NATIONAL BANKSHARES INC 10-Q

Item 1. Financial Statements     Financial Information   National Bankshares, Inc. Consolidated Balance Sheets       (Unaudited)               March 31,     December 31,   (in thousands, except share and per share data)   2023     2022   Assets                 Cash and due from banks   $ 11,695     $ 12,403   Interest-bearing deposits     42,966       59,026   Securities available for sale, at fair value     651,047       656,852   Restricted stock, at cost     929       941   Loans:                 Loans, net of unearned income and deferred fees and costs     856,965       852,744   Less allowance for credit losses     ( 10,650 )     ( 8,225 ) Loans, net     846,315       844,519   Premises and equipment, net     10,431       10,371   Accrued interest receivable     6,007       6,001   Other real estate owned, net     662       662   Goodwill     5,848       5,848   Bank-owned life insurance     43,551       43,312   Other assets     34,826       37,616   Total assets   $ 1,654,277     $ 1,677,551                     Liabilities and Stockholders' Equity                 Noninterest-bearing demand deposits   $ 311,137     $ 327,713   Interest-bearing demand deposits     871,748       933,269   Savings deposits     202,996       214,114   Time deposits     125,571       67,629   Total deposits     1,511,452       1,542,725   Accrued interest payable     314       106   Other liabilities     11,468       12,033   Total liabilities     1,523,234       1,554,864   Commitments and contingencies     -       -   Stockholders' Equity                 Preferred stock, no par value, 5,000,000 shares authorized; none issued and outstanding     -       -   Common stock of $ 1.25 par value. Authorized 10,000,000 shares; issued and outstanding 5,889,687 shares at March 31, 2023 and December 31, 2022     7,362       7,362   Retained earnings     195,718       199,091   Accumulated other comprehensive loss, net     ( 72,037 )     ( 83,766 ) Total stockholders' equity     131,043       122,687   Total liabilities and stockholders' equity   $ 1,654,277     $ 1,677,551     See accompanying notes to consolidated financial statements.   3 Table of Contents     National Bankshares, Inc. Consolidated Statements of Income Three Months Ended March 31, 2023 and 2022 (Unaudited)       March 31,   (in thousands, except share and per share data)   2023     2022   Interest Income                 Interest and fees on loans   $ 9,333     $ 8,100   Interest on interest-bearing deposits     228       49   Interest on securities – taxable     4,118       2,473   Interest on securities – nontaxable     365       428   Total interest income     14,044       11,050                     Interest Expense                 Interest on time deposits     359       37   Interest on other deposits     2,454       618   Interest on borrowings     285       -   Total interest expense     3,098       655   Net interest income     10,946       10,395   Provision for credit losses     2       134   Net interest income after provision for credit losses     10,944       10,261                     Noninterest Income                 Service charges on deposit accounts     592       562   Other service charges and fees     53       55   Credit and debit card fees, net     467       440   Trust income     445       443   BOLI income     239       238   Gain on sale of mortgage loans     16       61   Gain on sale of securities     12       -   Other income     375       492   Total noninterest income     2,199       2,291                     Noninterest Expense                 Salaries and employee benefits     4,434       3,978   Occupancy, furniture and fixtures     542       492   Data processing and ATM     873       787   FDIC assessment     117       111   Net costs of other real estate owned     11       10   Franchise taxes     375       362   Professional services     753       225   Other operating expenses     559       648   Total noninterest expense     7,664       6,613   Income before income taxes     5,479       5,939   Income tax expense     948       1,053   Net Income   $ 4,531     $ 4,886   Basic and fully diluted net income per common share   $ 0.77     $ 0.81   Weighted average number of common shares outstanding, basic and diluted     5,889,687       6,047,230   Dividends declared per common share   $ 1.00     $ -     See accompanying notes to consolidated financial statements.   4 Table of Contents     National Bankshares, Inc. Consolidated Statements of Comprehensive Income (Loss) Three Months Ended March 31, 2023 and 2022 (Unaudited)       March 31,   (in thousands)   2023     2022   Net Income   $ 4,531     $ 4,886                     Other Comprehensive Income (Loss), Net of Tax                 Unrealized holding gain (loss) on available for sale securities net of tax of $ 3,121 and ( $8,992) for the periods ended March 31, 2023 and March 31, 2022, respectively     11,738       ( 33,826 ) Reclassification adjustment for gain included in net income, net of tax of ($3) in 2023     ( 9 )     -   Other comprehensive income (loss), net of tax     11,729       ( 33,826 ) Total Comprehensive Income (Loss)    $ 16,260     $ ( 28,940 )   See accompanying notes to consolidated financial statements.   5 Table of Contents        National Bankshares, Inc. Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended March 31, 2023 and 2022   (in thousands except per share and share data)   Common Stock     Retained Earnings     Accumulated Other Comprehensive Loss     Total   Balances at December 31, 2021   $ 7,580     $ 188,229     $ ( 4,058 )   $ 191,751   Net income     -       4,886       -       4,886   Common stock repurchased, 41,185 shares     ( 52 )     ( 1,470 )     -       ( 1,522 ) Other comprehensive loss, net of tax of ($8,992)     -       -       ( 33,826 )     ( 33,826 ) Balances at March 31, 2022   $ 7,528     $ 191,645     $ ( 37,884 )   $ 161,289                                     Balances at December 31, 2022   $ 7,362     $ 199,091     $ ( 83,766 )   $ 122,687   Adoption of ASU 2016-13     -       ( 2,014 )     -       ( 2,014 ) Net income     -       4,531       -       4,531   Cash dividends of $ 1.00 per share     -       ( 5,890 )     -       ( 5,890 ) Other comprehensive income, net of tax of $ 3,118     -       -       11,729       11,729   Balances at March 31, 2023   $ 7,362     $ 195,718     $ ( 72,037 )   $ 131,043     See accompanying notes to consolidated financial statements.   6 Table of Contents     National Bankshares, Inc. Consolidated Statements of Cash Flows Three Months Ended March 31, 2023 and 2022 (Unaudited)       March 31,     March 31,   (in thousands)   2023     2022   Cash Flows from Operating Activities                 Net income   $ 4,531     $ 4,886   Adjustments to reconcile net income to net cash provided by operating activities:                 Provision for credit losses     2       134   Depreciation of bank premises and equipment     163       154   Amortization of premiums and accretion of discounts, net     253       359   Gain on sales of securities available for sale, net     ( 12 )     -   Gains on sales of repossessed assets     5       -   Increase in cash value of bank-owned life insurance     ( 239 )     ( 238 ) Origination of mortgage loans held for sale     ( 1,239 )     ( 2,333 ) Proceeds from sale of mortgage loans held for sale     1,255       3,009   Gain on sale of mortgage loans held for sale     ( 16 )     ( 61 ) Net change in:                 Accrued interest receivable     ( 6 )     ( 329 ) Other assets     200       479   Accrued interest payable     208       3   Other liabilities     ( 772 )     622   Net cash provided by operating activities     4,333       6,685                     Cash Flows from Investing Activities                 Proceeds from calls, principal payments, sales and maturities of securities available for sale     20,411       13,890   Purchase of securities available for sale     -       ( 70,341 ) Net change in restricted stock     12       ( 96 ) Purchase of loan participations     ( 2,280 )     ( 4,687 ) Collection of loan participations     3,126       92   Loan originations and principal collections, net     ( 5,166 )     ( 11,545 ) Proceeds from sale of repossessed assets     9       -   Recoveries on loans charged off     173       40   Proceeds from sale and purchases of premises and equipment, net     ( 223 )     ( 196 ) Net cash provided by (used in) investing activities     16,062       ( 72,843 )                   Cash Flows from Financing Activities                 Net change in time deposits     57,942       ( 2,119 ) Net change in other deposits     ( 89,215 )     51,285   Common stock repurchased     -       ( 1,522 ) Cash dividends paid     ( 5,890 )     -   Net cash (used in) provided by financing activities     ( 37,163 )     47,644   Net change in cash and due from banks     ( 16,768 )     ( 18,514 ) Cash and due from banks at beginning of period     71,429       138,789   Cash and due from banks at end of period   $ 54,661     $ 120,275               (Continued)     7 Table of Contents     Supplemental Disclosures of Cash Flow Information                 Interest paid on deposits   $ 2,890     $ 652   Income taxes paid     1,015       -                     Supplemental Disclosure of Noncash Activities                 Loans charged against the allowance for credit losses   $ 92     $ 60   Loans transferred to repossessed assets     7       -   Unrealized holding gain (loss) on securities available for sale     14,847       ( 42,818 ) Lease liabilities arising from obtaining right-of-use assets     -       25     See accompanying notes to consolidated financial statements.   8 Table of Contents     National Bankshares, Inc. Notes to Consolidated Financial Statements March 31, 2023 (Unaudited)   $ in thousands, except per share data   Note 1: General   The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (the “Bank” or “NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. 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 month period ended March 31, 2023 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 2022 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 .   Risks and Uncertainties The Company is closely monitoring risks that may impact its business, including high inflation, along with U.S. monetary policy maneuvers to reduce inflation. Inflation and U.S. monetary policy maneuvers to reduce it may impact the Company’s customers’ demand for banking services and ability to qualify for and/or repay loans. These risks could adversely affect the Company’s business, financial condition, results of operations, cash flows, credit risk, asset valuations and capital position.   Recent Accounting Pronouncements In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020 - 04 “Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued ASU 2021 - 01 “Reference Rate Reform (Topic 848 ): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU 2021 - 01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU 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 a small number of participation loans that reference LIBOR. The Company is working with the primary banks to determine appropriate actions.   In December 2022, the FASB issued ASU 2022 - 06, “Reference Rate Reform (Topic 848 ): Deferral of the Sunset Date of Topic 848”. ASU 2022 - 06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when LIBOR would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for all entities upon issuance. The Company is assessing ASU 2022 - 06 and its impact on the Company’s transition away from LIBOR.   9 Table of Contents     In June 2022, the FASB issued ASU 2022 - 03, “Fair Value Measurement (Topic 820 ): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022 - 03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2022 - 03 to have a material impact on its consolidated financial statements.   Recently Adopted Accounting Standards ASU 2016 - 13 On January 1, 2023, the Company adopted ASU 2016 - 13 “Financial Instruments – Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments” and related ASUs. Prior to adoption, the Company followed applicable GAAP and used an incurred loss model to estimate an allowance for loan losses and a liability for credit risk on unfunded commitments. The Company also used a methodology to determine whether securities in an unrealized loss position were other-than-temporarily impaired and whether credit risk was present. ASU 2016 - 13 makes significant changes to the accounting for credit losses on financial instruments presented on an amortized cost basis and disclosures about them. The new current expected credit loss (“CECL”) impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers historical experience, current conditions and reasonable and supportable forecasts of future economic conditions. The standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses. ASU 2016 - 13 permits the use of estimation techniques that are practical and relevant to the Company’s circumstances, as long as they are applied consistently over time and faithfully estimate expected credit losses in accordance with the standard. The Company applied the standard’s provisions as a cumulative-effect adjustment of $ 2,014 , net of tax, to retained earnings as of January 1, 2023. On the adoption date, the allowance for credit losses (“ACL”) on loans increased from $ 8,225 to $ 10,567 and the ACL for unfunded commitments increased from $ 35 to $ 242 . Based upon the nature and characteristics of our securities portfolios (including issuer specific matters) at the adoption date, macroeconomic conditions and forecasts at that date, and other management judgments, adoption did not result in an ACL on securities available for sale. Results for reporting periods beginning after January 1, 2023 will be presented under Topic 326, while periods prior to January 1, 2023 will be reported in accordance with GAAP applicable for the time period. The following presents the Company’s policies governing determination of the ACL on its financial instruments.   ACL on Securities Available for Sale The Company evaluates securities available for sale that are in an unrealized loss position on the reporting date. Securities are analyzed to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit-related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the consolidated balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be subsequently reversed if conditions change. If the Company intends to sell an impaired security, or more likely than not will be required to sell such a security, before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis would be adjusted to fair value, there would be no ACL in this situation. In evaluating impairment, the Company considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. If the Company determines a credit impairment, the ACL on securities available for sale would be established through a provision for credit losses on securities available for sale in the consolidated Statement of Income. If Management believes it has confirmed that the loss on a security is uncollectible, or when either of the criteria regarding intent or requirement to sell is met, the loss is charged against the ACL. Accrued interest receivable is excluded from the estimate of credit losses.   ACL on Loans (“ACLL”) The Company estimates the ACLL based on amortized cost basis, which is the amount at which the loan is originated, adjusted for net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACLL. Intrinsic to the Company’s policy on estimating the ACLL are policies regarding loan pools, nonaccruals, past due status, collateral valuation, charge-offs and risk ratings. Please refer to the Company’s 2022 Form 10 -K, Note 1: Summary of Significant Accounting Policies for additional information on these policies.   10 Table of Contents     The Company measures expected credit losses on loans on a collective (pool) basis, when the loans share similar risk characteristics, such as collateral type and intended use, repayment source, and (if applicable) the borrower’s business model. The Company has identified the following pools of loans with similar risk characteristics for measuring expected credit losses:   Real Estate Construction Construction, residential Construction, other   Consumer Real Estate Equity lines Residential closed-end first liens Residential closed-end junior liens Investor-owned residential real estate   Commercial Real Estate Multifamily real estate Commercial real estate, owner occupied Commercial real estate, other Commercial Non Real Estate Commercial and industrial   Public Sector and IDA Public sector and IDA   Consumer Non Real Estate Credit cards Automobile Other consumer loans   The Company’s methodologies for estimating the ACLL consider available relevant information about the collectability of cash flows, including historical losses, reasonable and supportable forecasts of economic conditions, and current economic and portfolio conditions. The difference between cash flow estimates and amortized cost is the ACLL.           The Company uses a discounted cash flow (“DCF”) method for all of its pools except for bankcards, which are measured using the historical loss rate adjusted for the forecast. For loans using the DCF method, cash flows are projected at the instrument level and discounted using the loan’s effective interest rate. Cash flows are generated using each loan’s payment attributes, adjusted for pool-level information on the probability of default (“PD”), loss given default and prepayment speeds. Default is defined as full or partial charge-off, nonaccrual status or past due 90 days or more. PDs for each pool are calculated using the Company’s historical data, modified by peer data, to ensure a full economic cycle is reflected in the estimate. PDs are then adjusted for the forecast. The Company designated national unemployment as its forecast variable. Multiple forecasts from reputable and independent third parties are sourced to inform the Company’s reasonable and supportable forecasting of current expected credit losses.  The forecast is applied over a horizon selected by Management at each reporting date, typically of one year and not to exceed two years, after which loss rates revert to long term historical loss experience on a straight line basis over a period determined by Management, of up to three years.  The forecast horizon and reversion period are applied consistently to the entire portfolio.  The results of DCF calculations are modified by allocations for qualitative factors to account for changes in variables that may affect credit risk.  The Company considers and allocates for changes in lending policies, Management experience, economic conditions, loans past due, competitive, legal and regulatory environments and other factors.  Qualitative factors are benchmarked to historical data and are adjusted based upon quantitative analysis.    Loans that do not share risk characteristics are evaluated on an individual basis. The Company designates loans that have been determined to meet the regulatory definitions of “special mention” or “classified” (together known as “criticized”) as individually evaluated. The fair value of individually evaluated loans is measured using the fair value of collateral (“collateral method”) or the DCF method. The collateral method is applied to individually evaluated loans for which foreclosure is probable. The collateral method is also applied to individually evaluated loans when borrowers are experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral (“collateral dependent”). The ACLL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, the ACLL is calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the ACLL is calculated as the amount by which the loan’s amortized cost basis exceeds the fair value of the underlying collateral less estimated cost to sell. The ACLL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan. The DCF method is applied to individually evaluated loans that do not meet the criteria for collateral method measurement. Cash flows are projected and discounted using the same method as for collectively evaluated loans, but the PD is increased to reflect increased risk, up to 100% for nonaccrual loans. Expected credit losses are reflected in the ACLL through a charge to provision for credit losses on the Consolidated Statements of Income. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off against the ACLL. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACLL when received.   11 Table of Contents     ACL on Unfunded Commitments Financial instruments include off-balance sheet credit instruments such as undrawn portions of revolving lines of credit, commercial letters of credit, and loan commitments that have not yet been funded. The contractual amount of those instruments represents the Company’s exposure to credit loss in the event of nonperformance by the borrower.  The Company records an ACL on unfunded commitments, unless the commitments to extend credit are unconditionally cancelable. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the ACLL. The ACL on unfunded commitments is recorded as a liability on the Company’s Consolidated Balance Sheets, included in other liabilities, and is adjusted through the provision for credit loss expense in the Company’s Consolidated Statements of Income.   ASU 2022 - 02 On January 1, 2023, concurrent with its adoption of ASU 2016 - 13, the Company adopted ASU 2022 - 02, “Financial Instruments-Credit Losses (Topic 326 ), Troubled Debt Restructurings and Vintage Disclosures.” The amendments eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. Disclosures about periods prior to adoption will be presented under GAAP applicable for that period. Similar to its policy under previous GAAP, the Company continues to identify modifications to loans and to determine whether the borrower is experiencing financial difficulty. If the Company determines that the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated to determine whether it falls within the regulatory definition of “criticized” and requires individual evaluation. Under previous GAAP, modifications to loans when the borrower was experiencing financial difficulty were designated as TDR and were individually evaluated for the duration of the loan. Under CECL, if a previously modified loan with financial difficulty is subsequently upgraded to a pass rating, it will no longer be individually evaluated.      Note 2: Loans and Allowance for Credit Losses   Loans   The loan portfolio, excluding mortgage loans held for sale, was comprised of the following.       March 31, 2023     December 31, 2022   Real estate construction   $ 54,052     $ 54,579   Consumer real estate     223,438       221,052   Commercial real estate     438,843       437,888   Commercial non real estate     60,516       57,652   Public sector and IDA     47,359       48,074   Consumer non real estate     33,188       33,948   Gross loans     857,396       853,193   Less unearned income and deferred fees and costs     ( 431 )     ( 449 ) Loans, net of unearned income and deferred fees and costs   $ 856,965     $ 852,744   Allowance for credit losses on loans     ( 10,650 )     ( 8,225 ) Total loans, net   $ 846,315     $ 844,519     Accrued interest receivable on loans, which is excluded from the amortized cost of loans, totaled $ 2,558  and $ 2,516  at March 31, 2023 and December  31, 2022, respectively.   12 Table of Contents     Past Due and Nonaccrual Loans   The following tables present the aging of past due loans, by loan pool, as of the dates indicated.       March 31, 2023       Accruing Current Loans     Accruing Loans 30 – 89 Days Past Due     Accruing Loans 90 or More Days Past Due     Nonaccrual Loans     Total Loans     Accruing and Nonaccrual 90 or More Days Past Due   Real Estate Construction                                                 Construction, 1-4 family residential   $ 13,143     $ -     $ -     $ -     $ 13,143     $ -   Construction, other     40,909       -       -       -       40,909       -   Consumer Real Estate                                                 Equity line     14,503       23       -       -       14,526       -   Residential closed-end first liens     121,466       836       27       90       122,419       117   Residential closed-end junior liens     2,476       -       -       -       2,476       -   Investor-owned residential real estate     83,924       93       -       -       84,017       -   Commercial Real Estate                                                 Multifamily residential real estate     131,952       -       -       -       131,952       -   Commercial real estate owner-occupied     124,882       8       -       2,472       127,362       247   Commercial real estate, other     179,529       -       -       -       179,529       1   Commercial Non Real Estate                                                 Commercial and industrial     60,201       62       1       252       60,516       -   Public Sector and IDA                                                 States and political subdivisions     47,359       -       -       -       47,359       -   Consumer Non-Real Estate                                                 Credit cards     4,557       5       1       -       4,563       1   Automobile     10,328       75       -       -       10,403       -   Other consumer loans     18,146       72       4       -       18,222       4   Total   $ 853,375     $ 1,174     $ 33     $ 2,814     $ 857,396     $ 370     13 Table of Contents         December 31, 2022       Accruing Current Loans     Accruing Loans 30 – 89 Days Past Due     Accruing Loans 90 or More Days Past Due     Nonaccrual Loans     Total Loans     Accruing and Nonaccrual 90 or More Days Past Due   Real Estate Construction                                                 Construction, 1-4 family residential   $ 12,538     $ -     $ -     $ -     $ 12,538     $ -   Construction, other     42,041       -       -       -       42,041       -   Consumer Real Estate                                                 Equity line     15,010       16       -       -       15,026       -   Residential closed-end first liens     121,807       750       -       91       122,648       91   Residential closed-end junior liens     2,446       -       -       -       2,446       -   Investor-owned residential real estate     80,524       408       -       -       80,932       -   Commercial Real Estate                                                 Multifamily residential real estate     127,312       -       -       -       127,312       -   Commercial real estate owner-occupied     126,640       -       -       2,493       129,133       252   Commercial real estate, other     181,443       -       -       -       181,443       -   Commercial Non Real Estate                                                 Commercial and industrial     57,373       16       -       263       57,652       -   Public Sector and IDA                                                 States and political subdivisions     48,074       -       -       -       48,074       -   Consumer Non-Real Estate                                                 Credit cards     4,592       3       2       -       4,597       2   Automobile     9,833       102       -       -       9,935       -   Other consumer loans     19,317       93       6       -       19,416       6   Total   $ 848,950     $ 1,388     $ 8     $ 2,847     $ 853,193     $ 351     The following table presents nonaccrual loans, by loan class, as of the dates indicated:       CECL     Incurred Loss       March 31, 2023     December 31, 2022       Nonaccrual Loans     Nonaccrual Loans       With No Allowance     With an Allowance     Total         Consumer Real Estate                                 Residential closed-end first liens   $ -     $ 90     $ 90     $ 91   Commercial Real Estate                                 Commercial real estate owner-occupied     -       2,472       2,472       2,493   Commercial Non Real Estate                                 Commercial and industrial     -       252       252       263   Total   $ -     $ 2,814     $ 2,814     $ 2,847     During the three months ended March 31, 2023, no accrued interest receivable was reversed against interest income.   14 Table of Contents     The following table presents certain past due indicators as of the dates indicated.       March 31,     December 31,       2023     2022     2022   Ratio of ACLL to nonaccrual loans     378.46 %     272.12 %     288.90 % Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs     0.00 %     0.05 %     0.00 %   Allowance for Credit Losses on Loans   The activity in the ACLL by portfolio segment follows:       Activity in the Allowance for Credit Losses on Loans for the Three Months Ended March 31, 2023       Real Estate Construction     Consumer Real Estate     Commercial Real Estate     Commercial Non Real Estate     Public Sector and IDA     Consumer Non Real Estate     Unallocated     Total   Balance, Dec. 31, 2022   $ 450     $ 2,199     $ 3,642     $ 930     $ 319     $ 506     $ 179     $ 8,225   Adoption of ASU 2016-13     ( 21 )     1,261       700       216       ( 15 )     72       129       2,342   Charge-offs     -       -       -       ( 12 )     -       ( 80 )     -       ( 92 ) Recoveries     -       102       12       2       -       57       -       173   Provision for (recovery of) credit losses     22       ( 260 )     20       58       ( 10 )     -       172       2   Balance, March 31, 2023   $ 451     $ 3,302     $ 4,374     $ 1,194     $ 294     $ 555     $ 480     $ 10,650         Activity in the Allowance for Loan Losses for the Three Months Ended March 31, 2022       Real Estate Construction     Consumer Real Estate     Commercial Real Estate     Commercial Non Real Estate     Public Sector and IDA     Consumer Non Real Estate     Unallocated     Total   Balance, Dec. 31, 2021   $ 422     $ 1,930     $ 3,121     $ 1,099     $ 297     $ 444     $ 361     $ 7,674   Charge-offs     -       -       -       -       -       ( 60 )     -       ( 60 ) Recoveries     -       -       12       3       -       25       -       40   Provision for (recovery of) loan losses     171       5       290       ( 158 )     10       6       ( 190 )     134   Balance, March, 31, 2022   $ 593     $ 1,935     $ 3,423     $ 944     $ 307     $ 415     $ 171     $ 7,788         Activity in the Allowance for Loan Losses for the Year Ended December 31, 2022       Real Estate Construction     Consumer Real Estate     Commercial Real Estate     Commercial Non Real Estate     Public Sector and IDA     Consumer Non Real Estate     Unallocated     Total   Balance, Dec. 31, 2021   $ 422     $ 1,930     $ 3,121     $ 1,099     $ 297     $ 444     $ 361     $ 7,674   Charge-offs     -       ( 13 )     -       ( 2 )     -       ( 352 )     -       ( 367 ) Recoveries     -       29       49       11       -       123       -       212   Provision for (recovery of) loan losses     28       253       472       ( 178 )     22       291       ( 182 )     706   Balance, Dec. 31, 2022   $ 450     $ 2,199     $ 3,642     $ 930     $ 319     $ 506     $ 179     $ 8,225     15 Table of Contents     Information about the ACLL for individually evaluated loans and collectively evaluated loans by portfolio segment follows.       Allowance for Credit Losses on Loans as of March 31, 2023       Real Estate Construction     Consumer Real Estate     Commercial Real Estate     Commercial Non Real Estate     Public Sector and IDA     Consumer Non Real Estate     Unallocated     Total   Individually evaluated   $ 1     $ 84     $ 201     $ 148     $ -     $ -     $ -     $ 434   Collectively evaluated     450       3,218       4,173       1,046       294       555       480       10,216   Total   $ 451     $ 3,302     $ 4,374     $ 1,194     $ 294     $ 555     $ 480     $ 10,650         Allowance for Loan Losses as of December 31, 2022       Real Estate Construction     Consumer Real Estate     Commercial Real Estate     Commercial Non Real Estate     Public Sector and IDA     Consumer Non- Real Estate     Unallocated     Total   Individually evaluated   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -   Collectively evaluated     450       2,199       3,642       930       319       506       179       8,225   Total   $ 450     $ 2,199     $ 3,642     $ 930     $ 319     $ 506     $ 179     $ 8,225     Information about individually evaluated loans and collectively evaluated loans by portfolio segment follows.       Loans as of March 31, 2023       Real Estate Construction     Consumer Real Estate     Commercial Real Estate     Commercial Non Real Estate     Public Sector and IDA     Consumer Non Real Estate     Total   Individually evaluated   $ 294     $ 1,061     $ 2,480     $ 295     $ -     $ -     $ 4,130   Collectively evaluated     53,758       222,377       436,363       60,221       47,359       33,188       853,266   Total   $ 54,052     $ 223,438     $ 438,843     $ 60,516     $ 47,359     $ 33,188     $ 857,396         Loans as of December 31, 2022       Real Estate Construction     Consumer Real Estate     Commercial Real Estate     Commercial Non Real Estate     Public Sector and IDA     Consumer Non- Real Estate     Total   Individually evaluated   $ -     $ 186     $ 2,583     $ 263     $ -     $ -     $ 3,032   Collectively evaluated     54,579       220,866       435,305       57,389       48,074       33,948       850,161   Total   $ 54,579     $ 221,052     $ 437,888     $ 57,652     $ 48,074     $ 33,948     $ 853,193     A summary of ratios pertaining to the ACLL follows.       As of and for the       Three Months Ended March 31,     Year Ended December 31,       2023     2022     2022   Ratio of ACLL to the end of period loans, net of unearned income and deferred fees and costs     1.24 %     0.95 %     0.96 % Ratio of net charge-offs (recoveries), annualized, to average loans, net of unearned income and deferred fees and costs     ( 0.04 )%     0.01 %     0.02 %   16 Table of Contents     In accordance with CECL, the Company identifies individually evaluated loans when their risk characteristics become different from their pool. Under previous GAAP, the Company identified loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. When the Company determined that it was probable all principal and interest amounts due would not be collected in accordance with the contractual terms of the loan agreement, the loan was generally deemed impaired and individually evaluated. For further information on the impairment process under previous GAAP, please refer to the Company’s 2022 Annual Report on Form 10 -K. A summary of individually evaluated loans for the dates indicated follows.         Individually Evaluated Loans under Incurred Loss as of December 31, 2022       Principal Balance     Recorded Investment (1)     Recorded Investment (1) for Which There is No Related Allowance     Recorded Investment (1) for Which There is a Related Allowance     Related Allowance   Consumer Real Estate                                         Investor-owned residential real estate   $ 186     $ 186     $ 186     $ -     $ -   Commercial Real Estate                                         Commercial real estate, owner occupied     3,248       2,583       2,583       -       -   Commercial Non Real Estate                                         Commercial and industrial     285       263       263       -       -   Total   $ 3,719     $ 3,032     $ 3,032     $ -     $ -       ( 1 ) Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.   17 Table of Contents     The following tables show the average recorded investment and interest income recognized for individually evaluated loans. Only classes with individually evaluated loans are presented.       For the Three Months Ended March 31, 2022       Average Recorded Investment (1)     Interest Income Recognized   Consumer Real Estate                 Investor-owned residential real estate   $ 190     $ 3   Commercial Real Estate                 Commercial real estate, owner occupied     2,640       1   Commercial real estate, other     2,720       17   Commercial Non-Real Estate                 Commercial and industrial     292       -   Total   $ 5,842     $ 21       ( 1 ) Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.   Collateral Dependent Loans   The Company reviews individually evaluated loans for collateral dependency. As of March 31, 2023, none of the Company’s individually evaluated loans were considered collateral dependent.   Credit Quality   The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, historical payment experience, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. General descriptions of risk ratings are as follows:   ● Pass: loans with acceptable credit quality are rated pass.   ● Special mention: loans with potential weaknesses due to challenging economic or financial conditions are rated special mention.   ● Classified: loans with well-defined weaknesses that heighten the risk of default are rated classified.   18 Table of Contents     The following tables present the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of the date indicated.       Term Loans Amortized Cost Basis by Origination Year                           Balance at March 31, 2023   2019     2020     2021     2022     2023     Prior     Revolving     Revolving Loans Converted to Term     Total   Construction, residential                                                                         Pass   $ -     $ 213     $ 1,370     $ 5,000     $ 554     $ -     $ 6,006     $ -     $ 13,143   Classified     -       -       -       -       -       -       -       -       -   Total   $ -     $ 213     $ 1,370     $ 5,000     $ 554     $ -     $ 6,006     $ -     $ 13,143                                                                             Construction, other                                                                         Pass   $ 1,253     $ 1,502     $ 26,880     $ 5,229     $ 1,573     $ 2,807     $ 1,371     $ -     $ 40,615   Classified     -       -       294       -       -       -       -       -       294   Total   $ 1,253     $ 1,502     $ 27,174     $ 5,229     $ 1,573     $ 2,807     $ 1,371     $ -     $ 40,909                                                                             Equity lines                                                                         Pass   $ -     $ -     $ -     $ -     $ -     $ 53     $ 14,465     $ 8     $ 14,526   Classified     -       -       -       -       -       -       -       -       -   Total   $ -     $ -     $ -     $ -     $ -     $ 53     $ 14,465     $ 8     $ 14,526                                                                             Residential closed-end first liens                                                                   Pass   $ 6,191     $ 15,467     $ 32,829     $ 27,691     $ 4,381     $ 35,532     $ -       -     $ 122,091   Classified     -       27       -       -       -       301       -       -       328   Total   $ 6,191     $ 15,494     $ 32,829     $ 27,691     $ 4,381     $ 35,833     $ -     $ -     $ 122,419                                                                             Residential closed-end junior liens                                                                   Pass   $ 7     $ -     $ 87     $ 405     $ 82     $ 1,895     $ -       -     $ 2,476   Classified     -       -       -       -       -       -       -       -       -   Total   $ 7     $ -     $ 87     $ 405     $ 82     $ 1,895     $ -       -     $ 2,476                                                                             Investor-owned residential real estate                                                                   Pass   $ 5,379     $ 15,052     $ 20,412     $ 14,414     $ 2,301     $ 24,079     $ 1,547     $ 100     $ 83,284   Classified     -       -       -       -       -       733       -       -       733   Total   $ 5,379     $ 15,052     $ 20,412     $ 14,414     $ 2,301     $ 24,812     $ 1,547     $ 100     $ 84,017                                                                             Multifamily residential real estate                                                                   Pass   $ 1,856     $ 11,973     $ 41,285     $ 27,249     $ 4,851     $ 44,731     $ 7       -     $ 131,952   Classified     -       -       -       -       -       -       -       -       -   Total   $ 1,856     $ 11,973     $ 41,285     $ 27,249     $ 4,851     $ 44,731     $ 7       -     $ 131,952                                                                             Commercial real estate, owner occupied                                                                   Pass   $ 19,563     $ 24,191     $ 5,088     $ 16,648     $ 1,899     $ 54,991     $ 2,452       50     $ 124,882   Classified     -       -       -       -       -       2,480       -       -       2,480   Total   $ 19,563     $ 24,191     $ 5,088     $ 16,648     $ 1,899     $ 57,471     $ 2,452       50     $ 127,362                                                                             Commercial real estate, other                                                                   Pass   $ 22,410     $ 19,838     $ 36,961     $ 23,541     $ 262     $ 76,142     $ 375     $ -     $ 179,529   Classified     -       -       -       -       -       -       -       -       -   Total   $ 22,410     $ 19,838     $ 36,961     $ 23,541     $ 262     $ 76,142     $ 375     $ -     $ 179,529                                                                             Commercial and industrial                                                                         Pass   $ 1,064     $ 10,123     $ 15,106     $ 8,959     $ 2,258     $ 6,691     $ 16,020     $ -     $ 60,221   Classified     36       -       -       7       -       252       -       -       295   Total   $ 1,100     $ 10,123     $ 15,106     $ 8,966     $ 2,258     $ 6,943     $ 16,020     $ -     $ 60,516   YTD gross charge-offs   $ 12     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ 12                                                                             Public sector and IDA                                                                         Pass   $ 42     $ 247     $ 18,419     $ 6,650     $ -     $ 22,001     $ -     $ -     $ 47,359   Classified     -       -       -       -       -       -       -       -       -   Total   $ 42     $ 247     $ 18,419     $ 6,650     $ -     $ 22,001     $ -     $ -     $ 47,359                                                                             Credit cards                                                                         Pass   $ -     $ -     $ -     $ -     $ -     $ -     $ 4,563     $ -     $ 4,563   Classified     -       -       -       -       -       -       -       -       -   Total   $ -     $ -     $ -     $ -     $ -     $ -     $ 4,563     $ -     $ 4,563   YTD gross charge-offs   $ -     $ -     $ -     $ -     $ -     $ -     $ 8     $ -     $ 8                                                                             Automobile                                                                         Pass   $ 519     $ 1,119     $ 2,453     $ 4,255     $ 1,884     $ 173     $ -     $ -     $ 10,403   Classified     -       -       -       -       -       -       -       -       -   Total   $ 519     $ 1,119     $ 2,453     $ 4,255     $ 1,884     $ 173     $ -     $ -     $ 10,403   YTD gross charge-offs   $ -     $ -     $ 1     $ 30     $ -     $ -     $ -     $ -     $ 31                                                                             Other consumer                                                                         Pass   $ 543     $ 1,412     $ 3,245     $ 9,416     $ 2,577     $ 174     $ 855     $ -     $ 18,222   Classified     -       -       -       -       -       -       -       -       -   Total   $ 543     $ 1,412     $ 3,245     $ 9,416     $ 2,577     $ 174     $ 855     $ -     $ 18,222   YTD gross charge-offs   $ -     $ -     $ 6     $ 13     $ -     $ -     $ 22     $ -     $ 41                                                                             Total Loans                                                                         Pass   $ 58,826     $ 101,136     $ 204,134     $ 149,458     $ 22,622     $ 273,833     $ 43,098     $ 159     $ 853,266   Classified     36       27       294       7       -       3,766       -       -       4,130   Total   $ 58,862     $ 101,163     $ 204,428     $ 149,465     $ 22,622     $ 277,599     $ 43,098     $ 159     $ 857,396   YTD gross charge-offs   $ 12     $ -     $ 7     $ 43     $ -     $ -     $ 30     $ -     $ 92     19 Table of Contents     The following table presents the recorded investment by loan pool and credit quality as of December 31, 2022.       December 31, 2022       Pass     Special Mention     Classified   Real Estate Construction                         Construction, 1-4 family residential   $ 12,538     $ -     $ -   Construction, other     41,741       -       300   Consumer Real Estate                         Equity lines     15,026       -       -   Residential closed-end first liens     122,187       -       461   Residential closed-end junior liens     2,446       -       -   Investor-owned residential real estate     80,143       -       603   Commercial Real Estate                         Multifamily residential real estate     127,312       -       -   Commercial real estate owner-occupied     126,550       -       -   Commercial real estate, other     181,443       -       -   Commercial Non Real Estate                         Commercial and industrial     57,381       -       8   Public Sector and IDA                         States and political subdivisions     48,074       -       -   Consumer Non-Real Estate                         Credit cards     4,597       -       -   Automobile     9,932       -       3   Other consumer     19,398       -       18   Total   $ 848,768     $ -     $ 1,393     Loan Modifications to Borrowers Experiencing Financial Difficulty   There were no loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023. The Company analyzed its modified loan portfolio for loans that defaulted during the three month period ended March 31 2023, 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 modification. Of the Company’s modifications at March 31, 2023, none of the defaulted modifications were modified within 12 months prior to default.   ACL on Unfunded Commitments   The following table presents the balance and activity in the ACL for unfunded commitments for the three months ended March 31, 2023:   Allowance for Credit Losses on Unfunded Commitments   Balance, December 31, 2022   $ 35   Adoption of ASU 2016-13     207   Provision for credit losses     -   Balance, March 31, 2023   $ 242     20 Table of Contents         Note 3: Securities   The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses are summarized as follows:       March 31, 2023       Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Allowance for Credit Losses     Fair Value   Available for Sale:                                         U.S. Treasuries   $ 993     $ -     $ 46     $ -     $ 947   U.S. Government agencies and corporations     382,592       -       48,648       -       333,944   States and political subdivisions     181,214       3       31,255       -       149,962   Mortgage-backed securities     167,964       -       7,511       -       160,453   Corporate debt securities     6,502       -       761       -       5,741   Total securities available for sale   $ 739,265     $ 3     $ 88,221     $ -     $ 651,047         December 31, 2022       Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value   Available for Sale:                                 U.S. Treasuries   $ 992     $ -     $ 56     $ 936   U.S. Government agencies and corporations     391,538       39       55,002       336,575   States and political subdivisions     190,192       26       38,018       152,200   Mortgage-backed securities     170,694       22       9,239       161,477   Corporate debt securities     6,501       -       837       5,664   Total securities available for sale   $ 759,917     $ 87     $ 103,152     $ 656,852     No allowance for credit loss on securities available for sale was recorded as of March 31, 2023.   The deferred tax asset for the net unrealized loss on securities available for sale was $ 18,526 as of March 31, 2023 and $ 21,644 as of December 31, 2022. The deferred tax asset is included in other assets on the Consolidated Balance Sheets.   The amortized cost and fair value of single maturity securities available for sale at March 31, 2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities included in these totals are categorized by final maturity.       March 31, 2023       Amortized Cost     Fair Value   Available for Sale:                 Due in one year or less   $ 3,229     $ 3,172   Due after one year through five years     148,141       138,200   Due after five years through ten years     316,859       273,664   Due after ten years     271,036       236,011   Total securities available for sale   $ 739,265     $ 651,047     21 Table of Contents     Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous loss position, follows.       March 31, 2023       Less Than 12 Months     12 Months or More       Fair Value     Unrealized Loss     Fair Value     Unrealized Loss   U.S. Treasuries   $ -     $ -     $ 947     $ 46   U.S. Government agencies and corporations     50,869       2,032       283,074       46,616   States and political subdivisions     9,432       1,214       139,371       30,041   Mortgage-backed securities     18,576       242       141,868       7,269   Corporate debt securities     873       127       4,868       634   Total available for sale securities   $ 79,750     $ 3,615     $ 570,128     $ 84,606         December 31, 2022       Less Than 12 Months     12 Months or More       Fair Value     Unrealized Loss     Fair Value     Unrealized Loss   U.S. Treasuries   $ 936     $ 56     $ -     $ -   U.S. Government agencies and corporations     144,574       12,699       190,950       42,303   States and political subdivisions     94,657       18,373       52,134       19,645   Mortgage-backed securities     144,198       7,326       15,165       1,913   Corporate debt securities     4,843       655       821       182   Total temporarily impaired securities   $ 389,208     $ 39,109     $ 259,070     $ 64,043     The Company evaluates securities available for sale that are in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. At March  31, 2023, the Company had  602 securities with a fair value of $ 649,878 in an unrealized loss position. The Company does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the cost basis of the investments. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, the unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions. No allowance for credit losses on securities available for sale was recorded as of March  31, 2023.   Restricted Stock. The Company held restricted stock of $ 929 as of March 31, 2023 and $ 941 at December 31, 2022. Restricted stock is reported separately from available for sale securities. As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. The Company purchases stock from or sells stock back to the correspondents based on their calculations. The stock is held by member institutions only and is not actively traded. Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling $ 646,100 at March 31, 2023. Management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at March 31, 2023, did not determine any impairment.   Realized Securities Gains and Losses During the first three months of 2023, the Company realized net securities gains of $ 12 on the sale of securities with an amortized cost basis of $ 17,987 . The sales were part of the Company’s interest rate risk management strategy. There were no sales of securities during 2022.   22 Table of Contents         Note 4: Defined Benefit Plan             Components of Net Periodic Benefit Cost:       Pension Benefits       Three Months Ended March 31,       2023     2022   Service cost   $ 203     $ 324   Interest cost     273       204   Expected return on plan assets     ( 518 )     ( 629 ) Amortization of prior service cost     -       -   Recognized net actuarial loss     17       110   Net periodic benefit (income) cost   $ ( 25 )   $ 9     The service cost component of net periodic benefit cost is included in salaries and employee benefits expense in the consolidated statements of income. All other components are included in other noninterest expense in the consolidated statements of income. For the three months ended March 31, 2023, the Company did not make a contribution to the defined benefit plan.      Note 5: Fair Value Measurements   Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of the observable inputs and minimize the use of the unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:   Level 1   –  Valuation is based on quoted prices in active markets for identical assets and liabilities.   Level 2   – Valuation is based on observable inputs including:   • quoted prices in active markets for similar assets and liabilities,   • quoted prices for identical or similar assets and liabilities in less active markets,   • inputs other than quoted prices that are observable, and   • model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.   Level 3   –  Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.   Fair value is best determined by quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.           23 Table of Contents     The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements:   Financial Instruments Measured at Fair Value on a Recurring Basis   Securities Available for Sale Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1 ). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2 ). The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables. The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated.   March 31, 2023           Fair Value Measurements Using   Description   Balance     Level 1     Level 2     Level 3   U.S. Treasuries   $ 947     $ -     $ 947     $ -   U.S. Government agencies and corporations     333,944       -       333,944       -   States and political subdivisions     149,962       -       149,962       -   Mortgage-backed securities     160,453       -       160,453       -   Corporate debt securities     5,741       -       5,741       -   Total securities available for sale   $ 651,047     $ -     $ 651,047     $ -     December 31, 2022           Fair Value Measurements Using   Description   Balance     Level 1     Level 2     Level 3   U.S. Treasuries   $ 936     $ -     $ 936     $ -   U.S. Government agencies and corporations     336,575       -       336,575       -   States and political subdivisions     152,200       -       152,200       -   Mortgage-backed securities     161,477       -       161,477       -   Corporate debt securities     5,664       -       5,664       -   Total securities available for sale   $ 656,852     $ -     $ 656,852     $ -     The Company’s securities portfolio is valued using Level 2 inputs. The Company relies on an independent third party vendor to provide market valuations. The inputs used to determine value include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two -sided markets, benchmark securities, bids, offers and reference data including market research publications. The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio. Level 2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any, may impact securities fair value, deferred tax assets or liabilities, or expense.   Interest Rate Loan Contracts and Forward Contracts The Company originates consumer real estate loans which it intends to sell to a correspondent lender. Interest rate loan contracts and forward contracts result from originating loans held for sale and are derivatives reported at fair value. The Company enters interest rate lock commitments with customers who apply for a loan which the Company intends to sell to a correspondent lender. The interest rate loan contract ends when the loan closes or the customer withdraws their application. Fair value of the interest rate loan contract is based upon the correspondent lender’s pricing quotes at the report date. Fair value is adjusted for the estimated probability of the loan closing with the borrower. At the time the Company enters into an interest rate loan contract with a customer, it also enters into a best efforts forward sales commitment with the correspondent lender. If the loan has been closed and funded, the best efforts commitment converts to a mandatory forward sales commitment. Fair value is based on the gain or loss that would occur if the Company were to pair-off the transaction with the investor at the measurement date. This is a Level 3 input. The Company has elected to measure and report best efforts commitments at fair value. Interest rate loan contracts and forward contracts are valued based on quotes from the correspondent lender at the reporting date. Pricing changes daily and if a loan has not been sold to the correspondent by the next reporting date, the fair value may be different from that reported currently. Changes in fair value measurement impacts net income.   24 Table of Contents     At December 31, 2022, there were no interest rate loan contracts or forward contracts. The following table presents the Company’s interest rate loan contracts and forward contracts as of March 31, 2023:   March 31, 2023           Fair Value Measurements Using   Description   Balance     Level 1     Level 2     Level 3   Interest rate loan contracts   $ 2     $ -     $ -     $ 2   Forward contracts     ( 2 )     -       -       ( 2 )   March 31, 2023 Valuation Technique Unobservable Input   Range (Weighted Average) Interest rate loan contracts Market approach Pull-through rate     81.30 %     Forward contracts Market approach Pull-through rate     81.30 %     Interest rate loan contracts Market approach Current reference price   100.83 % – 102.22 % ( 101.24 %) Forward contracts Market approach Current reference price   100.83 % – 102.22 % ( 101.24 %)   Financial Instruments Measured at Fair Value on a Non-Recurring Basis Certain financial instruments are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.   Loans Held for Sale Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one -to- four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2 ). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale at March 31, 2023 or December 31, 2022.   Collateral Dependent Loans Loans the Company has identified as collateral dependent that do not share risk characteristics are individually evaluated on a non-recurring basis. For collateral dependent loans, the ACL is measured as the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected from the operation of the collateral, credit losses are estimated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected from the sale of the collateral, credit losses are measured as the amount by which the amortized costs basis of the loan exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. For real estate loans, fair value of collateral is determined by the “as-is” value of appraisals that are less than 24 months of age and are prepared by independent, licensed appraisers. Appraisals are based upon observable market data analyzed through an income or sales valuation approach, and adjusted by estimated selling costs. Valuation falls within Level 2 categorization. The Company may further discount appraisals for marketing strategies, which results in Level 3 categorization. The value of business equipment is based upon an outside appraisal (Level 2 ) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3 ) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3 ). At March 31, 2023, none of the Company’s individually evaluated loans were measured using the collateral method. As of December 31, 2022, measurement of the Company’s impaired loans did not result in any specific allocations.   Other Real Estate Owned ( “ OREO ” ) Certain assets such as OREO are measured at fair value less cost to sell. Valuation of OREO is determined using current appraisals from independent parties, a Level 2 input. The Company works with a realtor to determine the list price, which may be set at appraised value or at a different amount based on the realtor’s advice and Management’s judgement of marketability. Discounts to appraisals for selling costs or for marketability result in a Level 3 estimate.   25 Table of Contents     The following table summarizes the Company’s OREO that was measured at fair value on a nonrecurring basis.   Date Description   Balance     Level 1     Level 2     Level 3   March 31, 2023 OREO, net of valuation allowance   $ 662     $ -     $ -     $ 662   December 31, 2022 OREO, net of valuation allowance     662       -       -       662     The following table presents information about OREO and Level 3 Fair Value Measurements for the dates indicated.   Date Valuation Technique Unobservable Input   Range (Weighted Average)   March 31, 2023 Discounted appraised value Selling cost     7.00%   March 31, 2023 Discounted appraised value Discount for lack of marketability     34.72%                 December 31, 2022 Discounted appraised value Selling cost     7.00%   December 31, 2022 Discounted appraised value Discount for lack of marketability     34.72%     At March 31, 2023 and December 31, 2022, the Company held a single OREO property, measured using appraised value, discounted for marketability and selling cost. During 2022, the Company reduced the list price as part of a marketing strategy and recorded an additional discount for marketability. There is uncertainty in determining discounts to appraised value. If the final sale price is different from the list price, the amount of selling costs will also be different from those estimated. Future changes to marketability assumptions or updated appraisals may indicate a lower fair value, with a corresponding impact to net income. Ultimate proceeds from the sale of OREO property may be less than the estimated fair value, reducing net income.   Fair Value Summary The following presents the recorded amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of the dates indicated. Fair values are estimated using the exit price notion.       March 31, 2023       Recorded Amount     Level 1     Level 2     Level 3   Financial Assets:                                 Cash and due from banks   $ 11,695     $ 11,695     $ -     $ -   Interest-bearing deposits     42,966       42,966       -       -   Securities available for sale     651,047       -       651,047       -   Restricted securities     929       -       929       -   Loans, net     846,315       -       -       803,330   Accrued interest receivable     6,007       -       6,007       -   Bank-owned life insurance     43,551       -       43,551       -   Interest rate loan contracts     2       -       -       2   Financial Liabilities:                                 Deposits   $ 1,511,452     $ -     $ 1,385,881     $ 125,931   Accrued interest payable     314       -       314       -   Forward loan contracts     2       -       -       2     26 Table of Contents         December 31, 2022       Recorded Amount     Level 1     Level 2     Level 3   Financial Assets:                                 Cash and due from banks   $ 12,403     $ 12,403     $ -     $ -   Interest-bearing deposits     59,026       59,026       -       -   Securities available for sale     656,852       -       656,852       -   Restricted securities     941       -       941       -   Loans, net     844,519       -       -       781,749   Accrued interest receivable     6,001       -       6,001       -   Bank-owned life insurance     43,312       -       43,312       -   Financial Liabilities:                                 Deposits   $ 1,542,725     $ -     $ 1,475,096     $ 67,542   Accrued interest payable     106       -       106       -        Note 6: Components of Accumulated Other Comprehensive Income (Loss)   The following tables provide information about components of accumulated other comprehensive loss as of the dates indicated:       Net Unrealized Gain (Loss) on Securities     Adjustments Related to Pension Benefits     Accumulated Other Comprehensive Loss   Balance at December 31, 2021   $ 2,854     $ ( 6,912 )   $ ( 4,058 ) Unrealized holding loss on available for sale securities, net of tax of ($ 8,992 )     ( 33,826 )     -       ( 33,826 ) Balance at March 31, 2022   $ ( 30,972 )   $ ( 6,912 )   $ ( 37,884 )                           Balance at December 31, 2022   $ ( 81,421 )   $ ( 2,345 )   $ ( 83,766 ) Unrealized holding gain on available for sale securities, net of tax of $ 3,121     11,738       -       11,738   Reclassification adjustment, net of tax of ($3)     ( 9 )     -       ( 9 ) Balance at March 31, 2023   $ ( 69,692 )   $ ( 2,345 )   $ ( 72,037 )      Note 7: Revenue Recognition   Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams such as service charges on deposit accounts, other service charges and fees, credit and debit card fees, trust income, and annuity and insurance commissions are recognized in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance. Noninterest revenue streams within the scope of Topic 606 are discussed below.   Service Charges on Deposit Accounts Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.   Other Service Charges and Fees Other service charges include safe deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transactional based, and therefore the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.   27 Table of Contents     Credit and Debit Card Fees Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa and MasterCard. Merchant services income mainly represents commission fees based upon merchant processing volume. The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. In compliance with Topic 606, credit and debit card fee income is presented net of associated expense.   Trust Income Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Estate management fees are based upon the size of the estate. A partial fee is recognized half-way through the estate administration and the remainder of the fee is recognized when remaining assets are distributed and the estate is closed.   Insurance and Investment Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. Investment income consists of recurring revenue streams such as commissions from sales of mutual funds and other investments. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined.   OREO Gains and Losses The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.   The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2023 and March 31, 2022       Three Months Ended March 31,       2023     2022   Noninterest Income                 In-scope of Topic 606:                 Service charges on deposit accounts   $ 592     $ 562   Other service charges and fees     53       55   Credit and debit card fees, net     467       440   Trust income     445       443   Insurance and Investment (included within Other Income on the Consolidated Statements of Income)     285       208   Noninterest Income (in-scope of Topic 606)   $ 1,842     $ 1,708   Noninterest Income (out-of-scope of Topic 606)     357       583   Total noninterest income   $ 2,199     $ 2,291     28 Table of Contents        Note 8: Leases The Company’s leases are recorded under ASC Topic 842, “Leases”. The Company examines its contracts to determine whether they are or contain a lease. A contract with a lease is further examined to determine whether the lease is a short-term, operating or finance lease. As permitted by ASC Topic 842, the Company elected not to capitalize short-term leases, defined by the standard as leases with terms of 12 months or less. The Company also elected the practical expedient not to separate non-lease components from lease components within a single contract. Right-of-use assets and lease liabilities are recognized for operating and finance leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease.    Lease payments Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Payments for leases with terms longer than 12 months are included in the determination of the lease liability. Payments may be fixed for the term of the lease or variable. Variable payments result when the lease agreement includes a clause providing for escalation of lease payments at specified dates. If the escalation factor is known, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability. One of the Company’s leases provides a known escalator that is included in the determination of the lease liability. The remaining leases do not have variable payments during the term of the lease.   Options to Extend, Residual Value Guarantees, and Restrictions and Covenants Of the Company’s seven operating leases as of March 31, 2023, four leases offer the option to extend the lease term.  Two of the leases have two options of five years each and one lease has two options of three years each.  Another lease has one option to extend the term for an additional five years.  The Company exercised a previous option to extend this lease in 2020. At the time of capitalization, the Company was not reasonably certain whether it would exercise the options and did not include the time period in the calculation of the lease liability.  The lease agreements provide that the lease payment will increase at the exercise date based on the Consumer Price Index for All Urban Consumers (“CPI-U”).  Because the CPI-U at the exercise date is unknown, the increase is not included in the cash flows determining the lease liability.  None of the Company’s leases provide for residual value guarantees and none provide restrictions or covenants that would impact dividends or require incurring additional financial obligations. The contracts in which the Company is lessee are with parties external to the Company and not related parties. The Company’s lease right of use asset is included in other assets and the lease liability is included in other liabilities. The following tables present information about leases:       March 31, 2023     December 31, 2022   Lease liability   $ 1,365     $ 1,444   Right-of-use asset   $ 1,336     $ 1,415   Weighted average remaining lease term (in years)     4.95       5.14   Weighted average discount rate     3.29 %     3.29 %       For the Three Months Ended March 31,       2023     2022   Lease Expense                 Operating lease expense   $ 92     $ 76   Short-term lease expense     1       1   Total lease expense   $ 93     $ 77                     Cash paid for amounts included in lease liabilities   $ 94     $ 78   Right-of-use assets obtained in exchange for operating lease liabilities commencing during the period   $ -     $ 25     29 Table of Contents     The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability:   Undiscounted Cash Flow for the Period   As of March 31, 2023   Twelve months ending March 31, 2024   $ 356   Twelve months ending March 31, 2025     340   Twelve months ending March 31, 2026     234   Twelve months ending March 31, 2027     203   Twelve months ending March 31, 2028     188   Thereafter     160   Total undiscounted cash flows   $ 1,481   Less: discount     ( 116 ) Lease liability   $ 1,365     The contracts in which the Company is lessee are not with related parties.   30 Table of Contents