What changed in this filing

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Item 1. Business

2023-03-10 compared with 2022-03-11 · 68 added, 60 removed, 276 unchanged (32% of the section changed)

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common stock is listed on the Nasdaq Capital Market and is traded under the symbol “NKSH.”

 It conducts most of its operations through its wholly-owned community bank subsidiary, the National Bank of Blacksburg (the “Bank”

or “NBB”).

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The National Bank of Blacksburg, which does business as National Bank, was originally chartered in 1891 as the Bank of Blacksburg.

Its state charter was converted to a national charter in 1922 and it became the National Bank of Blacksburg. 

In 2004, NBB purchased Community National Bank of Pulaski, Virginia.

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

NBB is community-oriented and offers a full range of retail and commercial banking services to individuals, businesses, non-profits and local governments from its headquarters in Blacksburg, Virginia, 23 branch offices throughout southwest Virginia and one loan production office in Roanoke, Virginia.

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

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

Twenty-five branches are located throughout southwest Virginia, and three loan production offices are located in Roanoke, Charlottesville, and Staunton, Virginia.

NBB offers telephone, mobile and internet banking and it operates 22 automated teller machines (“ATMs”) in its service area.

The Bank’s primary source of revenue stems from lending activities. 

The Bank focuses lending on small and mid-sized businesses and individuals.

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NBB offers other miscellaneous services normally provided by commercial banks, such as letters of credit, night depository, safe deposit boxes, utility payment services and automatic funds transfer.

NBB conducts a general trust business that has wealth management, trust and estate services for individual and business customers. 

The COVID-19 pandemic continues to present significant challenges and uncertainty. 

In May of 2021, the Bank reopened branch lobbies after serving customers through drive-through and online channels for over a year. 

Federal aid has benefitted the Bank’s depositors and has increased deposit balances, while programs benefitting borrowers provided the Bank with increased loan income.

The Company continues to carefully monitor COVID-19 pandemic related developments.

NBB conducts a general trust business that has wealth management, trust and estate services for individual and business customers.

At December 31, 2022, NBB had total assets of $1,674,446 and total deposits of $1,558,106.

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The following table displays components that contributed 15% or more of the Company’s total operating revenue.

Percentage of Total Operating Revenue For the Year Ended December 31,

Percentage of Total Operating Revenue

For the Year Ended December 31,

Revenue Component

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Noninterest Income

The Company serves customers through its offices in southwest Virginia, including the counties of Montgomery, Giles, Tazewell, Washington, Wythe, Roanoke and Pulaski, as well as the cities of Galax, Radford and Roanoke. 

The Company’s market area also includes neighboring counties and cities, including the Virginia counties of Carroll, Grayson, Smyth, Botetourt, Craig, Russell and Bland, and cities of Salem and Bristol, the southernmost tip of West Virginia including the counties of Mercer, Monroe and McDowell, the North Carolina counties of Surry and Alleghany and the Tennessee city of Bristol and counties of Washington and Sullivan.

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

Virginia Tech, located in Blacksburg, Virginia, is the area’s largest employer and is Virginia’s second largest university.

In recent years, Virginia Tech’s Corporate Research Center has brought a number of technology-related companies to Montgomery County.

In addition to education, the market area has a diverse economic base with manufacturing, agriculture, tourism, healthcare, retail and service industries.

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

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

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

In addition to education, the market area has a diverse economic base with manufacturing, agriculture, tourism, healthcare, retail and service industries.

Large manufacturing facilities in the region include Celanese Acetate, the largest employer in Giles County, and Volvo Heavy Trucks, the largest company in Pulaski County.

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

Montgomery County, Bluefield in Tazewell County and Abingdon in Washington County are regional retail centers and have facilities to provide basic health care for the region. 

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

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

The region has had success attracting retirees, particularly from the Northeast and urban northern Virginia. Because NBI’s market area is economically diverse and includes large public employers, it has historically avoided the most extreme effects of past economic downturns.

The region has had success attracting retirees, particularly from the Northeast and urban northern Virginia.

Because NBI’s market area is economically diverse and includes large public employers, it has historically avoided the most extreme effects of past economic downturns.

Future economic challenges may impact unemployment and other economic indicators that could negatively affect the Company’s market.

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In order to compete, NBB relies upon a deep knowledge of its markets, a service-based business philosophy, personal relationships with customers, specialized services tailored to meet customers’

needs and the convenience of office locations.

In addition, the Bank is generally competitive with other financial institutions in its market area with respect to interest rates paid on deposit accounts, interest rates charged on loans and other service charges on loans and deposit accounts.

needs and the convenience of office locations and technological access.

In addition, the Bank is competitive with other financial institutions in its market area with respect to interest rates paid on deposit accounts, interest rates charged on loans and other service charges on loans and deposit accounts.

Organization and Employment

NBI, NBB and NBFS are organized in a holding company/subsidiary structure.

At December 31, 2021, NBB had 218 full time equivalent employees and NBFS had 3 full time equivalent employees.

As of December 31, 2022, NBB had 227 full time equivalent employees and NBFS had 4 full time equivalent employees.

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

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NBI is required to report to the Commission with respect to its financial condition, operations and management.

The Commission may also make examinations of any bank holding company and its subsidiaries and must approve the acquisition by a Virginia bank holding company of ownership or control of more than 5% of the voting shares of any Virginia bank or bank holding company.

The Commission may also make examinations of any bank holding company and its subsidiaries and must approve the acquisition by a Virginia bank holding company of ownership or control of more than 5% of the voting shares of any Virginia bank or bank holding company.

The Gramm-Leach-Bliley Act.

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Capital and Related Requirements.

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

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

The Company qualifies as a small bank holding company and is no longer subject to regulatory capital requirements on a consolidated basis.

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

The Company qualifies as a small bank holding company.

The Bank continues to be subject to various capital requirements administered by banking agencies as described below.

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

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

Source of Strength.

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NBB received a “satisfactory”

rating in its last CRA examination by the OCC.

In May 2022, the federal bank regulatory agencies jointly issued a proposed rule intended to strengthen and modernize the CRA regulatory framework. 

If implemented, the rule would, among other things, (i) expand access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry, including internet and mobile banking, (iii) provide greater clarity, consistency and transparency in the application of the regulations and (iv) tailor performance standards to account for differences in bank size, business model, and local conditions.

Privacy Legislation .

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The FDIC may adjust assessments if the insured institution’s risk profile changes or if the size of the DIF declines in relation to the total amount of insured deposits.

An institution’s assessment base is consolidated total assets less its average tangible equity as defined by the FDIC.

The FDIC has authority to impose special measures to boost the deposit insurance fund such as prepayments of assessments and additional special assessments.

An institution’s assessment base is consolidated total assets less its average tangible equity as defined by the FDIC. 

In October 2022, the FDIC adopted a final rule to increase the assessment base rate schedules uniformly by two basis points beginning with the first quarterly assessment period of 2023. The FDIC has authority to impose special measures to boost the deposit insurance fund such as prepayments of assessments and additional special assessments.

After giving primary regulators an opportunity to first take action, the FDIC may initiate an enforcement action against any depository institution it determines is engaging in unsafe or unsound actions or which is in an unsound condition, and the FDIC may terminate that institution’s deposit insurance.

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Minimum Ratio

Minimum Ratio With

Capital Conservation

Common Equity Tier 1 Capital to Risk Weighted Assets

Tier 1 Capital to Risk Weighted Assets

Minimum Ratio With Capital

Conservation Buffer

Total Capital to Risk Weighted Assets

Leverage Ratio

Tier 1 Capital to Risk Weighted Assets

Common Equity Tier 1 Capital to Risk Weighted Assets

Tier 1 Capital to Average Assets (Leverage Ratio)

Risk-weighted assets are assets on the balance sheet as well as certain off-balance sheet items, such as standby letters of credit, to which weights between 0% and 1250% are applied, according to the risk of the asset type.

Common Equity Tier 1 Capital (“CET1”) is capital according to the balance sheet, adjusted for goodwill and intangible assets and other prescribed adjustments.

At NBB’s election, CET1 is also adjusted to exclude accumulated other comprehensive income.

At NBB’s election, CET1 is also adjusted to exclude accumulated other comprehensive (loss) income.

Tier 1 Capital is CET1 adjusted for additional capital deductions.

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

The CBLR framework eliminates the requirement to comply with capital ratios disclosed above and, instead, requires the disclosure of a single leverage ratio, with a minimum requirement of 9%. The Bank has not opted in to the CBLR framework at this time.

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

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

In December 2017, the Basel Committee on Banking Supervision published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).

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The Dodd-Frank Act permits the OCC to approve applications by national banks like NBB to establish de novo branches in any state in which a bank located in that state is permitted to establish a branch.

Mortgage Banking Regulation. 

NBB is subject to rules and regulations that, among other things, establish standards for mortgage loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers, in some cases restrict certain loan features and fix maximum interest rates and fees, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.

NBB is also subject to rules and regulations that require the collection and reporting of significant amounts of information with respect to mortgage loans and borrowers. 

NBB’s mortgage origination activities are subject to the Federal Reserve’s Regulation Z, which implements the Truth in Lending Act.

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Enforcement actions may be taken against a financial institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the institution’s safety and soundness and the financial institution is not taking prompt and effective measures to correct the deficiencies.

As of December 31, 2021, the Company had not been made aware of any instances of non-compliance with the final guidance.

As of December 31, 2022, the Company had not been made aware of any instances of non-compliance with the final guidance. 

In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback”

of excess incentive compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.

In February 2023, The Nasdaq Stock Market, LLC posted its initial rule filing with the SEC to implement this directive.

The final rule will require us to adopt a clawback policy that is compliant with the new listing standard within 60 days after such standard becomes effective.

Cybersecurity .

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If the Company fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

On November 18, 2021, the federal bank regulatory agencies issued a final rule, effective April 1, 2022, imposing new notification requirements for cybersecurity incidents. 

The rule requires financial institutions to notify their primary federal regulator as soon as possible and no later than 36 hours after the institution determines that a cybersecurity incident has occurred that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the institution’s:

(i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business, (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value, or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.

In March 2022, the SEC proposed rules that would require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance.

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

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

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

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

Among other things, the CARES Act and CAA include provisions impacting financial institutions, such as temporarily modifying the CBLR framework, as well as the following:

Temporary Troubled Debt Restructurings Relief .

The CARES Act allowed banks to elect to suspend requirements under U.S.

generally accepted accounting principles (“GAAP”) for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a troubled debt restructuring (“TDR”), including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national emergency or December 31, 2020. 

Federal banking agencies were required to defer to the determination of the banks making such suspension. 

The CAA extended this temporary relief until the earlier of 60 days after the termination date of the national emergency or January 1, 2022.

Small Business Administration Paycheck Protection Program .

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

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

Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act (the “

CARES Act ”

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

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

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

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

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Offices and Positions Held

Year Elected an Officer/Director

Year Elected an Officer

National Bankshares, Inc.:

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Chairman, September 2017 to Present;

President & CEO, July 2014 to Present;

President and CEO, July 2014 to Present;

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

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Treasurer, June 2011 to Present.

National Bankshares, Inc.:

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

The National Bank of Blacksburg:

Senior Vice President/Operations & Risk Management & CFO, January 2009 to Present;

Senior Vice President/Operations & Risk Management, February 2008 – January 2009;

Vice President/Operations & Risk Management, April 2004 - February 2008.

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

Senior Vice President/Operations and Risk Management, February 2008 – January 2009;

Vice President/Operations and Risk Management, April 2004 – February 2008.

National Bankshares, Inc.:

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

National Bankshares, Inc.:

Corporate Secretary, June 2016 to Present.

The National Bank of Blacksburg:

Senior Vice President/Administration, January 2018 to Present.

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

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

National Bankshares, Inc.:

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Senior Vice President/Loans, August 2012 – August 2016.

National Bankshares, Inc.:

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

The National Bank of Blacksburg:

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

Vice President/Controller, May 2014 – May 2022;

Corporate Analysis Officer June 2011 – May 2014.

The National Bank of Blacksburg:

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

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

What changed 10-K

Item 1. Business