at lower rates.

If the pandemic’s evolution brings new or worsened economic impacts, these income categories and others may be negatively affected.

Lending operations, accommodations to borrowers and credit risk

The Company is working with customers directly affected by COVID- 19, providing short-term assistance in accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Consolidated Appropriations Act (“CAA”) and regulatory guidelines.

Pandemic-related modification requests have greatly subsided during 2021, however during the height of the pandemic, the Company assisted borrowers affected by COVID- 19, including providing payment extensions, periods of interest only payments to otherwise amortizing loans, and interest rate reductions.

As of June 30, 2021, only five loans remain in a temporarily modified state for COVID- 19 relief.

The Company has worked with customers directly affected by COVID- 19, providing short-term assistance in accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Consolidated Appropriations Act (“CAA”) and regulatory guidelines.

Assistance included providing payment extensions, periods of interest only payments to otherwise amortizing loans, and interest rate reductions.

Pandemic-related modification requests have greatly subsided and as of September 30, 2021, there were no loans remaining in a temporarily modified state for COVID- 19 relief.

If eventual credit losses are identified on loans that received modifications or other loans, accrued interest and fee income would be reversed at the time the loss is identified.

3 unchanged sentences

The Company is closely monitoring credit quality and developments related to the pandemic.

The Company has provided loans through the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”).

Through the program, banks may fund loans to qualifying borrowers with the expectation that the SBA will either pay off the loans and forgive the borrower’s debt, or guarantee the loans until the borrower pays off the debt.

The Company provided loans through the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”).

Loans funded through the program to qualifying borrowers carry the expectation that the SBA will either pay off the loans and forgive the borrower’s debt, or guarantee the loans until the borrower pays off the debt.

The loans bear a contractual interest rate of 1%, bolstered by an origination fee to be recognized over the life of the loan.

2 unchanged sentences

To date, 1,039 PPP loans with original balances totaling $ 70,228 have been forgiven or paid off.

As of June 30, 2021, the Company held $ 29,922 in PPP loans, net of deferred fees and costs.

The company expects that the vast majority of the remaining loans will be forgiven by the SBA in accordance with the terms of the program, and that any remaining balances will be fully guaranteed by the SBA.

As of September 30, 2021, the Company held $ 12,086 in PPP loans, net of deferred fees and costs.

The company expects that the remaining loans will be forgiven by the SBA in accordance with the terms of the program, and that any remaining balances will be fully guaranteed by the SBA.

Should those circumstances change, the Company could be required to establish additional allowance for loan loss through provision for loan loss charged to earnings.

37 unchanged sentences

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (ASU) No.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016 - 13, “Financial Instruments –

8 unchanged sentences

Smaller reporting companies who file with the U.S.

Securities and Exchange Commission (“SEC”) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022.

Securities and Exchange Commission (SEC) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022.

The Company is currently assessing the impact that ASU 2016 - 13 will have on its consolidated financial statements.

1 unchanged sentence

Management has prepared multiple concurrent models using the Current Expected Credit Losses (“CECL”) methodology and will continue to refine assumptions that impact the calculation prior to the effective date.

Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (“SAB”) 119.

SAB 119 updated portions of SEC interpretative guidance to align with FASB Accounting Standards Codification (“ASC 326”

), “Financial Instruments –

Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119.

SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments –

Credit Losses.”

18 unchanged sentences

An entity may elect to apply ASU No.

2021 - 01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.The Company has one participation loan that references LIBOR and is working with the primary bank to determine appropriate actions.

2021 - 01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.The Company has three participation loans that references LIBOR and is working with the primary banks to determine appropriate actions.

The Company is assessing ASU 2020 - 04 and its impact on the Company’s transition away from LIBOR for this loan.

In August 2018, the FASB issued ASU 2018 - 14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715 - 20 ):

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.”

These amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

Certain disclosure requirements have been deleted while the following disclosure requirements have been added:

the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

The amendments also clarify the disclosure requirements in paragraph 715 - 20 - 50 - 3, which state that the following information for defined benefit pension plans should be disclosed:

The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.

The amendments are effective for fiscal years ending after December 15, 2020.

Early adoption is permitted.

In August 2021, the FASB issued ASU 2021 - 06, “'Presentation of Financial Statements (Topic 205 ), Financial Services—Depository and Lending (Topic 942 ), and Financial Services—Investment Companies (Topic 946 ):

Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33 - 10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33 - 10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No.

33 - 10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33 - 10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants”.

The ASU is effective upon addition to the FASB Codification.

The Company does not expect the adoption of ASU 2021 - 06 to have a material impact on its consolidated financial statements.

1 unchanged sentence

The loan portfolio, excluding loans held for sale, was comprised of the following.

September 30,

Real estate construction

$ 50,883  

$ 42,266  

Consumer real estate

204,880  

181,782  

Commercial real estate

403,840  

393,115  

Commercial non real estate

59,082  

78,771  

Public sector and IDA

48,345  

40,983  

Consumer non real estate

31,576  

33,110  

798,606  

770,027  

Less unearned income and deferred fees and costs

Loans, net of unearned income and deferred fees and costs

$ 797,494  

$ 768,799  

Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

4 unchanged sentences

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts will not be collected when due according to the contractual terms of the loan agreement.

Impaired loans are those loans that have been modified in a TDR as well as larger, usually non-homogeneous loans that exhibit payment history or financial status that indicate that collection probably will not occur when due according to the loan’s terms.

Impaired loans are those loans that have been modified in a troubled debt restructuring (“TDR”) as well as larger, usually non-homogeneous loans that exhibit payment history or financial status that indicate that collection probably will not occur when due according to the loan’s terms.

Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or fair value.

51 unchanged sentences

A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.

Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2021

Activity in the Allowance for Loan Losses for the Nine Months Ended September 30, 2021

Balance, December 31, 2020

3 unchanged sentences

Provision for (recovery of) loan losses

Balance, June 30, 2021

Balance, September 30, 2021

$ 1,968  

1 unchanged sentence

$ 7,698  

Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2020

Activity in the Allowance for Loan Losses for the Nine Months Ended September 30, 2020

Balance, December 31, 2019

3 unchanged sentences

Provision for (recovery of) loan losses

Balance, June 30, 2020

Balance, September 30, 2020

$ 2,162  

11 unchanged sentences

$ 8,481  

Allowance for Loan Losses as of June 30, 2021

Allowance for Loan Losses as of September 30, 2021

Individually evaluated for impairment

9 unchanged sentences

$ 8,481  

Loans as of June 30, 2021

Loans as of September 30, 2021

Individually evaluated for impairment

17 unchanged sentences

Loans as of December 31, 2020

Non Real Estate

Individually evaluated for impairment

18 unchanged sentences

As of and for the

Six Months Ended

Nine Months Ended

September 30,

Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs (1)

Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs (2)

The ratio of the allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs at June 30, 2021, December 31, 2020 and June 30, 2020 includes government-guaranteed SBA PPP loans, which do not require an allowance for loan losses.

Excluding the PPP loans, the ratio would be 1.04 % at June 30, 2021, 1.16 % at December 31, 2020 and 1.13 % at June 30, 2020.

The ratio of the allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs at September 30, 2021, December 31, 2020 and September 30, 2020 includes government-guaranteed SBA PPP loans, which do not require an allowance for loan losses.

Excluding the PPP loans, the ratio would be 0.98 % at September 30, 2021, 1.16 % at December 31, 2020 and 1.13 % at September 30, 2020.

Net charge-offs are on an annualized basis.

A summary of nonperforming assets follows.

September 30,

Nonperforming assets:

12 unchanged sentences

A summary of loans past due 90 days or more and impaired loans follows.

September 30,

Loans past due 90 days or more and still accruing

26 unchanged sentences

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

No interest income was recognized on nonaccrual loans for the six months ended June 30, 2021 or June 30, 2020 or for the year ended December 31, 2020.

No interest income was recognized on nonaccrual loans for the nine months ended September 30, 2021 or September 30, 2020 or for the year ended December 31, 2020.

A detailed analysis of investment in impaired loans and associated reserves, segregated by loan class follows.         

Impaired Loans as of June 30, 2021

Impaired Loans as of September 30, 2021

Total Recorded

43 unchanged sentences

The following tables show the average recorded investment and interest income recognized for impaired loans.

For the Six Months Ended

June 30, 2021

Investment (1)

Consumer Real Estate (2)

Investor-owned residential real estate

Commercial Real Estate (2)

Commercial real estate, owner occupied

Commercial real estate, other

Commercial Non Real Estate (2)

Commercial and industrial

Consumer Non Real Estate (2)

$ 6,796  

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

Only classes with impaired loans are shown.

For the Six Months Ended

June 30, 2020

Investment (1)

For the Nine Months Ended September 30, 2021

Average Recorded Investment (1)

Interest Income Recognized

Consumer Real Estate (2)

7 unchanged sentences

$ 6,108  

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

Only classes with impaired loans are shown.

For the Year Ended

December 31, 2020

Investment (1)

For the Year Ended December 31, 2020

Average Recorded Investment (1)

Interest Income Recognized

Consumer Real Estate (2)

10 unchanged sentences

An analysis of past due and nonaccrual loans follows.

June 30, 2021

September 30, 2021

Days Past Due

90 or More Days

Days Past Due

Nonaccruals (2)

Real Estate Construction (1)

Construction, other

Consumer Real Estate (1)

Residential closed-end first liens

Investor-owned residential real estate

Commercial Real Estate (1)

7 unchanged sentences

$ 3,114  

$ 3,822  

Only classes with past-due or nonaccrual loans are shown.

22 unchanged sentences

The following displays collectively-evaluated loans by credit quality indicator.

June 30, 2021

September 30, 2021

Classified (1)

66 unchanged sentences

Excludes impaired, if any.

Determination of risk ratings was completed for the portfolio as of June 30, 2021 and December 31, 2020.

Troubled Debt Restructurings

Total TDRs amounted to $ 6,120 at June 30, 2021, $ 4,249 at December 31, 2020, and $ 4,340 at June 30, 2020.

Determination of risk ratings was completed for the portfolio as of September 30, 2021 and December 31, 2020.

For detail on determination of risk ratings, please refer to the Company’s 2020 Form 10 -K, Note 1:

Summary of Significant Accounting Policies and Note 5:

Allowance for Loan Losses, Nonperforming Assets and Impaired Loans.

Total TDRs amounted to $ 6,084 at September 30, 2021, $ 4,249 at December 31, 2020, and $ 4,292 at September 30, 2020.

All of the Company’s TDR loans are fully funded and no further increase in credit is available.

TDRs Designated During the Reporting Period

During the three months ended June 30, 2021 the Company designated two loans as a TDR.

The restructurings re-amortized the loans and reduced the interest rates to provide cash flow relief.

No principal or interest was forgiven.

The impairment measurement at June 30, 2021 was based upon the collateral method and did not result in a specific allocation.

The following table presents restructurings by class that occurred during the three month period ended June 30, 2021.

Restructurings That Occurred During the Three Months

Ended June 30, 2021

Pre-Modification

Principal Balance

Post-Modification

Principal Balance

Commercial Real Estate

Commercial real estate, other

$ 2,724  

During the six months ended June 30, 2021 the Company designated three loans as a TDR.

For one loan, the restructurings shifted the payment structure from interest-only to amortizing and reduced the interest rate to provide cash flow relief.

For two of the loans, the restructuring re-amortized the loans and reduced the interest rate to provide cash flow relief.

The Company did not designate any loans as TDR during the three months ended September 30, 2021.

During the nine months ended September 30, 2021 the Company designated three loans as a TDR.

The restructuring of the commercial real estate owner-occupied loan provided cash flow relief to the borrower by shifting the payment structure from interest-only to amortizing and reducing the interest rate.

The restructurings of the two other commercial real estate loans provided cash flow relief by re-amortizing the loans over a longer period and reducing the interest rate.

No principal or interest was forgiven.

The impairment measurement for all three loans at June 30, 2021 was based upon the collateral method and did not result in a specific allocation.

The following table presents restructurings by class that occurred during the six month period ended June 30, 2021.

Restructurings That Occurred During the Six Months Ended

June 30, 2021

The impairment measurement for all three loans at September 30, 2021 was based upon the collateral method and did not result in a specific allocation.

The following table presents restructurings by class that occurred during the nine month period ended September 30, 2021.

Restructurings That Occurred During the Nine Months Ended September 30, 2021

Pre-Modification

7 unchanged sentences

$ 2,826  

The Company did not modify any loans in troubled debt restructurings during the three or six month periods ended June 30, 2020.

The Company did not modify any loans in TDRs during the three or nine month periods ended September 30, 2020.

Defaulted TDRs

The Company analyzed its TDR portfolio for loans that defaulted during the three and six month periods ended June 30, 2021 and June 30, 2020, and that were modified within 12 months prior to default.

The Company analyzed its TDR portfolio for loans that defaulted during the three and nine month periods ended September 30, 2021 and September 30, 2020, and that were modified within 12 months prior to default.

The Company designates three circumstances that indicate default:

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

Of the Company’s TDRs at June 30, 2021 and June 30, 2020, none of the defaulted TDRs were modified within 12 months prior to default.

All of the defaulted TDRs were in nonaccrual status as of June 30, 2021 and June 30, 2020.

Of the Company’s TDRs at September 30, 2021 and September 30, 2020, none of the defaulted TDRs were modified within 12 months prior to default.

All of the defaulted TDRs were in nonaccrual status as of September 30, 2021 and September 30, 2020.

The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities available for sale by major security type are as follows.

June 30, 2021

September 30, 2021

Available for Sale:

Government agencies and corporations

$ 220,372  

$ 3,062  

$ 3,243  

$ 220,191  

States and political subdivisions

196,518  

199,307  

Mortgage-backed securities

215,661  

218,752  

Corporate debt securities

Total securities available for sale

$ 635,555  

$ 11,575  

$ 5,644  

$ 641,486  

December 31, 2020

1 unchanged sentence

Government agencies and corporations

$ 86,859  

$ 4,477  

$ 91,163  

States and political subdivisions

196,435  

203,961  

Mortgage-backed securities

244,780  

249,175  

Corporate debt securities

Total securities available for sale

The amortized cost and fair value of single maturity securities available for sale at June 30, 2021, by contractual maturity, are shown below.

$ 530,075  

$ 17,170  

$ 546,742  

The amortized cost and fair value of single maturity securities available for sale at September 30, 2021, 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.

June 30, 2021

September 30, 2021

Amortized Cost

1 unchanged sentence

Due in one year or less

$ 1,864  

$ 1,902  

Due after one year through five years

Due after five years through ten years

264,217  

265,751  

Due after ten years

360,752  

365,048  

Total securities available for sale

$ 635,555  

$ 641,486  

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

June 30, 2021

September 30, 2021

Less Than 12 Months

2 unchanged sentences

Government agencies and corporations

$ 156,418  

$ 3,190  

States and political subdivisions

71,912  

Mortgage-backed securities

10,229  

Corporate debt securities

$ 239,535  

$ 5,131  

$ 15,116  

December 31, 2020

3 unchanged sentences

Government agencies and corporations

$ 28,798  

States and political subdivisions

32,353  

Mortgage-backed securities

The Company has 145 securities with a fair value of $ 167,081 that are temporarily impaired at June 30, 2021.  

$ 69,967  

$ 4,695  

The Company has 229 securities with a fair value of $ 254,651 that are temporarily impaired at September 30, 2021.  

The total unrealized loss on these securities is $ 5,644 .

Of the temporarily impaired securities, eight securities with a fair value of $ 12,896 and an unrealized loss of $ 311 have been in a continuous loss position for twelve months or more.

The Company determined that these eight securities are temporarily impaired at June 30, 2021 for the reasons set out below.

Of the temporarily impaired securities, 10 securities with a fair value of $ 15,116 and an unrealized loss of $ 513 have been in a continuous loss position for twelve months or more.

The Company determined that these 10 securities are temporarily impaired at September 30, 2021 for the reasons set out below.

Government agencies and corporations.

The unrealized loss of $ 53 on US Government agency securities stemmed from one security with a fair value of $ 944 .

The unrealized loss was caused by interest rate and market fluctuations.

The contractual terms of the investment do not permit the issuers to settle the securities at a price less than the cost basis of the investments.

The Company is monitoring bond market trends to develop strategies to address unrealized losses.

Because the Company does not intend to sell the investment and it is not likely that the Company will be required to sell the investment before recovery of the amortized cost basis, which may be at maturity, the Company does not consider the investment to be other-than-temporarily impaired.

States and political subdivisions.

The unrealized loss of $ 190 on state and political subdivision securities stemmed from five securities with a fair value of $ 7,709 .

The unrealized loss of $ 313 on state and political subdivision securities stemmed from six securities with a fair value of $ 9,026 .

The Company reviewed financial statements and cash flows for each of the securities in a continuous loss position for more than 12 months.

The Company’s analysis determined that the unrealized losses are primarily the result of interest rate and market fluctuations and not associated with impaired financial status.

The contractual terms of the investment do not permit the issuer to settle the securities at a price less than the cost basis of each investment.

The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment.

The Company is monitoring bond market trends to develop strategies to address unrealized losses.

3 unchanged sentences

The unrealized loss was caused by interest rate and market fluctuations.

The contractual terms of the investment do not permit the issuer to settle the securities at a price less than the cost basis of each investment.

Because the Company does not intend to sell the investment and it is not likely that the Company will be required to sell the investment before recovery of its amortized cost basis, which may be at maturity, the Company does not consider the investment to be other-than-temporarily impaired.

The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the cost basis of each investment.

Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider the investments to be other-than-temporarily impaired.

Restricted Stock.

The Company held restricted stock of $ 845 as of June 30, 2021 and $ 1,279 at December 31, 2020.

The Company held restricted stock of $ 845 as of September 30, 2021 and $ 1,279 at December 31, 2020.

Restricted stock is reported separately from available for sale securities.

5 unchanged sentences

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 $ 574,203 at June 30, 2021.

Management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at June 30, 2021, management did not determine any impairment.

Management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at September 30, 2021, management did not determine any impairment.

Management regularly monitors the credit quality of the investment portfolio.

4 unchanged sentences

Pension Benefits

Three Months Ended June 30,

Three Months Ended September 30,

Interest cost

4 unchanged sentences

Pension Benefits

Six Months Ended June 30,

Nine Months Ended September 30,

$ 1,083  

Interest cost

5 unchanged sentences

All other components are included in other noninterest expense in the consolidated statements of income.

For the six months ended June 30, 2021, the Company did not make a contribution to the defined benefit plan.

For the nine months ended September 30, 2021, the Company did not make a contribution to the defined benefit plan.

Fair Value Measurements

4 unchanged sentences

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 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.

5 unchanged sentences

Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.

Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company as of June 30, 2021 and December 31, 2020.

Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company as of September 30, 2021 and December 31, 2020.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring and non-recurring basis in the financial statements:

6 unchanged sentences

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 June 30, 2021 and December 31, 2020.

Fair Value Measurements at June 30, 2021 Using

The following tables present the balances of financial assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.

Fair Value Measurements at September 30, 2021 Using

Balance as of

June 30, 2021

September 30,

Quoted Prices

17 unchanged sentences

Identical Assets

Unobservable 

Government agencies and corporations

15 unchanged sentences

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 the valuation process.

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.

15 unchanged sentences

Changes in fair value measurement impacts net income.

Fair Value Measurements at June 30, 2021 Using

Fair Value Measurements at September 30, 2021 Using

Balance as of

September 30,

Quoted Prices

8 unchanged sentences

Forward contracts

June 30, 2021

September 30, 2021

Valuation Technique

4 unchanged sentences

Pull-through rate

71.90 % - 85.00 % (78.60%)

85.00% (2)  

Forward contracts

1 unchanged sentence

Pull-through rate

71.90 % - 85.00 % (78.60%)

85.00% (2)  

Interest rate loan contracts

37 unchanged sentences

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 June 30, 2021 or December 31, 2020.

No nonrecurring fair value adjustments were recorded on loans held for sale at September 30, 2021 or December 31, 2020.

Impaired Loans

12 unchanged sentences

Appraisals or real estate evaluations prepared by a third party may be used to value loans with principal balances below these thresholds.

Appraisals of less than 24 months of age, conducted by independent, licensed appraisers using observable market data analyzed through an income or sales valuation approach result in Level 2 categorization.

If a current appraisal cannot be obtained prior to a reporting date and an existing appraisal is discounted to obtain an estimated value, or if declines in value are identified after the date of the appraisal, or if an appraisal is discounted for estimated selling costs, or if the appraisal uses unobservable market data, the valuation of real estate collateral is categorized as Level 3.

Appraisals of less than 24 months of age, conducted by independent, licensed appraisers using observable market data analyzed through an income or sales valuation approach result in Level 2 categorization.

If a current appraisal cannot be obtained prior to a reporting date and an existing appraisal is discounted to obtain an estimated value, or if declines in value are identified after the date of the appraisal, or if an appraisal is discounted for estimated selling costs, or if the appraisal uses unobservable market data, the valuation of real estate collateral is categorized as Level 3.

Valuations based on evaluations are categorized as Level 3.

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 

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 ).

If a current appraisal uses unobservable data as part of the assessment, the value of the collateral is classified as Level 3.

As of June 30, 2021, fair valuation procedures did not result in any individual allocation for impaired loans.

As of September 30, 2021, fair valuation procedures did not result in any individual allocation for impaired loans.

The following table summarizes the Company’s impaired loans that were measured at fair value on a nonrecurring basis at December 31, 2020.

15 unchanged sentences

Unobservable inputs were weighted by the relative fair value of the impaired loans.

Impaired loans using the fair value measurement included a single loan.

At December 31, 2020, all impaired loans measured at fair value on a nonrecurring basis were measured using the present value of cash flows.

11 unchanged sentences

Identical Assets

June 30, 2021

September 30, 2021

OREO, net of valuation allowance

$ 1,007  

December 31, 2020

OREO, net of valuation allowance

The following tables present information about Level 3 Fair Value Measurements for June 30, 2021 and December 31, 2020.

June 30, 2021

The following tables present information about Level 3 Fair Value Measurements for September 30, 2021 and December 31, 2020.

September 30, 2021

Valuation Technique

2 unchanged sentences

Discounted appraised value

6.00 % - 6.20 % (6.19%) (2)

Discounted appraised value

Discount for lack of marketability and age of appraisal

0.00 % - 33.76 % (2.54%) (1)

6.20% (3)  

December 31, 2020

12 unchanged sentences

Selling costs do not discount appraised value if the Company markets the OREO property independently or if the OREO property is listed with a realtor and the list price less estimated selling costs exceeds appraised value.

At June 30, 2021 and December 31, 2020, OREO properties were measured using appraised value, and if applicable, discounted by selling costs, lack of marketability and age of appraisal.

As of September 30, 2021, the Company held one OREO property

At September 30, 2021 and December 31, 2020, OREO properties were measured using appraised value, and if applicable, discounted by selling costs, lack of marketability and age of appraisal.

Determining the discount to appraisals for selling cost and lack of marketability and age of the appraisal relies on certain key assumptions and judgements.

6 unchanged sentences

There is uncertainty in determining discounts to appraised value.

Future changes to marketability assumptions or updated appraisals may indicate in lower fair value, with a corresponding impact to net income.

Future changes to marketability assumptions or updated appraisals may indicate lower fair value, with a corresponding impact to net income.

Fair Value Summary

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2021 and December 31, 2020.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2021 and December 31, 2020.

For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.

For non-marketable equity securities, the carrying amount is a reasonable estimate of fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution.

For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

Fair values are estimated using the exit price notion.

June 30, 2021

September 30, 2021

Quoted Prices in

1 unchanged sentence

Identical Assets

Significant Other Observable Inputs

Significant Other

Observable Inputs

Financial Assets:

15 unchanged sentences

42,108  

Interest rate loan contracts

Forward contracts

Financial Liabilities:

3 unchanged sentences

Accrued interest payable

Forward contracts

Interest rate loan contracts

December 31, 2020

29 unchanged sentences

Components of Accumulated Other Comprehensive Income (Loss)

The following tables present the components of accumulated other comprehensive income (loss) for the three months ended June 30, 2021 and June 30, 2020.

The following tables present the components of accumulated other comprehensive income (loss) for the three months ended September 30, 2021 and September 30, 2020.

Net Unrealized

Gain (Loss) on

Adjustments Related

3 unchanged sentences

Income (Loss)

Balance at March 31, 2020

Balance at June 30, 2020

$ 9,518  

1 unchanged sentence

Reclassification adjustment, net of tax of ($ 3 )

Balance at June 30, 2020

Balance at September 30, 2020

$ 11,763  

Balance at March 31, 2021

Unrealized holding gain on available for sale securities net of tax of $ 1,922

$ 3,181  

Balance at June 30, 2021

$ 8,089  

The following tables present the components of accumulated other comprehensive income (loss) for the six months ended June 30, 2021 and June 30, 2020.

Unrealized holding loss on available for sale securities net of tax of ($ 905 )

Balance at September 30, 2021

$ 4,686  

The following tables present the components of accumulated other comprehensive income (loss) for the nine months ended September 30, 2021 and September 30, 2020.

Net Unrealized

Gain (Loss) on

on Securities

Adjustments Related

5 unchanged sentences

Unrealized holding gain on available for sale securities, net of tax of $ 3,127

11,763  

Reclassification adjustment, net of tax of ($ 20 )

Balance at June 30, 2020

Balance at September 30, 2020

$ 11,763  

$ 3,181  

Balance at December 31, 2020

3 unchanged sentences

Reclassification adjustment, net of tax of ($ 1 )

Balance at June 30, 2021

Balance at September 30, 2021

$ 4,686  

38 unchanged sentences

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 three and six months ended June 30, 2021 and June 30, 2020.

Three Months Ended June 30,

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2021 and September 30, 2020.

Three Months Ended September 30,

Noninterest Income

11 unchanged sentences

$ 1,926  

Six Months Ended June 30,

Nine Months Ended September 30,

Noninterest Income

1 unchanged sentence

Service charges on deposit accounts

$ 1,488  

$ 1,430  

Other service charges and fees

29 unchanged sentences

Each of the three leases provides two options of five years each.

For one of the leases, the Company is reasonably certain it will exercise one option of five years and has included the additional time and lease payments in the calculation of the lease liability.

The Company is reasonably certain it will exercise one option of five years on one lease and has included the additional time and lease payments in the calculation of the lease liability.

The lease agreement provides that the lease payment will increase at the exercise date based on the CPI-U.

3 unchanged sentences

The following tables present information about leases:

June 30, 2021

September 30, 2021

December 31, 2020

Lease liability

$ 1,790  

$ 2,016  

Right-of-use asset

$ 1,766  

$ 1,998  

Weighted average remaining lease term (in years)

Weighted average discount rate

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Lease Expense

4 unchanged sentences

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

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Lease Expense

6 unchanged sentences

Undiscounted Cash Flow for the Period

June 30, 2021

Twelve months ending June 30, 2022

Twelve months ending June 30, 2023

Twelve months ending June 30, 2024

Twelve months ending June 30, 2025

Twelve months ending June 30, 2026

September 30, 2021

Twelve months ending September 30, 2022

Twelve months ending September 30, 2023

Twelve months ending September 30, 2024

Twelve months ending September 30, 2025

Twelve months ending September 30, 2026

Total undiscounted cash flows

$ 1,975  

Lease liability

$ 1,790  

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

1 unchanged sentence

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

What changed 10-Q

Item 1. Financial Statements