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Item 5. Market for Registrant’s Common Equity

2024-03-19 compared with 2023-03-10 · 376 added, 436 removed, 317 unchanged (72% of the section changed)

Market for Registrant ’

s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock Information and Dividends

NBI’s common stock is traded on the Nasdaq Capital Market under the symbol “NKSH.”

As of December 31, 2022, there were 549 record stockholders of NBI common stock.

NBI’s primary source of funds for dividend payments is dividends from its bank subsidiary, NBB.

Bank dividend payments are restricted by regulators, as more fully disclosed in “Regulation, Supervision and Government Policy”

contained in Part I, Item 1, “Business”

and Note 10 of Notes to Consolidated Financial Statements contained in Item 8, “Financial Statements and Supplementary Data”

of this Form 10-K.

In May 2022, NBI’s Board of Directors approved the repurchase of up to 250,000 shares of the Company’s common stock.

NBI’s common stock is traded on the Nasdaq Capital Market under the symbol “NKSH.” As of December 31, 2023, there were 544 record stockholders of NBI common stock.

NBI’s primary source of funds for dividend payments is dividends from its bank subsidiary, NBB.

Bank dividend payments are restricted by regulators, as more fully disclosed in “Regulation, Supervision and Government Policy” contained in Part I, Item 1, “Business” and Note 10 of Notes to Consolidated Financial Statements contained in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.

In May 2023, NBI’s Board of Directors approved the repurchase of up to 250,000 shares of the Company’s common stock.

The authorization extends from June 1, 2023 to May 31, 2024.

During 2022, the Company repurchased 174,250 shares, of which 73,793 shares were repurchased under a prior repurchase plan in effect from June 1, 2021 to May 31, 2022 and 100,457 shares were repurchased under the plan that became effective June 1, 2022.

The Company may yet repurchase 149,543 shares under the program.

The Company’s share repurchase program does not obligate it to acquire any specific number of shares or any shares at all.

During 2023, the Company did not repurchase any shares.

The Company’s share repurchase program does not obligate it to acquire any specific number of shares or any shares at all.

During 2022, the Company repurchased 174,250 shares under prior repurchase authorizations.

Purchases of Equity Securities by the Issuer

Share repurchase activity during the fourth quarter of 2022 was as follows:

Average Price

Total Number of

Shares Purchased as

Part of Publicly

Announced Program

Shares that May Yet

Under the Program

October 1, 2022 –

October 31, 2022

November 1, 2022 –

November 30, 2022

December 1, 2022 –

December 31, 2022

Total during fourth quarter 2022

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

$ in thousands, except per share data.

The purpose of this discussion and analysis is to provide information about the results of operations, financial condition, liquidity and capital resources of the Company.

The discussion should be read in conjunction with the material presented in Item 8, “Financial Statements and Supplementary Data,”

of this Form 10-K.

The discussion should be read in conjunction with the material presented in Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K.

Subsequent events have been considered through the date of this Form 10-K.

Cautionary Statement Regarding Forward-Looking Statements

We make forward-looking statements in this Form 10-K that are subject to significant risks and uncertainties. 

These forward-looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon our management’s views and assumptions as of the date of this report. 

The words “believes,”

“expects,”

“may,”

“will,”

“should,”

“projects,”

“contemplates,”

“anticipates,”

“forecasts,”

“intends,”

or other similar words or terms are intended to identify forward-looking statements.

We make forward-looking statements in this Form 10-K that are subject to significant risks and uncertainties.

These forward-looking statements include statements regarding our profitability, liquidity, allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon our management’s views and assumptions as of the date of this report.

The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements.

These forward-looking statements are based upon or are affected by factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements.

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interest rates,

the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged,

the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses,

general and local economic conditions,

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Treasury, the OCC, the Federal Reserve, the CFPB and the FDIC, and the impact of any policies or programs implemented pursuant to financial reform legislation,

unanticipated increases in the level of unemployment in the Company’s market,

the quality or composition of the loan and/or investment portfolios,

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deposit flows,

demand for financial services in the Company’s market,

the real estate market in the Company’s market,

demand for financial services in the Company’s market,

the real estate market in the Company’s market,

laws, regulations and policies impacting financial institutions,

technological risks and developments, and cyber-threats, attacks or events,

the Company’s technology initiatives,

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

the Company’s technology initiatives,

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

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

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

the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment,

performance by the Company’s counterparties or vendors,

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

the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment,

performance by the Company’s counterparties or vendors,

applicable accounting principles, policies and guidelines, and

the impact of the COVID-19 pandemic, including the adverse impact on our business and operations and on our customers.

risks associated with mergers, acquisitions, and other expansion activities.

On January 23, 2024, the Company and the Bank entered into the Merger Agreement with Frontier, pursuant to which the Company will acquire Frontier in the Merger.

In addition to the factors described above, the Company’s operations, performance, business strategy and results may be affected by the following factors:

the businesses of the Company and Frontier may not be integrated successfully after the Merger or such integration may be more difficult, time-consuming or costly than expected;

the cost savings and synergies contemplated by the Merger may not be fully realized or realized within the expected timeframe;

revenues following the Merger may be lower than expected;

customer and employee relationships and business operations may be disrupted by the Merger;

the ability to obtain required regulatory and shareholder approvals and meet other closing conditions to the Merger;

the ability to complete the Merger on the expected timeframe may be more difficult, time-consuming or costly than expected.

These risks and uncertainties should be considered in evaluating the forward-looking statements contained in this report.

We caution readers not to place undue reliance on those statements, which speak only as of the date of this report.

This discussion and analysis should be read in conjunction with the description of our “Risk Factors”

This discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A.

of this Form 10-K.

Cybersecurity

The Company considers cybersecurity risk to be one of the greatest risks to its business.

We have deployed a multi-faceted approach to limit the risk and impact of unauthorized access to customer accounts and to information relevant to customer accounts.

We use digital technology safeguards, internal policies and procedures, and employee training to reduce the exposure of our systems to cyber-intrusions.

The Company also requires assurances from key vendors regarding their cybersecurity.

We control functionalities of online and mobile banking to reduce risk.

We do not offer online account openings or loan originations.

We do not permit customers to submit address changes through online banking, and we limit the dollar amount of online banking transfers to other banks.

We require a special vetting process for commercial customers who wish to originate ACH transfers and for customers who submit wire requests through online banking.

Further, the Company has a program to identify, mitigate and manage its cybersecurity risks. 

The program includes penetration testing and vulnerability assessment, technological defenses such as antivirus software, patch management, firewall management, email and web protections, an intrusion prevention system, a cybersecurity insurance policy which covers some but not all losses arising from cybersecurity breaches, as well as ongoing employee training. 

The cost of these measures was $418 for 2022 and $357 for 2021.

These costs are included in various categories of noninterest expense.

However, it is not possible to fully eliminate exposure.

The potential for financial and reputational losses due to cyber-breaches is increased by the possibility of human error, unknown system susceptibilities, and the rising sophistication of cyber-criminals to attack systems, disable safeguards and gain access to accounts and related information. We maintain insurance for these risks but insurance policies are subject to exceptions, exclusions and terms whose applications have not been widely interpreted in litigation.

Accordingly, insurance can provide less than complete protection against the losses that result from cybersecurity breaches and pursuing recovery from insurers can result in significant expense.

In addition, some risks such as reputational damage and loss of customer goodwill, which can result from cybersecurity breaches, cannot be insured against.

Critical Accounting Policies

The Company’s consolidated financial statements are prepared in accordance with GAAP.

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

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

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

Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. 

If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. 

The Company has designated three policies as critical, including those governing the allowance for loan losses, goodwill and the pension plan. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed.

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

Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain.

If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted.

The Company has designated three policies as critical, including those governing the allowance for credit losses, goodwill and the pension plan.

The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed.

Please refer to Note 1 of Notes to Consolidated Financial Statements for information on these and other accounting policies.

Non-GAAP Financial Measures

The Company prepares financial information in accordance with GAAP, with the exception of certain financial measures which are computed under a basis other than GAAP (“non-GAAP”).

These measures include the efficiency ratio, the net interest margin and the noninterest margin.

Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP.

This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”).

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.

The methodology for determining these non-GAAP measures may differ among companies.

Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP.

Details on non-GAAP measures follow.

Net Interest Margin

The Company uses the net interest margin to measure profit on interest generating activities, as a percentage of total interest-earning assets.

The net interest margin is calculated by dividing fully taxable equivalent (“FTE”) net interest income by total average interest-earning assets.

FTE net interest income is non-GAAP because it incorporates the tax benefit of interest income on loans and securities that is not subject to federal tax.

The tax rate utilized in calculating the tax benefit is 21%.

The reconciliation of FTE net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below.

Year ended December 31,

Total interest income

The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis.

The portion of interest income that is nontaxable is grossed up to the tax equivalent by adding the tax benefit based on a tax rate of 21%.

Annualized FTE net interest income is divided by total average earning assets to calculate the net interest margin.

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

Year Ended December 31,

Net Interest Income, FTE

Interest income (GAAP)

FTE adjustment

FTE interest income (non-GAAP)

Interest expense

FTE net interest income (non-GAAP)

Average earning assets

Net interest margin (non-GAAP)

Interest income, FTE (non-GAAP)

Interest expense (GAAP)

Net interest income, FTE (non-GAAP)

Average balance of interest-earning assets

Net interest margin

Efficiency Ratio

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

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

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

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

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

Year Ended December 31,

Noninterest expense

FTE net interest income (non-GAAP)

Noninterest income

partnership income (1)

realized securities gains

gain on sale of private equity investment

Total income for ratio calculation

Noninterest Expense for Efficiency Ratio

Noninterest expense (GAAP)

proxy contest-related expense

Noninterest expense for efficiency ratio (non-GAAP)

Total Income for Efficiency Ratio

Noninterest income (GAAP)

Loss on sale of securities

Gain on sale of investment (1)

BOLI settlement

Noninterest income (non-GAAP)

Net interest income, FTE (non-GAAP)

Total income for efficiency ratio (non-GAAP)

Efficiency ratio

Gain on adjustment of basis in partnership interests and payouts at the partnerships’ election, reflected in other income.

Amount presented for 2022 reflects the gain on sale of a private equity investment.

In 2023, amount reflects $232 recognized upon receipt of a contract contingency payment associated with the 2022 sale of a private equity investment and $2,971 gain on the sale of the Company’s VISA Class B shares.

Performance Summary

The following table presents summary income and expenses for the years indicated:

Year ended December 31,

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

Between March 2022 and July 2023, the Federal Reserve increased interest rates 525 basis points.

The rapidity and magnitude of the change was unprecedented and spurred intense competitive pressure for deposits, affected the fair value of the Company’s securities, and dampened loan demand.

While these challenges are ongoing, the Company’s response successfully addressed deposit levels, while developing strategies for future growth.

Also affecting the Company’s results of operations were significant one-time noninterest income and expense items.

During 2023, the Company paid a special one-time dividend of $1 per common share, in addition to its usual bi-annual dividends.

The dividend rewarded stockholders for the Company’s positive performance during 2022, which included a one-time pre-tax gain of $3,823 on the sale of a private equity investment.

Related to the 2022 gain on the sale of a private equity investment, the Company recorded in 2023 pre-tax income of $232 upon receipt of a contract contingency payment.

Also in 2023, the Company sold its VISA Class B shares and recognized a pre-tax gain of $2,971, and strategically sold securities, recording a pre-tax loss of $3,332.

The Company recognized tax-free income of $1,044 for the settlement of a bank owned life insurance policy (“BOLI”) policy in 2023, and incurred expense in 2023 of $786 to respond to a threatened proxy contest from an activist investor.

Summary information on results of operations, changes in key balances and asset quality is presented below.

Expanded discussion is provided in subsequent sections.

Summary Results of Operations

The following tables present summary income, expenses and key performance indicators for the years indicated.

Key performance indicators provide a summary of the Company’s results and allow comparison with results from prior years.

Year Ended December 31,

Summary Income and Expenses

Interest income

Interest on deposits

Interest expense

Net interest income

Provision for (recovery of) loan losses

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

(Recovery of) provision for credit losses

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

Noninterest income

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Income tax expense

Net income in 2022 benefitted from expansion in net interest income and from the sale of a private equity investment, reflected in noninterest income.

Key performance ratios provide a summary of the Company’s results and allow comparison with results from prior years.

The following table presents NBI’s key performance ratios for the years indicated:

Year Ended December 31,

Key Performance Indicators

Return on average assets

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During the year ended December 31, 2022, the Company repurchased 174,250 shares under its publicly announced stock repurchase plan.

The repurchased shares reduced stockholders' equity by $6,338 during 2022.

During the year ended December 31, 2021, the Company repurchased 368,083 shares under its publicly announced stock repurchase plan.

The repurchased shares reduced stockholders' equity by $13,354 during 2021.

During 2022, average unrealized losses on the securities portfolio reduced average stockholders’ equity by $48,109.

During 2021, average unrealized gains on the securities portfolio increased stockholders’ equity by $7,759.

The repurchased shares reduced shareholder equity by $6,338 during 2022.

Average unrealized losses on securities reduced average stockholders’ equity by $76,827 for 2023 and $48,109 for 2022.

The net interest margin is a non-GAAP financial measure.

Please see “Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to GAAP.

Please see “Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to GAAP.

The efficiency ratio is a non-GAAP financial measure.

Please see “Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to GAAP.

Change in Key Balances

Key balances are shown in the following table:

Loans, net of unearned income and deferred fees and costs, and the allowance for loan losses

Please see “Non-GAAP Financial Measures” for a reconciliation of non-GAAP measures to GAAP.

Net income for the year ended December 31, 2023 decreased when compared with the year ended December 31, 2022.

In response to competitive pressure for deposits, the Company increased its offering rates, giving rise to substantially higher interest expense in 2023 when compared with 2022.

Results for 2023 and 2022 also reflected key noninterest income and expense items.

Details are discussed in under “Income Statement” below.

Summary Change in Key Balances

Key balances are presented in the following table as of the dates indicated:

Loans, net of unearned income and deferred fees and costs, and the ACLL

Securities available for sale

Stockholders’

Loans, net of unearned income and deferred fees and costs and the allowance for loan losses, grew when December 31, 2022 is compared with December 31, 2021 due to customer demand in the Company’s primary markets. 

During 2022, the Company expanded its lending footprint, opening two new loan production offices in Charlottesville and Staunton, Virginia.

Securities available for sale are reported at fair value, which moves inversely to interest rate changes. 

The Federal Reserve increased interest rates substantially during 2022, causing a decline in securities fair value when December 31, 2022 is compared with December 31, 2021.

Customer deposits increased when December 31, 2022 is compared with December 31, 2021, in all categories except for time deposits. 

Time deposit offering rates were set strategically low during 2022.

During the fourth quarter of 2022, deposits decreased from the third quarter of 2022 due to competitive pressure.

When December 31, 2022 is compared with December 31, 2021, the decrease in total assets and in stockholders’

equity is primarily due to a decline in the market value of securities.

Asset Quality

Key indicators of NBI’s asset quality are presented in the following table:

Nonperforming loans (1)

Stockholders’ equity

Loans, net of unearned income and deferred fees and costs and the ACLL, grew slightly when December 31, 2023 is compared with December 31, 2022.

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

Securities available for sale are reported at fair value, which moves inversely to interest rate changes.

The Federal Reserve’s interest rate increases during 2022 and 2023 reduced the fair value of the Company’s securities portfolio, though the percentage of unrealized loss improved when December 31, 2023 is compared with December 31, 2022.

The portfolio decreased during 2023 due to sales and maturities.

Further detail is provided in the “Balance Sheet” section below.

Customer deposits decreased when December 31, 2023 is compared with December 31, 2022, as competition pressured deposits.

The Company continues to closely monitor deposits and evaluate its pricing and retention strategy.

Total assets decreased from December 31, 2022 to December 31, 2023, primarily due to the decrease in the securities portfolio.

Stockholders’ equity increased from December 31, 2022 to December 31, 2023 due to improvements in accumulated other comprehensive loss related to the market value of securities.

Summary Asset Quality

Key indicators of the Company’s asset quality are presented in the following table as of the dates indicated:

Nonaccrual loans

Loans past due 90 days or more and accruing

Other real estate owned

Allowance for loan losses to loans (2)

Net charge-off ratio

Nonperforming loans are nonaccrual loans and troubled debt restructurings ("TDRs") in nonaccrual status.

Accruing TDRs are not included.

Loans are net of unearned income and deferred fees and costs.

The Company monitors asset quality indicators in managing credit risk and in determining the allowance and provision for loan losses.

As of December 31, 2022, nonperforming loans, other real estate owned ("OREO"), and loans past due 90 days or more improved when compared with levels as of December 31, 2021.

The net charge-off ratio decreased from 2021 to 2022.

The Company believes that sufficient resources have been dedicated to working out problem assets, and exposure to loss is somewhat mitigated because most of the nonperforming loans are collateralized.

ACLL as a percentage of loans, net of unearned income and deferred fees and costs

Net charge-off ratio, net of unearned income and deferred fees and costs

The Company monitors asset quality indicators in managing credit risk and in determining the ACLL and provision for credit losses.

When December 31, 2023 is compared with December 31, 2022, nonaccrual loans and other real estate owned (“OREO”) improved, the net charge-off ratio remained the same, and accruing loans past due 90 days or more increased.

The Company believes that sufficient resources have been dedicated to resolving problem assets, and exposure to loss is somewhat mitigated by sufficient collateralization.

More information about nonaccrual and past due loans is provided in Note 1 and Note 5 of Notes to Consolidated Financial Statements.

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Net Interest Income

The Company’s primary source of revenue is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on customer deposits and other interest-bearing liabilities.

Net interest income is affected by various factors, including the Federal Reserve’s monetary policy, U.S.

fiscal policy, competitive pressure, the level and composition of the interest-earning assets and the composition of interest-bearing liabilities.

Changes in the Federal Reserve’s target interest rate immediately affect the yield on the Company’s interest-bearing deposits in correspondent banks and affect other interest-earning assets over time.

The primary source of funds used to support the Company’s interest-earning assets is deposits.

Changes in the Federal Reserve’s target interest rate immediately affect the yield on the Company’s interest-bearing deposits in correspondent banks and affect other interest-earning assets over time.

The primary source of funds used to support the Company’s interest-earning assets is deposits.

When the interest rate environment changes, the Company assesses competition for deposits in determining changes to its offering rates.

The net interest margin for the year ended December 31, 2022 improved when compared with the year ended December 31, 2021. 

Federal Reserve rate increases during 2022 improved yields on interest-bearing deposits in correspondent banks and on adjustable-rate mortgage backed securities. 

The yield on loans decreased during 2022,  due to PPP fees received in 2021, however the yield on loans originated or repriced after March of 2022 benefitted from the Federal Reserve rate increases. 

High levels of customer deposits and low competition during 2022 allowed the Company to maintain low interest expense for the year ended December 31, 2022, compared with the year ended December 31, 2021. 

During the fourth quarter of 2022, the Company experienced higher competition and pricing pressure on deposits, and expects this will continue into 2023.

The frequency and/or magnitude of future changes in market interest rates and legislative changes are difficult to predict and may have a greater short-term impact on net interest income than adjustments by management.

Please refer to the section titled “Analysis of Changes In Interest Income and Interest Expense”

for further information related to rate and volume changes.

The net interest margin for the year ended December 31, 2023 decreased when compared with the year ended December 31, 2022.

Federal Reserve rate increases during 2022 and 2023 improved yields on interest-bearing deposits in correspondent banks, on adjustable-rate mortgage backed securities, and on loans originated or repriced since the Federal Reserve started to increase rates.

In response to high levels of competition during 2023, the Company increased deposit rates, resulting in a higher cost of funds and compressed net interest margin for the year ended December 31, 2023, compared with the year ended December 31, 2022.

The frequency and/or magnitude of future changes in market interest are difficult to predict and may have a greater short-term impact on net interest income than adjustments by management.

Please refer to the section titled “Analysis of Changes In Interest Income and Interest Expense” for further information related to rate and volume changes.

Analysis of Net Interest Earnings

The following table shows the major categories of interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net yield on average interest‑earning assets for the years indicated.

December 31, 2023

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Net interest income (2) and interest rate spread

Net yield on average interest‑earning assets

Loans are net of unearned income and deferred fees and costs.

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Net loan fees included in interest income in 2023 were $214.

Net loan fees included in interest income in 2021 were $2,558, of which $2,444 were related to PPP loans.

In 2021, average loans included PPP loans of $25,600 with associated interest and fee income of $2,711.

If PPP loans were excluded the FTE yield on loans would have been 4.27%, and the net interest margin would have been 2.63%.

The vast majority of PPP loans were paid off by December 31, 2021.

Net loan fees included in interest income in 2022 were $230.

Nonaccrual loans are included in average balances for yield computations.

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Analysis of Changes in Interest Income and Interest Expense

The following table sets forth, for the years indicated, a summary of the changes in interest income and interest expense resulting from changes in average asset and liability balances (volume) and changes in average interest rates (rate).

The following table sets forth a summary of the changes in interest income and interest expense resulting from changes in average asset and liability balances (volume) and changes in average interest rates (rate), when the year ended December 31, 2023 is compared with the year ended December 31, 2022, and the year ended December 31, 2022 is compared with the year ended December 31, 2021.

2023 Over 2022

Changes Due To

Net Dollar Change

Interest income:

Taxable securities

Nontaxable securities

Interest-bearing deposits

Increase in income on interest-earning assets

Interest expense:

Interest-bearing demand deposits

Savings deposits

Time deposits

Increase (decrease) in expense of interest-bearing liabilities

Increase in net interest income

FTE basis using a Federal income tax rate of 21%.

Variances caused by the change in rate multiplied by the change in volume have been allocated to rate and volume changes proportional to the relationship of the absolute dollar amounts of the change in each.

Total interest income increased when the year ended December 31, 2022 is compared with the year ended December 30, 2021, primarily due to volume. 

Rate-related income on loans fell when the year ended December 31, 2022 is compared with the year ended December 31, 2021 due to PPP fees that were received during 2021. 

However, increased volume offset much of the impact of lower income from rates. 

Federal Reserve interest rate increases in 2022 improved yield on interest-bearing deposits and yield on variable-rate and new taxable securities, when the year ended December 31, 2022 is compared with the year ended December 31, 2021.

Higher volume in taxable securities also increased interest income.

Income on nontaxable securities decreased when the year ended December 31, 2022 is compared with the year ended December 31, 2021, as higher-yielding nontaxable securities matured and were not replaced. 

Deposit volume increased interest expense that was mitigated by lower deposit offering rates, when the years ended December 31, 2022 and 2021 are compared. 

The following table sets forth a summary of the changes in interest income and interest expense resulting from changes in average asset and liability balances (volume) and changes in average interest rates (rate), when the year ended December 31, 2021 is compared with the year ended December 31, 2020.

2022 Over 2021

Changes Due To

Net Dollar Change

Increase (Decrease) Due to

Interest income:

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Interest-bearing deposits

Increase (decrease) in income on interest-earning assets

Interest income on interest-earning assets

Interest expense:

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Time deposits

Increase (decrease) in expense of interest-bearing liabilities

Increase in net interest income

(1)  

Taxable equivalent basis using a Federal income tax rate of 21%.

(2)  

Short-term borrowings

Interest expense on interest-bearing liabilities

Net interest income

FTE basis using a Federal income tax rate of 21%.

The low interest rate environment reduced interest income when the year ended December 31, 2021 is compared with the year ended December 31, 2020. 

However, greater volume more than offset the impact of rates, resulting in a net increase in interest income. 

The Company’s reduced deposit offering rates saved $3,178 in interest expense, slightly offset by increased expense for higher volume when the year ended December 31, 2021 is compared with the year ended December 31, 2020.

2023 over 2022

The rising rate environment increased total interest income and, to a greater extent, total interest expense when 2023 is compared with 2022.

A portion of the Company’s taxable securities portfolio is subject to monthly repricing, while many of the Company’s loans are adjustable with repricing dates in the future.

Increases to interest income from rates were partially offset by lower volume of securities from sales and maturities, and lower volume of interest-bearing deposits due to lower customer deposits.

Special offering rates on time deposits attracted deposits from existing non-time deposit products and from outside competitors.

2022 over 2021

The Federal Reserve’s interest rate increases in 2022 benefitted adjustable taxable securities but did not result in increased interest income on other interest earning assets, when the year ended December 31, 2022 is compared with the year ended December 31, 2021.

Rate-related income on loans fell when the year ended December 31, 2022 is compared with the year ended December 31, 2021 due to PPP fees received during 2021.

Interest rate increases did not meaningfully impact deposit competition or pricing during 2022.

Higher deposit volume was mitigated by lower deposit offering rates, when the years ended December 31, 2022 and 2021 are compared.

Interest Rate Sensitivity

Interest rate risk is the risk to earnings or capital arising from movements in market interest rates.

Interest rate risk is the risk to earnings or capital arising from movements in market interest rates.

When interest-earning assets and interest-bearing liabilities reprice at different times or in different degrees or when call options are exercised, in response to change in market interest rates, future net interest income is impacted.

When interest-earning assets mature or re-price more quickly than interest-bearing liabilities, the balance sheet is considered “asset sensitive”.

An asset sensitive position will produce relatively more net interest income when interest rates rise and less net interest income when rates decline.

Conversely, when interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, the balance sheet is considered “liability sensitive”.

A liability sensitive position will produce relatively more net interest income when interest rates fall and less net interest income when rates increase.

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ALCO reviews periodic reports of the Company's interest rate risk position, including results of simulation analysis.

Simulation analysis applies interest rate shocks, hypothetical immediate shifts in interest rates, to the Company’s financial instruments and determines the impact to projected one-year net interest income and other key measures.

The following table shows the results of rate shocks on net interest income projected for one year from the reporting date.

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as of December 31,

Results of the net interest income simulation as of December 31, 2022 indicate that the Company is liability sensitive, a change from the asset sensitive position as of December 31, 2021. 

Results of the net interest income simulation indicate that the Company is liability sensitive as of December 31, 2023 and December 31, 2022.

The simulation process requires certain estimates and assumptions including, but not limited to, asset growth, the mix of assets and liabilities, the interest rate environment and local and national economic conditions.

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While the asset/liability management program is designed to protect the Company over the long term, it does not provide near-term protection from interest rate shocks, as interest rate sensitive assets and liabilities do not by their nature move up or down in tandem in response to changes in the overall rate environment.

The Company’s profitability in the near term may be temporarily negatively affected in a period of rapidly rising or rapidly falling rates, because it takes some time for the Company’s portfolio to reflect changes to offering rates in response to a new interest rate environment.

Provision for (Recovery of) Loan Loss

Provision for loan loss for the year ended December 31, 2022 was $706, compared with a recovery of $398 for the year ended December 31, 2021. 

The ratio of the allowance for loan loss to total loans was 0.96% as of December 31, 2022 and December 31, 2021. 

The provision for the year ended December 31, 2022 reflects loan portfolio growth and changes in factors detailed in “Balance Sheet –

Loans –

Allowance for Loan Losses”

The recovery in 2021 reflected improved economic indicators from those in 2020. 

More information about the level and calculation methodology of the allowance for loan losses is provided in Notes 1 and 5 of Notes to Consolidated Financial Statements.

The Company’s profitability in the near-term may be temporarily negatively affected in a period of rapidly rising or rapidly falling rates, because it takes some time for the Company’s portfolio to reflect changes to offering rates in response to a new interest rate environment.

(Recovery of) Provision for Credit Losses

The calculation of the ACLL resulted in a recovery of previously recognized provision of $1,278 on funded loans and a provision of $17 for unfunded loan balances, for a net recovery of $1,261 for the year ended December 31, 2023.

For the year ended December 31, 2022, the Company recorded a provision of $706.

The recovery in 2023 reflects an improvement in factors and economic conditions detailed in “Balance Sheet – Loans – Allowance for Credit Losses” below.

The provision in 2022 was the result of loan portfolio growth.

More information about the ACLL is provided in Notes 1 and 5 of Notes to Consolidated Financial Statements.

Noninterest Income

The following table presents the Company’s noninterest income for the years indicated.

Year Ended December 31,

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Other service charges and fees

Credit card fees, net

Bank-owned life insurance income

Credit and debit card fees, net

Gain on sale of mortgage loans

Gain on sale of investment

Gain on sale of private equity investment

Realized securities gains, net

Realized securities losses, net

Total noninterest income

Service charges on deposit accounts increased when the year ended December 31, 2022 is compared with the year ended December 31, 2021, primarily due to fees generated from increased customer use of the Bank’s overdraft program.

Service charges on deposit accounts increased when the year ended December 31, 2023 is compared with the year ended December 31, 2022, primarily due to fees generated from increased customer use of the Bank’s overdraft program.

Service charges on deposit accounts also include account maintenance fees, ATM fees and wire transfer fees.

Other service charges and fees increased due to higher volume of letters of credit and associated fees, when the year ended December 31, 2022 is compared with the year ended December 31, 2021.

Other service charges and fees increased when 2023 is compared with 2022, reflecting a loan transaction-related fee recorded during 2023.

Other service charges and fees also include charges for official checks, income from the sale of checks to customers, safe deposit box rent, and income from commissions on the sale of credit life, accident and health insurance.

Increased transaction volume improved credit card fees when the year ended December 31, 2022 is compared with the year ended December 31, 2021.

Credit card fees are presented net of certain processing expenses and are dependent on the volume of transactions.

Decreased transaction volume lowered credit and debit card fees when the year ended December 31, 2023 is compared with the year ended December 31, 2022.

Credit and debit card fees are presented net of certain processing expenses and are dependent on the volume of transactions.

Trust income increased when the year ended December 31, 2023 is compared with the year ended December 31, 2022.

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Trust income varies depending on the number and type of accounts under management and financial market conditions.

The Company purchased an additional $5,000 in bank-owned life insurance (“BOLI”) during 2021, contributing to increased income compared with 2021.

The Federal Reserve’s rate increases in 2022 slowed the level of consumer real estate purchase and refinance activity, decreasing the sale of mortgage loans when compared to 2021.

The Company held an ownership interest in Infinex Investments, Inc.

(“Infinex”), through which NBFS provides investment services. 

During the fourth quarter of 2022, the Company recognized a gain on the sale of its shares when Infinex was acquired by a larger holding company. 

Infinex continues as a division of its new parent company and NBFS continues to work through Infinex to provide investment services .

Other income includes dividends and increases in the Company’s equity-method investments, which decreased when the year ended December 31, 2022 is compared with the year ended December 31, 2021.

Other income also includes net gains from the sale of fixed assets and revenue from investment and insurance sales.

The Federal Reserve’s rate increases in 2023 constrained demand for consumer real estate purchase and refinance activity, decreasing income from the sale of mortgage loans when compared to 2022.

BOLI income increased when 2023 is compared with 2022, due to a gain of $1,044 for settlement of a policy during 2023.

During 2023, the Company sold its VISA Class B securities, recognizing a gain of $2,971.

During 2022, the Company recorded a gain on the sale of a private equity investment in Infinex Investments, Inc.

when its shares were acquired by Osaic, Inc.

Infinex, and now Osaic, provide investment services to NBFS.

During 2023, the Company recognized income of $232 upon receipt of a contract contingency payment associated with the 2022 transaction.

Other income includes dividends and increases in the Company’s equity-method investments, which were lower for 2023 when compared with 2022.

Other income also includes revenue from investment and insurance sales, which increased when the year ended December 31, 2023 is compared with the year ended December 31, 2022.

The Company recorded a net loss on the sale of securities during 2023, discussed in further detail under the “Securities” section below.

Noninterest Expense

The following table presents the Company’s noninterest expense for the years indicated.

Year Ended December 31,

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FDIC assessment

Net costs of OREO

Net costs of other real estate owned

Franchise taxes

Professional services

Other operating expenses

Total noninterest expense

Salaries and employee benefits expense, which includes payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when 2022 is compared with 2021, due to normal compensation and staffing decisions.

When the year ended December 31, 2022 is compared with the year ended December 31, 2021, occupancy, furniture and fixtures expense and data processing and ATM expense increased slightly, as did FDIC assessment expense.

The FDIC assessment is accrued based on a method provided by the FDIC.

The Company increased its base compensation during 2022 in order to attract and retain talent, which is reflected in 2023 results.

When the year ended December 31, 2023 is compared with the year ended December 31, 2022, occupancy, furniture and fixtures expense and data processing and ATM expense increased due to ATM upgrades and higher maintenance costs.

FDIC assessment expense increased from 2022 to 2023, due to an industry-wide assessment increase implemented by the FDIC.

Net costs of OREO include write-downs, maintenance costs, and net gains or losses on the sale of OREO property.

This expense category varies with the number of foreclosed properties owned by NBB and with the costs associated with each.

During 2022, the Company wrote down a property by $295 to reflect reduction in list price taken as part of a marketing strategy.

Other costs for these properties in 2022 were $30.

In 2021, the Company recorded a loss on sale of $26 and other expenses of $25. 

Franchise tax expense increased when the years ended December 31, 2022 and 2021 are compared.

Franchise taxes are levied by the states in which NBB operates and are based upon NBB’s total equity at the prior year-end, adjusted for real estate taxes and certain other items.

The category of other operating expenses includes noninterest expense items such as professional services, stationery and supplies, telephone costs, non-service pension cost and charitable donations.

Other operating expenses decreased when the years ended December 31, 2022 and 2021 are compared, primarily due to a decrease of $597 in non-service pension cost.

Non-service pension cost is determined by actuarial assumptions and projections.

During 2022 and 2021, the calculations resulted in a credit to expense, due to the expected return on plan assets. 

During 2022, the Company recorded a write-down of $295 to reflect reduction in list price taken as part of a marketing strategy.

Franchise tax expense decreased from 2022 to 2023.

Franchise taxes are levied by the states in which NBB operates and are based upon NBB’s total equity at the prior year-end, adjusted for real estate taxes and certain other items.

Professional services include legal and other expenses for the Company’s response to a threatened proxy contest from an activist shareholder during 2023, which totaled $786.

The Company does not anticipate any further material expense for this matter.

Other operating expenses increased when the years ended December 31, 2023 and 2022 are compared.

The category of other operating expenses includes expense for stationery and supplies, telephone costs, non-service pension cost and charitable donations.

Non-service pension cost is determined by actuarial assumptions and projections and increased $348 from 2022.

For more information on non-service pension cost, please refer to Note 8 of Notes to Consolidated Financial Statements.

Included within other operating expense and data processing and ATM expense are expenses related to cybersecurity.

These expenses include testing and vulnerability assessment, technological defenses, insurance and employee training.

The cost of these measures was $529 for 2023 and $418 for 2022.

Income tax expense for 2023 was $2,984 compared to $5,831 in 2022.

The Company’s statutory tax rate was 21% for such years.

The Company’s effective tax rates for 2022 and 2021 were 18.36% and 17.26%, respectively.

The expected income tax expense based on the Company’s statutory tax rate differs from the actual income tax expense due to tax exempt income on municipal securities and loans.

The Company’s statutory tax rate was 21% for each year.

The Company’s effective tax rates for 2023 and 2022 were 15.98% and 18.36%, respectively.

The Company’s effective tax rate is lower than the statutory rate of 21% due to investments in tax-advantaged loans and securities, and in 2023, the tax-exempt gain from settlement of a BOLI policy.

See Note 9 of Notes to Consolidated Financial Statements for information relating to income taxes.

Balance Sheet

The following provides information on the Company’s financial position as of December 31, 2022 and December 31, 2021.

The Company’s loan categorization reflects its approach to loan portfolio management and includes six groups.

The following provides information on the Company’s financial position as of December 31, 2023 and December 31, 2022.

The Company’s loan categorization reflects its approach to loan portfolio management and includes six groups.

Real estate construction loans include construction loans for residential and commercial properties, as well as land.

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Commercial non-real estate loans include agricultural loans, operating capital lines and loans secured by capital assets.

Public sector and industrial development authority (“IDA”) loans are extended to municipalities.

Consumer non-real estate loans include automobile loans, personal loans, credit cards and consumer overdrafts.

Maturities and Interest Rate Sensitivities

The following table presents maturities and interest rate sensitivities for total loans, loans with predetermined interest rates and loans with adjustable interest rates.

The following table presents maturities and interest rate sensitivities for total loans, loans with predetermined interest rates and loans with adjustable interest rates as of the dates indicated.

Predetermined interest rates do not adjust throughout the life of the loan.

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Public sector and IDA

Consumer non-real estate 

Loans with predetermined interest rates:

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Modifications

In the ordinary course of business the Company modifies loan terms on a case-by-case basis, including consumer and commercial loans, for a variety of reasons.

In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons.

Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements.

Payment extensions allow borrowers temporary payment relief and result in extending the original contractual maturity by the number of months for which the extension was granted.

The Company may grant payment extensions to borrowers who have demonstrated a willingness and ability to repay their loan but who are experiencing consequences of a specific unforeseen temporary hardship.

If the temporary event is not expected to impact a borrower’s ability to repay the debt, and if the Company expects to collect all amounts due including interest accrued at the contractual interest rate for the extension period at contractual maturity, the modification is not designated a TDR.

Modifications to consumer loans generally involve short-term payment extensions to accommodate specific, temporary circumstances.

Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants.

If the modified terms are consistent with competitive market conditions and representative of terms the borrower could otherwise obtain in the open market, the modified loan is not categorized as a TDR.

The Company codes modifications to assist in identifying TDRs.

During the year ended December 31, 2022, the Company provided modifications for competitive reasons to 840 loans totaling $120,241.

During the year ended December 31, 2021, the Company provided modifications for competitive reasons to 875 loans totaling $112,718.

The modifications were not TDRs and were not related to COVID-19.

During 2021, the Company provided modifications to borrowers experiencing COVID-19 related hardship.

The modification met criteria specified by the CARES Act, the CAA and regulatory guidance and were not designated TDR, including 37 payment extensions to loans totaling $16,426 and 8 amortizing loans granted temporary interest-only periods totaling $22,135.

The Company followed its normal risk rating and nonaccrual designation procedures and did not automatically downgrade or designate as nonaccrual if the loan was modified for COVID-19 related difficulty.

Modifications are evaluated to determine whether they meet requirements for designation as TDR.

Please refer to Notes 1 and 5 of Notes to Consolidated Financial Statements for information on designation of TDRs during the reporting periods and the effect of default on the allowance for loan losses.

The Company’s TDRs, by delinquency status, are presented below:

TDR Delinquency Status as of December 31, 2022

Consumer real estate

Commercial real estate

Commercial non real estate

Total TDR Loans

TDR Delinquency Status as of December 31, 2021

Total TDR Loans

Consumer real estate

The Company reviews modifications to determine whether the borrower is experiencing financial difficulty, including indicators of default, bankruptcy, going concern, insufficient projected cash flows and inability to obtain financing from other sources.

If a modification is made to a borrower experiencing financial difficulty, the loan’s risk rating is downgraded to special mention or classified, resulting in individual evaluation for the ACL.

During the year ended December 31, 2023, the Company modified one loan totaling $6,396 for a borrower who was experiencing financial difficulty.

The loan was individually evaluated for the ACLL as of December 31, 2023.

During the twelve month period ended December 31, 2022, no loans were modified for borrowers experiencing financial difficulty.

The following table presents the amortized cost basis as of December 31, 2023 of the loan modified for a borrower experiencing financial difficulty.

Interest Only Payments

% of Portfolio

Financial Effect

Commercial Real Estate

Commercial non real estate

Total TDR Loans

Commercial real estate owner-occupied

6 months of interest only payments, after which remaining balance will be re-amortized to the contractual maturity date.

The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty.

The loan presented above is in current status as of December 31, 2023.

The Company analyzed its modified loan portfolio for loans that defaulted during the 12 month period ended December 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.

There were no loans previously modified that defaulted during the year ended December 31, 2023.

Modifications for Borrowers Who Were Not Experiencing Financial Difficulty

During the years ended December 31, 2023 and 2022, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty.

During the 2023, the Company modified 757 loans totaling $89,006.

During 2022, the Company provided modifications for competitive purposes to 840 loans totaling $120,241.

Summary of Loan Loss Experience

The following table provides information about the allowance for loan losses, nonperforming assets and accruing loans past due 90 days or more:

Allowance for loan losses

The following table provides information about the allowance for credit losses on loans, nonperforming assets and accruing loans past due 90 days or more as of the dates indicated:

Total loans, net of unearned income and deferred fees

Allowance for loan losses to loans, net of unearned income and deferred fees and costs

ACLL to loans, net of unearned income and deferred fees and costs

Nonaccrual loans

TDR loans in nonaccrual status

Total nonperforming loans

Other real estate owned, net

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Nonperforming loans to total loans, net of unearned income and deferred fees and costs

Allowance for loan losses to nonperforming loans

ACLL to nonperforming loans

Nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned

Allowance for loan losses to nonperforming assets

ACLL to nonperforming assets

Accruing loans past due 90 days or more

 More information about the level and calculation methodology of the allowance for loan losses is provided in the sections “Allowance for Loan Losses”

as well as Notes 1 and 5 of Notes to Consolidated Financial Statements.

More information about the level and calculation methodology of the allowance for credit losses on loans is provided in the sections “Allowance for Credit Losses on Loans” as well as Notes 1 and 5 of Notes to Consolidated Financial Statements.

Analysis of Net Charge-Offs

The following tables show net charge-offs, average loan balance and the percentage of charge-offs to average loan balance for each of the Company’s loan segments at the end of each period.

Average loans are presented net of unearned income and net deferred fees.

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Average Loans

Percentage of Net Charge-Offs (Recoveries) to Average Loans

Percentage of Net Charge-Offs

(Recoveries) to Average Loans

Real estate construction

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Average Loans

Percentage of Net Charge-Offs (Recoveries) to Average Loans

Percentage of Net Charge-Offs

(Recoveries) to Average Loans

Real estate construction

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Any loan amount in excess of collateral value is charged off and the collateral is taken into OREO.

Allowance for Loan Losses

The Company’s risk analysis as of December 31, 2022 determined an allowance for loan losses of $8,225 or 0.96% of loans net of unearned income and deferred fees and costs.

The allowance as of December 31, 2021 was $7,674 or 0.96% of loans net of unearned income and deferred fees and costs.

To determine the appropriate level of the allowance for loan losses, the Company considers credit risk for certain loans designated as impaired and for non-impaired (“collectively evaluated”) loans.

Individually Evaluated Impaired Loans

Individually evaluated impaired loans decreased from December 31, 2021 to December 31, 2022, due to the payoff of one relationship.

As of December 31, 2022 individually evaluated loans were $3,032 on a gross basis and $3,033 net of unearned income and deferred fees and costs.

Individually evaluated impaired loans as of December 31, 2021 were $5,878 gross and $5,880 net of unearned income and deferred fees and costs.

Measurement as of December 31, 2022 and December 31, 2021 did not result in specific allocations to the allowance for loan losses.

Allowance for Credit Losses on Loans

The Company adopted the CECL model on January 1, 2023, resulting in an increase to the ACLL of $2,342, from $8,225 at December 31, 2022.

For information on the Company’s policies on the ACLL, please refer to Note 1 and Note 5 of Notes to Consolidated Financial Statements.

For information on the Company’s application of previous GAAP in determining the ACLL, please refer to the Company’s 2022 Form 10-K, Note 1:

Summary of Significant Accounting Policies.

The Company’s risk analysis under the CECL model at December 31, 2023 determined an ACLL of $9,094, or 1.06% of loans net of unearned income and deferred fees and costs.

This compares with an allowance of $8,225 as of December 31, 2022, or 0.96% of loans.

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

Individually Evaluated Loans

Individually evaluated loans were $10,544 as of December 31, 2023, an increase from $3,032 as of December 31, 2022.

The increase was due to a change in the way that the Company identifies individually evaluated loans under CECL.

Please refer to Note 1 of Notes to Consolidated Financial Statements for information on the Company’s identification of individually evaluated loans.

As of December 31, 2023, three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation.

The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $572.

Collectively Evaluated Loans

Collectively evaluated loans totaled $850,161 gross and $849,711 net of unearned income and deferred fees and costs, with an allowance of $8,225 or 0.97% of collectively evaluated loans net of unearned income and deferred fees and costs as of December 31, 2022.

As of December 31, 2021, collectively evaluated loans totaled $797,851 gross and $797,368 net of unearned income and deferred fees and costs, with an allowance of $7,674 or 0.96% of collectively evaluated loans net of unearned income and deferred fees and costs.

Collectively evaluated loans are divided into classes based upon risk characteristics.

In order to calculate the allowance for collectively evaluated loans, the Company applies to each loan class a historical net charge-off rate for the class, adjusted for qualitative factors that influence credit risk.

Qualitative factors evaluated for impact to credit risk include economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.

Net Charge-Offs

Increases in the net charge-off rate require the allowance for collectively evaluated loans to be increased, while decreases in the net charge-off rate require the allowance for collectively evaluated loans to be decreased.

On a portfolio level, net charge-offs were $155 for the year ended December 31, 2022, or 0.02% of average loans.

For the year ended December 31, 2021, net charge-offs were $409 or 0.05% of average loans.

The 8-quarter average historical loss rate was 0.03% for the year ended December 31, 2022 and 0.05% for the year ended December 31, 2021.

Economic Factors

Economic factors influence credit risk and impact the allowance for loan loss.

The Company sources economic data pertinent to its market from the most recently available publications, including unemployment, business and personal bankruptcy filings, the residential vacancy rate and the inventory of new and existing homes.

As of December 31, 2022, the unemployment rate for the Company’s market area was measured as of November 2022 and increased from the measurement available as of December 31, 2021, leading management to increase the allocation to the allowance for loan losses.

Business and personal bankruptcy filing data was available as of September 2022.

Higher bankruptcy filings indicate heightened credit risk and increase the allowance for loan losses, while lower bankruptcy filings have a beneficial impact on credit risk.

Compared with data available as of December 31, 2021, business bankruptcy filings slightly decreased and personal bankruptcy filings slightly increased.

Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market.

Collectively evaluated loans totaled $846,631, with an ACLL of $8,522 as of December 31, 2023.

At December 31, 2022, collectively evaluated loans totaled $850,161, with an allowance of $8,225.

Collectively evaluated loans are divided into pools based upon risk characteristics.

Utilizing historical loss information, the Company calculates a probability of default and loss given default for each pool, which is adjusted for a reasonable and supportable forecast.

Loan pools are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.

Reasonable and Supportable Forecast

To estimate cash flows, the Company adjusted its historical loss information with a forecast of the national unemployment rate.

The Company determined that 12 months represents a reasonable and supportable forecast period as of December 31, 2023, and set a period of 12 months to revert to historical losses on a straight-line basis.

The forecast applied at December 31, 2023 projects that unemployment will rise over the next 12 months, but to a smaller extent than the forecast applied as of December 31, 2022.

The lower unemployment forecast reduced the required level of the ACLL when December 31, 2023 is compared with December 31, 2022.

Qualitative Factors:

The Company sources economic data pertinent to its market from the most recently available publications, including business and personal bankruptcy filings, the residential vacancy rate and the inventory of new and existing homes.

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

Compared with data available at December 31, 2022, business bankruptcy filings decreased slightly while personal bankruptcy filings increased slightly.

Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market.

Higher levels increase credit risk.

The residential vacancy rate as of December 31, 2022 was measured as of the third quarter of 2022 and worsened slightly from the data incorporated into the December 31, 2021 calculation, resulting in a higher allocation.

Housing inventory data was available as of December 31, 2022.

The level was slightly higher than as of December 31, 2021, resulting in a higher allocation.

Economic factors in 2021 included an allocation for national unemployment filings.

This factor was added early in the COVID-19 pandemic to capture risk that may not have been reflected by the Company’s standard economic indicators.

By the beginning of 2022, national unemployment filings had returned to pre-pandemic levels for a sustained period and the Company removed the allocation.

The residential vacancy rate available at December 31, 2023 improved from the data incorporated into the December 31, 2022 calculation, resulting in a lower allocation.

Housing data available as of December 31, 2023 showed higher inventory than at December 31, 2022, resulting in a higher allocation.

Qualitative Factors:

Asset Quality Indicators

Asset quality indicators, including past due levels, nonaccrual levels and internal risk ratings, are evaluated at the class level.

Loans past due and loans designated nonaccrual indicate heightened credit risk.

Increases in past due and nonaccrual loans increase the required level of the allowance for loan losses and decreases in past due and nonaccrual loans reduce the required level of the allowance for loan losses.

Accruing loans past due 30-89 days were 0.16% of total loans net of unearned income and deferred fees and costs as of December 31, 2022, an increase from 0.12% as of December 31, 2021.

As of December 31, 2022, accruing loans past due 90 days were $8, compared with $90 or 0.01% of total loans, net of unearned income and deferred fees and costs as of December 31, 2021.

Nonaccrual loans as a percentage of total loans net of unearned income and deferred fees and costs were 0.33% as of December 31, 2022 and 0.36% as of December 31, 2021.

Loans rated special mention and classified (together, “criticized assets”) indicate heightened credit risk.

Higher levels of criticized assets increase the required level of the allowance for collectively evaluated loans, while lower levels of criticized assets reduce the required level of the allowance for collectively evaluated loans.

There were no collectively evaluated loans rated special mention as of December 31, 2022, compared with $3,728 as of December 31, 2021, due to improvement in credit quality of a large relationship.

Collectively evaluated loans rated classified were $1,393 as of December 31, 2022 and $1,064 as of December 31, 2021.

Other Factors

The Company considers other factors that impact credit risk, including the interest rate environment, the competitive, legal and regulatory environments, changes in lending policies and loan review, changes in management, and high risk loans.

Accruing past due loans are analyzed at the class level and compared with previous levels.

Increases in past due loans indicate heightened credit risk.

Accruing loans past due 30-89 days were 0.19% of total loans at December 31, 2023, an increase from 0.16% at December 31, 2022.

Qualitative Factors:

Other Considerations

The interest rate environment impacts variable rate loans.

When interest rates increase, the payment on variable rate loans increases, which may increase credit risk.

The Federal Reserve increased the target Fed Funds rate seven times, totaling 425 basis points during 2022, resulting in an increased allocation for December 31, 2022 compared with the allocation for December 31, 2021.

The competitive, legal and regulatory environments were evaluated for changes that would impact credit risk.

Higher competition for loans may increase credit risk, while lower competition may decrease credit risk.

Competition remained at a similar level to that as of December 31, 2021.

The legal and regulatory environments remain in a similar posture to that as of December 31, 2021.

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

During 2022, appraisal requirements on residential real estate changed, resulting in an increased allocation from December 31, 2021.

Loan review procedures remained similar to those as of December 31, 2021 and no allocation was taken.

The allocation for management experience declined from December 31, 2021 to December 31, 2022, due to the hiring of a seasoned Chief Credit Officer to replace the former Chief Credit Officer who left at the end of 2021.

Levels of high risk loans are considered in the determination of the level of the allowance for loan loss.

The Federal Reserve’s aggressive interest rate increases beginning in March 2022 have increased payments on certain adjustable rate loans, which may increase credit risk.

The Company allocates additional reserve each time the Federal Reserve increases rates.

After the rate increase has been in effect for one year, the allocation may be removed under the assumption that the impact of the change has become integrated to the portfolio.

For the calculation as of December 31, 2023, the Company removed allocations for interest rate increases that occurred between March and December 2022.

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

Higher competition for loans increases credit risk, while lower competition decreases credit risk.

Competition remained at similar levels to those at December 31, 2022.

The legal and regulatory environments also remain in a similar posture to December 31, 2022.

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

Except for the adoption of CECL, policies and procedures remain similar to those at December 31, 2022.

The Company recorded allocation for the retirement of a long-term credit administration manager in the third quarter.

Levels of high risk loans are considered in the determination of the level of the ACLL.

A decrease in the level of high risk loans within a class decreases the required allocation for the loan class, and an increase in the level of high risk loans within a class increases the required allocation for the loan class.

Total high risk loans decreased 7.67% from the level as of December 31, 2021.

Total high risk loans increased from the level at December 31, 2022, resulting in an increased allocation.

Unallocated Surplus

The unallocated surplus as of December 31, 2022 was $179 or 2.23% in excess of the calculated requirement.

The unallocated surplus as of December 31, 2021 was $361 or 4.94% in excess of the calculated requirement.

The unallocated surplus as of December 31, 2023 is $350, or 4.00% in excess of the calculated requirement.

The unallocated surplus at December 31, 2022 was $179, or 2.23% in excess of the calculated requirement.

The surplus provides some mitigation of current economic uncertainty that may impact credit risk.

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

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

The Company augmented the calculated requirement with an unallocated surplus.

Based on analysis of historical indicators, asset quality and economic factors, management believes the level of allowance for loan losses is reasonable for the credit risk in the loan portfolio as of December 31, 2022.

Please refer to Note 5 of Notes to Consolidated Financial Statements for further information on collectively evaluated loans, individually evaluated impaired loans and the unallocated portion of the allowance for loan losses.

Allocation of the Allowance for Loan Losses

The allowance for loan losses has been allocated according to the amount deemed necessary to provide for anticipated losses within the categories of loans as of the dates indicated.

Based on analysis of historical indicators, asset quality and economic factors, management believes the level of ACLL is reasonable for the credit risk in the loan portfolio as of December 31, 2023.

Allocation of the Allowance for Credit Losses on Loans

The allowance for credit losses on loans has been allocated according to the amount deemed necessary to provide for anticipated losses within the categories of loans as of the dates indicated.

Loans are presented net of unearned income and net deferred fees and costs.

The following table presents information on the ACLL as of the dates indicated:

December 31, 2023

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Consumer non-real estate

An analysis of the allowance for loan losses by impairment basis follows.

Loans are presented on a gross basis.

Impaired loans

Allowance related to impaired loans

Allowance to impaired loans

Non-impaired loans

Allowance related to non-impaired loans

Allowance to non-impaired loans

Total gross loans

unearned income and deferred fees and costs

Loans, net of unearned income and deferred fees and costs

Allowance for loan losses, total

Allowance as a percentage of loans, net of unearned income and deferred fees and costs

Please refer to the discussion under “Allowance for Loan Losses”

for additional information on the determination of the allowance for loan loss.

The Company’s securities are designated as available for sale and as such, are reported at fair value.

The following table presents information on securities available for sale as of the dates indicated.

The following table presents information on securities available for sale as of the dates indicated.

December 31, 2023

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Securities available for sale at amortized cost

Unrealized (loss) gain

Securities available for sale 

The securities portfolio is subject to the volatility and risk in the financial markets.

Unrealized loss, net

Securities available for sale

The securities portfolio is subject to the volatility and risk in the financial markets.

The risk in financial markets, including interest rate risk and credit risk, affects the Company in the same way that it affects other institutional and individual investors.

The fair value of available for sale securities is reflected on the Company's balance sheet.

The unrealized loss in the Company’s investment portfolio is due to interest rate risk, the result of increases in the Federal Reserve’s target interest rate during 2022. 

The Company’s Asset Liability Management Committee is closely monitoring all of the Company’s financial assets and liabilities in order to manage interest rate risk.

Credit risk in the Company’s investment portfolio is evaluated on an individual security basis. 

The Company’s investment portfolio includes corporate bonds.

The unrealized loss in the Company’s investment portfolio is due to interest rate risk, the result of increases in the Federal Reserve’s target interest rate during 2022 and 2023.

The Company’s Asset Liability Management Committee is closely monitoring all of the Company’s financial assets and liabilities in order to manage interest rate risk.

As part of its interest rate risk management, the Company periodically evaluates its position in financial assets.

During the first half of 2023, the Company strategically selected and sold securities with an amortized cost of $46,850, realizing a loss of $3,332.

The strategy for the sales prioritized enhancement of long-term earnings.

Though not a primary objective, proceeds from the sales also bolstered liquidity.

Credit risk in the Company’s investment portfolio is evaluated on an individual security basis.

The Company’s investment portfolio includes corporate bonds.

If the corporate issuers were to default, there could be a delay in the payment of interest, or there could be a loss of principal and accrued interest.

To date, there have been no defaults in any of the corporate bonds held in the portfolio.

The Company’s investment portfolio also contains a large percentage of municipal bonds.

If economic forces reduce the ability of states and municipalities to make scheduled principal and interest payments on their outstanding indebtedness, or if their income from taxes and other sources declines significantly, states and municipalities could default on their bond obligations.

There have been no defaults among the municipal bonds in the Company’s investment portfolio. 

As of December 31, 2022, there are no credit risk concerns with any of the Company’s securities.

There have been no defaults among the municipal bonds in the Company’s investment portfolio.

As of December 31, 2023, there are no credit risk concerns with any of the Company’s securities.

The majority of mortgage-backed securities and collateralized mortgage obligations were backed by U.S.

government agencies.

Certain holdings are required to be periodically subjected to the Federal Financial Institution Examination Council’s (FFIEC) high risk mortgage security test.

Certain holdings are required to be periodically subjected to the FFIEC’s high risk mortgage security test.

These tests address possible fluctuations in the average life and variances caused by the change in rate times the change in volume that have been allocated to rate and volume changes proportional to the relationship of the absolute dollar amounts of the change in each.

In making investment decisions, management follows internal policy guidelines that help to limit risk by specifying parameters for both security quality and industry and geographic concentrations.

Management regularly monitors the quality of the investment portfolio and tracks changes in financial markets.

The value of individual securities will be written down if a decline in fair value is considered to be other than temporary, given the totality of the circumstances.

Additional information about securities available for sale can be found in Note 3 of Notes to Consolidated Financial Statements.

The following table presents deposits by category:

Management regularly monitors the quality of the investment portfolio as part of its risk management function.

An allowance for credit risk will be recorded if analysis indicates the presence of credit risk.

Additional information about securities available for sale can be found in Note 3 of Notes to Consolidated Financial Statements.

The following table presents deposits by category as of the dates indicated:

December 31, 2023

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Total deposits

Deposits, including noninterest-bearing demand deposits, interest-bearing deposits and interest-bearing time deposits are obtained in the Company’s markets through traditional marketing techniques.

The Company’s deposits do not include any brokered deposits.

Time deposits decreased due to decreased offering rates.

All other categories of deposits increased, due in large part to government stimulus funds received by municipal depositors and other depositors.

Deposits, including noninterest-bearing demand deposits, interest-bearing deposits and interest-bearing time deposits are obtained in the Company’s markets through traditional marketing techniques.

The Company’s deposits do not include any brokered deposits.

Competition for deposits began impacting the Company during the latter part of 2022 and continued during 2023.

The Company implemented competitive pricing on CDs, raised offering rates on other deposits and negotiated with depositors to strengthen the deposit base, at costs well below the cost of borrowing.

Average Amounts of Deposits and Average Rates Paid

Average amounts and average rates paid on deposit categories are presented below:

Average amounts and average rates paid on deposit categories during the periods indicated are presented below:

Year Ended December 31,

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FDIC insurance covers deposits of up to $250 per depositor.

As of December 31, 2022, $665,002 of the Bank’s deposits were uninsured.

The following table sets forth time deposits that exceed $250.

As of December 31, 2023, $672,063 of the Bank’s deposits were uninsured.

Municipal deposits, which account for 25.43% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation.

Of the Company’s non-municipal deposits, 19.65% are uninsured.

The following table presents time deposits that exceed $250 as of the date indicated.

December 31, 2023

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Derivatives and Market Risk Exposures

The Company engages in derivative financial instruments associated with its secondary market operation.

The derivatives are recorded within other assets and other liabilities.

The Company engages in derivative financial instruments associated with its secondary market operation, recorded within other assets and other liabilities.

Please refer to Note 1 of Notes to Consolidated Financial Statements for information on derivative valuation.

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Management does not plan any future involvement in high risk derivative products.

The Company’s investments in mortgage-backed securities are primarily through the Government National Mortgage Association and Federal National Mortgage Association.

See Note 3 of Notes to Consolidated Financial Statements for additional information relating to securities.

The Company’s securities and loans are subject to credit and interest rate risk, and its deposits are subject to interest rate risk.

The Company’s investments in mortgage-backed securities are primarily through the Government National Mortgage Association and Federal National Mortgage Association.

See Note 3 of Notes to Consolidated Financial Statements for information on securities.

The Company’s securities and loans are subject to credit and interest rate risk, and its deposits are subject to interest rate risk.

Management considers credit risk when a loan is granted and monitors credit risk after the loan is granted.

The Company maintains an allowance for loan losses to absorb losses in the collection of its loans.

See Note 5 of Notes to Consolidated Financial Statements for information relating to the allowance for loan losses.

The Company maintains an allowance for credit losses to absorb losses in the collection of its loans.

See Note 5 of Notes to Consolidated Financial Statements for information relating to the allowance for credit losses on loans.

See Note 14 of Notes to Consolidated Financial Statements for information relating to concentrations of credit risk.

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See Interest Rate Sensitivity for further details on asset liability management and Note 15 of Notes to Consolidated Financial Statements for information relating to fair value of financial instruments.

Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost.

Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits.

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

As of December 31, 2022, the Bank did not have purchased deposits, discount window borrowings, short-term borrowings, or FHLB advances.  To assure that short-term borrowing is readily available, the Company tests accessibility annually.

Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost.

Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits.

As of December 31, 2023, the Company had borrowing capacity of $301,020 from the FHLB and an unsecured federal funds line of credit with an unaffiliated bank of $10,000, with no amounts advanced against those lines.

Additionally, the Company had $182,037 of borrowing capacity at the Federal Reserve discount window.

Periodically during 2023, the Company accessed FHLB and Federal Reserve discount window borrowings to reinforce liquidity.

The advances were fully repaid, due to the success of the Company’s deposit strategy.

As of December 31, 2023, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.

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

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The Company monitors public funds pledging requirements and unpledged available for sale securities accessible for liquidity needs.

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

As of December 31, 2022, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve discount window.

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

As of December 31, 2023, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve discount window.

The Company monitors factors that may increase its liquidity needs.

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

As of December 31, 2022, the Company’s liquidity is sufficient to meet projected trends.

As of December 31, 2023, the Company’s liquidity is sufficient to meet projected trends.

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

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

As of December 31, 2022, the analysis indicated adequate liquidity under the tested scenarios.

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

As of December 31, 2023, the analysis indicated adequate liquidity under the tested scenarios.

The Company utilizes several other strategies to maintain sufficient liquidity.

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

As of December 31, 2022, the loan to deposit ratio was 55.28%.

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

As of December 31, 2023, the loan to deposit ratio was 56.96%.

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

In the normal course of business, we enter into certain contractual obligations, including obligations to make future payments on lease arrangements, contractual commitments with depositors, and service contracts.

The table below presents our significant contractual obligations, except for pension and other postretirement benefit plans, which are included in Note 8 of Notes to Consolidated Financial Statements.

December 31, 2022

The table below presents our significant contractual obligations as of the dates indicated, except for pension and other postretirement benefit plans, which are included in Note 8 of Notes to Consolidated Financial Statements.

Payments Due by Period

December 31, 2023

Time deposits

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Includes contracts with a minimum annual payment of $100.

As of December 31, 2022, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity.

As of December 31, 2022, the Company has no material commitments for long term debt or for capital expenditures.

As of December 31, 2023, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity.

As of December 31, 2023, the Company has no material commitments for long-term debt or for capital expenditures, other than commitments for capital expenditures associated with building the Roanoke branch location.

Capital Resources

Total stockholders’

equity as of December 31, 2022 was $122,687, a decrease of $69,064, or 36.02%, from $191,751 as of December 31, 2021.

The decline in stockholders’

equity is due to the change in market value of the securities portfolio, which was in a gain position as of December 31, 2021 and ended December 31, 2022 in a loss position.

Unrealized gains and losses in the securities portfolio are reflected in the equity component, accumulated other comprehensive income (loss).

The largest component of stockholders’

equity, retained earnings, increased from $188,229 as of December 31, 2021 to $199,091 as of December 31, 2022.

The increase stemmed from net income of $25,932, offset by dividends of $8,950 and repurchases of shares of $6,120.

The Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $3 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements.

The following table presents components of stockholders’ equity:

December 31, 2023

December 31, 2022

Common stock and additional paid in capital

Retained earnings

Accumulated other comprehensive loss, net

Total stockholders’ equity

Total stockholders’ equity increased when December 31, 2023 is compared with December 31, 2022, due to improved market value of the securities portfolio reflected in accumulated other comprehensive loss.

The largest component of stockholders’ equity, retained earnings, decreased from December 31, 2022 to December 31, 2023 due to dividend payments and an adjustment for the adoption of Accounting Standards Update (“ASU”) 2016-13, largely offset by net income.

NBB is subject to various capital requirements administered by banking agencies, including an additional capital conservation buffer in order to make capital distributions or discretionary bonus payments.

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

The Bank’s ratios are well above the required minimums as of December 31, 2022 and December 31, 2021.

Risk based capital ratios for NBB are shown in the following tables.

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

December 31, 2023

December 31, 2022

Regulatory Capital Minimum Ratios

Minimum Ratios

Regulatory Capital Minimum

Ratios with Capital Conservation

Ratios with Capital

Conservation Buffer

Total Capital Ratio

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Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements as of December 31, 2022 are detailed in the table below.

The Company’s off-balance sheet arrangements as of December 31, 2023 are detailed in the table below.

All are due in less than one year.

Payments Due by Period

Less Than 1 Year

More Than 5 Years

Commitments to extend credit

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Mortgage loans with potential recourse

Operating leases

In the normal course of business the Company’s banking affiliate extends lines of credit to its customers.

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

Standby letters of credit are also issued to the Bank’s customers.

There are two types of standby letters of credit.

The first is a guarantee of payment to facilitate customer purchases.

The second type is a performance letter of credit that guarantees a payment if the customer fails to perform a specific obligation.

Revenue from these letters was approximately $71 in 2022.

In the normal course of business the Company’s banking affiliate extends lines of credit to its customers.

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

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

Associated revenue from letters of credit was $51 in 2023.

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

While it would be possible for customers to fully draw on approved lines of credit and for beneficiaries to call all letters of credit, historically this has not occurred.

In the event of a sudden and substantial draw on these lines, the Company has its own lines of credit from which it can draw funds.

A sale of loans or investments would also be an option to meet liquidity demands.

In the event of a sudden and substantial draw on these lines, the Company would manage liquidity using cash on hand, borrowing capacity, or sale of investments or loans.

The Company sells mortgages on the secondary market subject to recourse agreements.

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To date, no recourse provisions have been invoked.

Operating leases are for buildings used in the Company’s day-to-day operations.

Recent Accounting Pronouncements

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity