What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-15 compared with 2023-11-08 · 623 added, 1118 removed, 476 unchanged (79% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

September 30,

(in thousands, except share and per share data)

Cash and due from banks

$ 13,089  

$ 12,403  

$ 10,656 $ 12,967

Interest-bearing deposits

40,353  

59,026  

110,527 73,636

Total cash and cash equivalents

121,183 85,603

Securities available for sale, at fair value

591,552  

656,852  

609,968 618,601

Restricted stock, at cost

1 unchanged sentence

Loans, net of unearned income and deferred fees and costs

848,975  

852,744  

863,548 856,646

Less allowance for credit losses

838,794  

844,519  

( 9,055 ) ( 9,094 )

854,493 847,552

Premises and equipment, net

11,091  

10,371  

11,214 11,109

Accrued interest receivable

Other real estate owned, net

Bank-owned life insurance

43,327  

43,312  

39,660  

37,616  

$ 1,591,902  

$ 1,677,551  

43,840 43,583

34,934 34,091

$ 1,689,206 $ 1,655,370

Liabilities and Stockholders' Equity

Noninterest-bearing demand deposits

$ 303,166  

$ 327,713  

$ 283,870 $ 281,215

Interest-bearing demand deposits

789,148  

933,269  

838,450 821,661

Savings deposits

184,801  

214,114  

175,587 177,856

Time deposits

187,885  

67,629  

239,901 223,240

Total deposits

1,465,000  

1,542,725  

1,537,808 1,503,972

Accrued interest payable

Other liabilities

10,238  

12,033  

Total liabilities

1,475,789  

1,554,864  

1,549,816 1,514,848

Commitments and contingencies

4 unchanged sentences

Authorized 10,000,000 shares;

issued and outstanding 5,891,739 (including 2,052 unvested) shares at September 30, 2023 and 5,889,687 at December 31, 2022

issued and outstanding 5,893,782 (including 4,095 unvested) shares at March 31, 2024 and December 31, 2023

Retained earnings

198,394  

199,091  

200,158 197,984

Accumulated other comprehensive loss, net

( 68,204 ) ( 64,866 )

Total stockholders' equity

116,113  

122,687  

139,390 140,522

Total liabilities and stockholders' equity

$ 1,591,902  

$ 1,677,551  

$ 1,689,206 $ 1,655,370

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Income

Three Months Ended September 30,

Three Months Ended March 31,

(in thousands, except share and per share data)

1 unchanged sentence

Interest and fees on loans

$ 9,816  

$ 8,816  

$ 10,277 $ 9,333

Interest on interest-bearing deposits

Interest on securities –

Interest on securities – taxable

Interest on securities – nontaxable

Total interest income

14,679  

13,155  

16,021 14,044

Interest Expense

4 unchanged sentences

Net interest income

12,402  

(Recovery of) provision for credit losses

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

12,150  

Noninterest Income

3 unchanged sentences

Gain on sale of mortgage loans

Realized securities gain, net

Total noninterest income

7 unchanged sentences

Professional services

Merger-related expenses

Other operating expenses

2 unchanged sentences

Income tax expense

$ 3,074  

$ 6,162  

Basic net income per common share

$ 0.52  

$ 1.03  

Diluted net income per common share

$ 0.52  

$ 1.03  

$ 2,174 $ 4,531

Basic earnings per common share

$ 0.37 $ 0.77

Diluted earnings per common share

$ 0.37 $ 0.77

Weighted average number of common shares outstanding, basic

5,889,687  

5,974,961  

5,889,687 5,889,687

Weighted average number of common shares outstanding, diluted

5,889,939  

5,974,961  

5,891,651 5,889,687

Dividends declared per common share

1 unchanged sentence

National Bankshares, Inc.

Consolidated Statements of Comprehensive Loss

Three Months Ended September 30, 2023 and 2022

September 30,

(in thousands)

$ 3,074  

$ 6,162  

Other Comprehensive Loss, Net of Tax

Unrealized holding loss on available for sale securities net of tax of ( $4,099 ) and ($ 7,822 ) for the periods ended September 30, 2023 and September 30, 2022, respectively

Other comprehensive loss, net of tax

Total Comprehensive Loss

See accompanying notes to consolidated financial statements.

National Bankshares, Inc.

Consolidated Statements of Income

Nine Months Ended September 30,

(in thousands, except share and per share data)

Interest Income

Interest and fees on loans

$ 28,793  

$ 25,240  

Interest on interest-bearing deposits

Interest on securities –

12,268  

Interest on securities –

Total interest income

43,320  

36,127  

Interest Expense

Interest on time deposits

Interest on other deposits

11,352  

Interest on borrowings

Total interest expense

14,517  

Net interest income

28,803  

34,072  

(Recovery of) provision for credit losses

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

29,192  

33,376  

Noninterest Income

Service charges on deposit accounts

Other service charges and fees

Credit and debit card fees, net

Gain on sale of investment

Gain on sale of mortgage loans

Loss on sale of securities

Total noninterest income

Noninterest Expense

Salaries and employee benefits

13,361  

12,133  

Occupancy, furniture and fixtures

Data processing and ATM

FDIC assessment

Net costs of other real estate owned

Franchise taxes

Professional services

Other operating expenses

Total noninterest expense

22,686  

19,660  

Income before income taxes

13,611  

20,259  

Income tax expense

$ 11,506  

$ 16,622  

Basic net income per common share

$ 1.95  

$ 2.77  

Fully diluted net income per common share

$ 1.95  

$ 2.77  

Weighted average number of common shares outstanding, basic

5,889,687  

6,008,607  

Weighted average number of common shares outstanding, diluted

5,889,778  

6,008,607  

Dividends declared per common share

$ 1.73  

$ 0.72  

National Bankshares, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Nine Months Ended September 30, 2023 and 2022

September 30,

Consolidated Statements of Comprehensive (Loss) Income

Three Months Ended March 31, 2024 and 2023

(in thousands)

$ 11,506  

$ 16,622  

Other Comprehensive Loss, Net of Tax

Unrealized holding loss on available for sale securities net of tax of ($ 2,268 ) and ($ 23,431 ) for the periods ended September 30, 2023 and September 30, 2022, respectively

Reclassification adjustment for loss included in net income, net of tax of $ 700 in 2023

Other comprehensive loss, net of tax

Total Comprehensive Income (Loss)

$ 5,608  

$ 2,174 $ 4,531

Other Comprehensive (Loss) Income, Net of Tax

Unrealized holding (loss) gain on available for sale securities net of tax of ($887) and $ 3,121 for the periods ended March 31, 2024 and 2023, respectively

( 3,338 ) 11,738

Reclassification adjustment for gain included in net income, net of tax of ($3) in 2023

Other comprehensive (loss) income, net of tax

( 3,338 ) 11,729

Total Comprehensive (Loss) Income

$ ( 1,164 ) $ 16,260

See accompanying notes to consolidated financial statements.

National Bankshares, Inc.

Consolidated Statements of Changes in Stockholders’

Three Months Ended September 30, 2023 and 2022

(in thousands except share data)

Comprehensive

Balances at June 30, 2022

$ 7,476  

$ 191,545  

$ 136,244  

Common stock repurchased, 23,500 shares

Other comprehensive loss, net of tax of ($ 7,822 )

Balances at September 30, 2022

$ 7,447  

$ 196,941  

$ 112,187  

Balances at June 30, 2023

$ 7,367  

$ 195,320  

$ 128,444  

Other comprehensive loss, net of tax of ($ 4,099 )

Stock based compensation

Balances at September 30, 2023

$ 7,383  

$ 198,394  

$ 116,113  

See accompanying notes to consolidated financial statements.

Nine Months Ended September 30, 2023 and 2022

Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2024 and 2023

(in thousands except share data)

1 unchanged sentence

Balances at December 31, 2022

$ 7,580  

$ 188,229  

$ 191,751  

16,622  

Common stock repurchased, 106,662 shares

Cash dividends of $ 0.72 per share

Other comprehensive loss, net of tax of ($ 23,431 )

Balances at September 30, 2022

$ 7,447  

$ 196,941  

$ 112,187  

Balances at December 31, 2022

$ 7,362  

$ 199,091  

$ 122,687  

$ 7,362 $ 199,091 $ ( 83,766 ) $ 122,687

Adoption of ASU 2016-13

11,506  

- ( 2,014 ) - ( 2,014 )

- 4,531 - 4,531

Cash dividends of $ 1.00 per share

- ( 5,890 ) - ( 5,890 )

Other comprehensive income, net of tax of $ 3,118

- - 11,729 11,729

Balances at March 31, 2023

$ 7,362 $ 195,718 $ ( 72,037 ) $ 131,043

Balances at December 31, 2023

$ 7,404 $ 197,984 $ ( 64,866 ) $ 140,522

- 2,174 - 2,174

Other comprehensive loss, net of tax of ($887)

- - ( 3,338 ) ( 3,338 )

Stock based compensation

Balances at September 30, 2023

$ 7,383  

$ 198,394  

$ 116,113  

See accompanying notes to the consolidated financial statements.

Balances at March 31, 2024

$ 7,436 $ 200,158 $ ( 68,204 ) $ 139,390

See accompanying notes to consolidated financial statements.

National Bankshares, Inc.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2023 and 2022

Three Months Ended March 31, 2024 and 2023

(in thousands)

September 30,

Cash Flows from Operating Activities

$ 11,506  

$ 16,622  

$ 2,174 $ 4,531

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

(Recovery of) provision for credit losses

Depreciation of bank premises and equipment

Depreciation of premises and equipment

Amortization of premiums and accretion of discounts, net

Gain on disposal of fixed assets

Loss on sales of securities available for sale, net

Losses and write-downs on other real estate owned, net

Loss on sales of repossessed assets

Gain on sale of securities available for sale, net

Loss on disposal of repossessed assets

Increase in cash value of bank-owned life insurance

( 258 ) ( 239 )

Origination of mortgage loans held for sale

( 1,023 ) ( 1,239 )

Proceeds from sale of mortgage loans held for sale

Gain on sale of mortgage loans held for sale

( 24 ) ( 16 )

Equity based compensation expense

1 unchanged sentence

Accrued interest receivable

( 165 ) ( 6 )

Accrued interest payable

1 unchanged sentence

Net cash provided by operating activities

13,332  

18,271  

Cash Flows from Investing Activities

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

53,696  

33,465  

Purchase of securities available for sale

Net change in restricted stock

Purchase of loan participations

( 5,609 ) ( 2,280 )

Collection of loan participations

Loan originations and principal collections, net

( 2,012 ) ( 5,166 )

Proceeds from sale of repossessed assets

Recoveries on loans charged off

Proceeds from sale and purchases of premises and equipment, net

BOLI settlement

Net cash provided by (used in) investing activities

56,595  

Purchases of premises and equipment

( 315 ) ( 223 )

Net cash (used in) provided by investing activities

( 3,096 ) 16,062

Cash Flows from Financing Activities

Net change in time deposits

120,256  

16,661 57,942

Net change in other deposits

78,007  

Common stock repurchased

17,175 ( 89,215 )

Cash dividends paid

Net cash (used in) provided by financing activities

68,019  

Net change in cash and due from banks

Cash and due from banks at beginning of period

71,429  

138,789  

Cash and due from banks at end of period

$ 53,442  

$ 90,423  

Net cash provided by (used in) financing activities

33,836 ( 37,163 )

Net change in cash and cash equivalents

34,580 ( 16,768 )

Cash and cash equivalents at beginning of period

86,603 71,429

Cash and cash equivalents at end of period

$ 121,183 $ 54,661

Supplemental Disclosures of Cash Flow Information

Interest paid on deposits and borrowings

$ 14,072  

$ 2,063  

$ 6,678 $ 2,890

Income taxes paid

2 unchanged sentences

Loans transferred to repossessed assets

Unrealized holding loss on securities available for sale

Lease liabilities arising from obtaining right-of-use assets

Unrealized holding (loss) gain on securities available for sale

( 4,225 ) 14,847

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Notes to Consolidated Financial Statements

September 30, 2023

March 31, 2024

$ in thousands, except per share data

General and Summary of Significant Accounting Policies

The consolidated financial statements of National Bankshares, Inc.

(“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (the “Bank”

or “NBB”) and National Bankshares Financial Services, Inc.

(“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry.

(“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (the “Bank” or “NBB”) and National Bankshares Financial Services, Inc.

(“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry.

All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated.

The accompanying interim period consolidated financial statements are unaudited;

however, in the opinion of the Company’s management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.  The results of operations for the three and nine month periods ended September 30, 2023 are not necessarily indicative of results of operations for the full year or any other interim period.  The interim period consolidated financial statements and financial information included in this Form 10 -Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2022 ( “2022 Form 10 -K”).  The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com .

Application of the principles of GAAP and practices within the banking industry requires management to make estimates, assumptions, and judgements that affect the amounts reported in the financial statements and accompanying notes.

These estimates, assumptions, and judgements are based on information available as of the date of the financial statement;

accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments.

Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance of credit losses on loans.

The results of operations for the three month period ended March 31, 2024 are not necessarily indicative of results of operations for the full year or any other interim period.

The interim period consolidated financial statements and financial information included in this Form 10 -Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2023 ( “2023 Form 10 -K”).

The Company’s significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the 2023 Form 10 -K.

There have been no significant changes to the application of significant accounting policies since December 31, 2023.

All amounts and disclosures included in this quarterly report as of December 31, 2023, were derived from the Company’s audited consolidated financial statements.

The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com .

Certain items in the prior period financial statements have been reclassified to conform to the current presentation.

These reclassifications had no effect on prior year net income or stockholders’ equity.

Risks and Uncertainties

2 unchanged sentences

Inflation and U.S.

monetary policy maneuvers to reduce it may impact the Company’s customers’

demand for banking services and ability to qualify for and/or repay loans.

These risks could adversely affect the Company’s business, financial condition, results of operations, cash flows, credit risk, asset valuations and capital position.

monetary policy maneuvers to reduce it may impact the Company’s customers’ demand for banking services and ability to qualify for and/or repay loans.

These risks could adversely affect the Company’s business, financial condition, results of operations, cash flows, credit risk, asset valuations and capital position.

Recent Accounting Pronouncements

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023 - 06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”.

This ASU incorporates certain U.S.

Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification.

The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations.

For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules.

For all other entities, the amendments will be effective two years later.

However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity.

The Company does not expect the adoption of ASU 2023 - 06 to have a material impact on its consolidated financial statements.

In July 2023, the FASB issued ASU 2023 - 03, “Presentation of Financial Statements (Topic 205 ), Income Statement—Reporting Comprehensive Income (Topic 220 ), Distinguishing Liabilities from Equity (Topic 480 ), Equity (Topic 505 ), and Compensation—Stock Compensation (Topic 718 )”.

This ASU amends the FASB Accounting Standards Codification for Securities and Exchange Commission (“SEC”) paragraphs pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S- X:

Income or Loss Applicable to Common Stock.

ASU 2023 - 03 is effective upon addition to the FASB Codification.

ASU 2023 - 09

In December 2023, the FASB issued ASU 2023 - 09, “Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis.

Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received).

Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign.

This ASU is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied on a prospective basis;

however, retrospective application is permitted.

The Company does not expect the adoption of ASU 2023 - 09 to have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020 - 04 “Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”

These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.

Subsequently, in January 2021, the FASB issued ASU 2021 - 01 “Reference Rate Reform (Topic 848 ):

Scope.”

This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

An entity may elect to apply ASU 2021 - 01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.

An entity may elect to apply ASU 2021 - 01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

The Company has a small number of participation loans that reference LIBOR.

The Company is working with the primary banks to determine appropriate actions.

In December 2022, the FASB issued ASU 2022 - 06, “Reference Rate Reform (Topic 848 ):

Deferral of the Sunset Date of Topic 848”.

ASU 2022 - 06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848.

The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when LIBOR would cease being published.

In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

The ASU is effective for all entities upon issuance.

The Company is assessing ASU 2022 - 06 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

Recently Adopted Accounting Standards

ASU 2022 - 03

On January 1, 2023, the Company adopted ASU 2016 - 13 “Financial Instruments –

Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments”

and related ASUs.

Prior to adoption, the Company followed applicable GAAP and used an incurred loss model to estimate an allowance for loan losses and a liability for credit risk on unfunded commitments.

The Company also used a methodology to determine whether securities in an unrealized loss position were other-than-temporarily impaired and whether credit risk was present.

ASU 2016 - 13 makes significant changes to the accounting for credit losses on financial instruments presented on an amortized cost basis and disclosures about them.

The new current expected credit loss (“CECL”) impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers historical experience, current conditions and reasonable and supportable forecasts of future economic conditions.

The standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses.

ASU 2016 - 13 permits the use of estimation techniques that are practical and relevant to the Company’s circumstances, as long as they are applied consistently over time and faithfully estimate expected credit losses in accordance with the standard.

The Company applied the standard’s provisions as a cumulative-effect adjustment of $ 2,014 , net of tax, to retained earnings as of January 1, 2023.

On the adoption date, the allowance for credit losses (“ACL”) on loans increased from $ 8,225 to $ 10,567 and the ACL for unfunded commitments increased from $ 35 to $ 242 .

Based upon the nature and characteristics of our securities portfolios (including issuer specific matters) at the adoption date, macroeconomic conditions and forecasts at that date, and other management judgments, adoption did not result in an ACL on securities available for sale.

Results for reporting periods beginning after January 1, 2023 will be presented under Topic 326, while periods prior to January 1, 2023 will be reported in accordance with GAAP applicable for the time period.

The following presents the Company’s policies governing determination of the ACL on its financial instruments.

ACL on Securities Available for Sale

The Company evaluates securities available for sale that are in an unrealized loss position on the reporting date.

Securities are analyzed to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.

Any impairment that is not credit-related is recognized in other comprehensive income, net of applicable taxes.

Credit-related impairment is recognized as an ACL on the Consolidated Balance Sheets, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings.

Both the ACL and the adjustment to net income may be subsequently reversed if conditions change.

If the Company intends to sell an impaired security, or more likely than not will be required to sell such a security, before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis.

Because the security’s amortized cost basis would be adjusted to fair value, there would be no ACL in this situation.

In evaluating impairment, the Company considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’

financial condition, among other factors.

If the Company determines a credit impairment, the ACL on securities available for sale would be established through a provision for credit losses on securities available for sale in the Consolidated Statements of Income.

If the Company’s management believes it has confirmed that the loss on a security is uncollectible, or when either of the criteria regarding intent or requirement to sell is met, the loss is charged against the ACL.

Accrued interest receivable is excluded from the estimate of credit losses.

ACL on Loans (“ACLL”)

The Company estimates the ACLL based on amortized cost basis, which is the amount at which the loan is originated, adjusted for net deferred fees or costs, collection of cash, and charge-offs.

In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner.

Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACLL.

Intrinsic to the Company’s policy on estimating the ACLL are policies regarding loan pools, nonaccruals, past due status, collateral valuation, charge-offs and risk ratings.

Please refer to the Company’s 2022 Form 10 -K, Note 1:

Summary of Significant Accounting Policies for additional information on these policies.

The Company measures expected credit losses on loans on a collective (pool) basis, when the loans share similar risk characteristics, such as collateral type and intended use, repayment source, and (if applicable) the borrower’s business model.

The Company has identified the following pools of loans with similar risk characteristics for measuring expected credit losses:

Real Estate Construction

Construction, residential

Construction, other

Consumer Real Estate

Residential closed-end first liens

Residential closed-end junior liens

Investor-owned residential real estate

Commercial Real Estate

Multifamily real estate

Commercial real estate, owner occupied

Commercial real estate, other

Commercial Non Real Estate

Commercial and industrial

Public Sector and IDA

Public sector and IDA

Consumer Non Real Estate

Other consumer loans

The Company’s methodologies for estimating the ACLL consider available relevant information about the collectability of cash flows, including historical losses, reasonable and supportable forecasts of economic conditions, and current economic and portfolio conditions.

The difference between cash flow estimates and amortized cost is the ACLL.

The Company uses a discounted cash flow (“DCF”) method for all of its pools except for bankcards, which are measured using the historical loss rate adjusted for the forecast.

For loans using the DCF method, cash flows are projected at the instrument level and discounted using the loan’s effective interest rate.

Cash flows are generated using each loan’s payment attributes, adjusted for pool-level information on the probability of default (“PD”), loss given default and prepayment speeds.

Default is defined as full or partial charge-off, nonaccrual status or past due 90 days or more.

PDs for each pool are calculated using the Company’s historical data, modified by peer data, to ensure a full economic cycle is reflected in the estimate.

PDs are then adjusted for the forecast.

The Company designated national unemployment as its forecast variable.

Multiple forecasts from reputable and independent third parties are sourced to inform the Company’s reasonable and supportable forecasting of current expected credit losses.

The forecast is applied over a horizon selected by the Company’s management at each reporting date, typically of one year and not to exceed two years, after which loss rates revert to long term historical loss experience on a straight line basis over a period determined by the Company’s management, of up to three years.

The forecast horizon and reversion period are applied consistently to the entire portfolio.

The results of DCF calculations are modified by allocations for qualitative factors to account for changes in variables that may affect credit risk.

The Company considers and allocates for changes in lending policies, management experience, economic conditions, loans past due, competitive, legal and regulatory environments and other factors.

Qualitative factors are benchmarked to historical data and are adjusted based upon quantitative analysis.

Loans that do not share risk characteristics are evaluated on an individual basis.

The Company designates loans that have been determined to meet the regulatory definitions of “special mention”

or “classified”

(together known as “criticized”) as individually evaluated.

The fair value of individually evaluated loans is measured using the fair value of collateral (“collateral method”) or the DCF method.

The collateral method is applied to individually evaluated loans for which foreclosure is probable.

The collateral method is also applied to individually evaluated loans when borrowers are experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral (“collateral dependent”).

The ACLL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date.

When repayment is expected to be from the operation of the collateral, the ACLL is calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral.

When repayment is expected to be from the sale of the collateral, the ACLL is calculated as the amount by which the loan’s amortized cost basis exceeds the fair value of the underlying collateral less estimated cost to sell.

The ACLL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

The DCF method is applied to individually evaluated loans that do not meet the criteria for collateral method measurement.

Cash flows are projected and discounted using the same method as for collectively evaluated loans, but the PD is increased to reflect increased risk, up to 100% for nonaccrual loans.

Expected credit losses are reflected in the ACLL through a charge to provision for credit losses on the Consolidated Statements of Income.

When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off against the ACLL.

The Company applies judgment to determine when a financial asset is deemed uncollectible;

however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted.

Subsequent recoveries, if any, are credited to the ACLL when received.

ACL on Unfunded Commitments

Financial instruments include off-balance sheet credit instruments such as undrawn portions of revolving lines of credit, commercial letters of credit, and loan commitments that have not yet been funded. The contractual amount of those instruments represents the Company’s exposure to credit loss in the event of nonperformance by the borrower.

The Company records an ACL on unfunded commitments, unless the commitments to extend credit are unconditionally cancelable.

The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the ACLL.

The ACL on unfunded commitments is recorded as a liability on the Company’s Consolidated Balance Sheets, included in other liabilities, and is adjusted through the provision for credit loss expense in the Company’s Consolidated Statements of Income.

ASU 2022 - 02

On January 1, 2023, concurrent with its adoption of ASU 2016 - 13, the Company adopted ASU 2022 - 02, “Financial Instruments-Credit Losses (Topic 326 ), Troubled Debt Restructurings and Vintage Disclosures.”

The amendments eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

Disclosures about periods prior to adoption will be presented under GAAP applicable for that period.

Similar to its policy under previous GAAP, the Company continues to identify modifications to loans and to determine whether the borrower is experiencing financial difficulty.

If the Company determines that the borrower is experiencing financial difficulty, the loan is designated for financial reporting purposes.

Loans that are modified for borrowers experiencing financial difficulty are evaluated to determine whether the credit risk falls within the regulatory definition of “criticized”

and requires individual evaluation.

Under previous GAAP, modifications to loans when the borrower was experiencing financial difficulty were designated as TDR and were individually evaluated for the duration of the loan.

In June 2022, the Financial Accounting Standards Board (FASB) issued ASU 2022 - 03, “Fair Value Measurement (Topic 820 ):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022 - 03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

ASU 2022 - 03 was effective for the Company on January 1, 2024.

The adoption of ASU 2022 - 03 did not have a material impact on the Company’s consolidated financial statements.

Loans and Allowance for Credit Losses

The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated.

September 30,

March 31, 2024

December 31, 2023

Real estate construction

$ 64,181  

$ 54,579  

$ 61,486 $ 55,379

Consumer real estate

226,671  

221,052  

244,946 241,564

Commercial real estate

424,765  

437,888  

414,615 419,130

Commercial non real estate

42,940  

57,652  

41,835 41,555

Public sector and IDA

51,591  

48,074  

59,742 60,551

Consumer non real estate

39,269  

33,948  

849,417  

853,193  

41,467 38,996

$ 864,091 $ 857,175

Less unearned income and deferred fees and costs

( 543 ) ( 529 )

Loans, net of unearned income and deferred fees and costs

$ 848,975  

$ 852,744  

$ 863,548 $ 856,646

Allowance for credit losses on loans

( 9,055 ) ( 9,094 )

Total loans, net

$ 838,794  

$ 844,519  

Accrued interest receivable on loans, which is excluded from the amortized cost of loans, totaled $ 2,760 at September 30, 2023 and $ 2,516  at December 

$ 854,493 $ 847,552

The amortized cost of loans excludes accrued interest receivable of $ 3,035 at March 31, 2024 and $ 3,032 at December 31, 2023.

Past Due and Nonaccrual Loans

The following tables present the aging of past due loans, by loan pool, as of the dates indicated.

September 30, 2023

March 31, 2024

Real Estate Construction

Construction, 1-4 family residential

$ 16,995  

$ 11,603 $ - $ - $ - $ 11,603 $ -

Construction, other

47,165  

47,186  

49,883 - - - 49,883 -

Consumer Real Estate

16,631  

16,654  

17,404 112 - - 17,516 -

Residential closed-end first liens

122,839  

123,610  

129,086 598 121 - 129,805 121

Residential closed-end junior liens

4,932 11 - - 4,943 -

Investor-owned residential real estate

81,385  

92,605 77 - - 92,682 -

Commercial Real Estate

Multifamily residential real estate

133,188  

118,309 - - - 118,309 -

Commercial real estate owner-occupied

116,089  

118,806  

112,302 147 - 2,381 114,830 225

Commercial real estate, other

172,771  

181,476 - - - 181,476 -

Commercial Non Real Estate

Commercial and industrial

42,452  

42,940  

41,564 22 39 210 41,835 39

Public Sector and IDA

States and political subdivisions

51,591  

59,742 - - - 59,742 -

Consumer Non-Real Estate

11,933  

11,977  

4,664 1 1 - 4,666 1

12,817 104 - - 12,921 -

Other consumer loans

22,615  

22,718  

$ 845,233  

$ 1,172  

$ 2,981  

$ 849,417  

23,762 117 1 - 23,880 1

$ 860,149 $ 1,189 $ 162 $ 2,591 $ 864,091 $ 387

December 31, 2023

Accruing Loans

Days Past Due

Real Estate Construction

Construction, 1-4 family residential

$ 12,538  

$ 13,442 $ - $ - $ - $ 13,442 $ -

Construction, other

42,041  

41,916 21 - - 41,937 -

Consumer Real Estate

15,010  

15,026  

17,178 104 - - 17,282 -

Residential closed-end first liens

121,807  

122,648  

124,886 662 131 - 125,679 131

Residential closed-end junior liens

5,027 12 - - 5,039 -

Investor-owned residential real estate

80,524  

80,932  

93,564 - - - 93,564 -

Commercial Real Estate

Multifamily residential real estate

127,312  

119,052 195 - - 119,247 -

Commercial real estate owner-occupied

126,640  

129,133  

114,477 336 - 2,408 117,221 231

Commercial real estate, other

181,443  

182,662 - - - 182,662 -

Commercial Non-Real Estate

Commercial and industrial

57,373  

57,652  

41,249 57 28 221 41,555 28

Public Sector and IDA

States and political subdivisions

48,074  

60,551 - - - 60,551 -

Consumer Non-Real Estate

4,648 17 3 - 4,668 3

12,126 135 - - 12,261 -

Other consumer loans

19,317  

19,416  

$ 848,950  

$ 1,388  

$ 2,847  

$ 853,193  

21,934 107 26 - 22,067 26

$ 852,712 $ 1,646 $ 188 $ 2,629 $ 857,175 $ 419

The following table presents nonaccrual loans, by loan class, as of the dates indicated:

Incurred Loss

September 30, 2023

March 31, 2024

December 31, 2023

Nonaccrual Loans

Consumer Real Estate

Residential closed-end first liens

Commercial Real Estate

Commercial real estate owner-occupied

$ 2,156 $ 225 $ 2,381 $ 2,177 $ 231 $ 2,408

Commercial Non Real Estate

Commercial and industrial

$ 2,981  

$ 2,847  

During the three and nine months ended September 30, 2023, no accrued interest receivable was reversed against interest income.

The following table presents certain past due indicators as of the dates indicated.

September 30,

Ratio of ACLL to nonaccrual loans

Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs

Allowance for Credit Losses on Loans

- 210 210 - 221 221

$ 2,156 $ 435 $ 2,591 $ 2,177 $ 452 $ 2,629

During the three months ended March 31, 2024, no accrued interest receivable was reversed against interest income.

Allowance for Credit Losses on Loans (ACLL)

The following tables present the activity in the ACLL by portfolio segment for the periods indicated:

Activity in the Allowance for Credit Losses on Loans for the Nine Months Ended September 30, 2023

Activity in the Allowance for Credit Losses on Loans for the Three Months Ended March 31, 2024

Balance, December 31, 2023

$ 2,199  

$ 3,642  

$ 8,225  

Adoption of ASU 2016-13

$ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094

- - - - - ( 109 ) - ( 109 )

- - 16 2 - 47 - 65

Provision for (recovery of) credit losses

Balance, September 30, 2023

$ 3,193  

$ 4,167  

$ 10,181  

Activity in the Allowance for Loan Losses for the Nine Months Ended September 30, 2022

( 59 ) ( 194 ) 264 ( 37 ) ( 12 ) 12 31 5

Balance, March 31, 2024

$ 349 $ 2,968 $ 3,856 $ 647 $ 321 $ 533 $ 381 $ 9,055

Activity in the Allowance for Credit Losses on Loans for the Three Months Ended March 31, 2023

Balance, December 31, 2022

$ 1,930  

$ 3,121  

$ 1,099  

$ 7,674  

Provision for (recovery of) loan losses

Balance, September 30, 2022

$ 2,212  

$ 3,609  

$ 8,207  

Activity in the Allowance for Loan Losses for the Year Ended December 31, 2022

$ 450 $ 2,199 $ 3,642 $ 930 $ 319 $ 506 $ 179 $ 8,225

Adoption of ASU 2016-13

( 21 ) 1,261 700 216 ( 15 ) 72 129 2,342

- - - ( 12 ) - ( 80 ) - ( 92 )

- 102 12 2 - 57 - 173

Provision for (recovery of) credit losses

22 ( 260 ) 20 58 ( 10 ) - 172 2

Balance, March 31, 2023

$ 451 $ 3,302 $ 4,374 $ 1,194 $ 294 $ 555 $ 480 $ 10,650

Activity in the Allowance for Credit Losses on Loans for the Year Ended December 31, 2023

Consumer Non-

Balance, December 31, 2022

$ 1,930  

$ 3,121  

$ 1,099  

$ 7,674  

Provision for (recovery of) loan losses

$ 450 $ 2,199 $ 3,642 $ 930 $ 319 $ 506 $ 179 $ 8,225

Adoption of ASU 2016-13

( 21 ) 1,261 700 216 ( 15 ) 72 129 2,342

- ( 17 ) - ( 214 ) - ( 247 ) - ( 478 )

- 103 45 6 - 129 - 283

Provision for (recovery of) for credit losses

( 21 ) ( 384 ) ( 811 ) ( 256 ) 29 123 42 ( 1,278 )

Balance, December 31, 2023

$ 2,199  

$ 3,642  

$ 8,225  

$ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094

The following tables present information about the ACLL for individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.

Allowance for Credit Losses on Loans as of September 30, 2023

Allowance for Credit Losses on Loans by Segment and Evaluation Method

March 31, 2024

Individually evaluated

$ - $ 74 $ 362 $ 129 $ - $ 3 $ - $ 568

Collectively evaluated

$ 3,193  

$ 4,167  

$ 10,181  

Allowance for Loan Losses as of December 31, 2022

349 2,894 3,494 518 321 530 381 8,487

$ 349 $ 2,968 $ 3,856 $ 647 $ 321 $ 533 $ 381 $ 9,055

Allowance for Credit Losses on Loans by Segment and Evaluation Method

December 31, 2023

Consumer Non-

Individually evaluated

$ - $ 74 $ 367 $ 126 $ - $ 5 $ - $ 572

Collectively evaluated

$ 2,199  

$ 3,642  

$ 8,225  

408 3,088 3,209 556 333 578 350 8,522

$ 408 $ 3,162 $ 3,576 $ 682 $ 333 $ 583 $ 350 $ 9,094

The following tables present information about individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.

Loans as of September 30, 2023

Loans by Segment and Evaluation Method as of

March 31, 2024

Individually evaluated

$ 1,059  

$ 8,826  

$ 10,658  

$ 280 $ 1,237 $ 8,777 $ 237 $ - $ 34 $ 10,565

Collectively evaluated

63,893  

225,612  

415,939  

42,467  

51,591  

39,257  

838,759  

$ 64,181  

$ 226,671  

$ 424,765  

$ 42,940  

$ 51,591  

$ 39,269  

$ 849,417  

Loans as of December 31, 2022

Consumer Non-

61,206 243,709 405,838 41,598 59,742 41,433 853,526

$ 61,486 $ 244,946 $ 414,615 $ 41,835 $ 59,742 $ 41,467 $ 864,091

Loans by Segment and Evaluation Method as of

December 31, 2023

Individually evaluated

$ 2,583  

$ 3,032  

$ 286 $ 1,183 $ 8,805 $ 227 $ - $ 43 $ 10,544

Collectively evaluated

54,579  

220,866  

435,305  

57,389  

48,074  

33,948  

850,161  

$ 54,579  

$ 221,052  

$ 437,888  

$ 57,652  

$ 48,074  

$ 33,948  

$ 853,193  

The following table presents ratios pertaining to the ACLL as of the dates and for the periods indicated.

As of and for the

Nine Months Ended

September 30,

Ratio of ACLL to the end of period loans, net of unearned income and deferred fees and costs

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

In accordance with CECL, the Company identifies individually evaluated loans when their risk characteristics become different from their pool.

Under previous GAAP, the Company identified loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information.

When the Company determined that it was probable all principal and interest amounts due would not be collected in accordance with the contractual terms of the loan agreement, the loan was generally deemed impaired and individually evaluated.

For further information on the impairment process under previous GAAP, please refer to the Company’s 2022 Form 10 -K.

A summary of individually evaluated loans as of the date indicated follows.

Individually Evaluated Loans under Incurred Loss as of December 31, 2022

Investment (1)

Recorded Investment (1)

for Which There is No

Related Allowance

Investment (1) for

Which There is a

Related Allowance

Consumer Real Estate

Investor-owned residential real estate

Commercial Real Estate

Commercial real estate, owner occupied

Commercial Non Real Estate

Commercial and industrial

$ 3,719  

$ 3,032  

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

The following table shows the average recorded investment and interest income recognized for individually evaluated loans under the incurred loss model for the period indicated.

Only classes with individually evaluated loans are presented.

For the Nine Months Ended

September 30, 2022

Average Recorded

Investment (1)

Interest Income

Consumer Real Estate

Investor-owned residential real estate

Commercial Real Estate

Commercial real estate, owner occupied

Commercial Non-Real Estate

Commercial and industrial

$ 3,067  

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

55,093 240,381 410,325 41,328 60,551 38,953 846,631

$ 55,379 $ 241,564 $ 419,130 $ 41,555 $ 60,551 $ 38,996 $ 857,175

Collateral Dependent Loans

The Company reviews individually evaluated loans to identify collateral dependency.

Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty.

The Company adopted the practical expedient provided by ASU 2016 - 13 to measure the ACL on collateral dependent loans based upon the fair value of the collateral.

Collateral dependent loans are individually evaluated.

The Company measures the ACL on collateral dependent loans based upon the fair value of the collateral, as permitted by ASU 2016 - 13.

Fair value of the collateral is adjusted for liquidation costs/discounts.

1 unchanged sentence

If the fair value of the collateral exceeds the amortized cost, no ACL is required.

As of September 30, 2023, one of the Company’s individually evaluated loans was considered collateral dependent.

All collateral loans are secured by real estate as of September 30, 2023.

The following table details the amortized cost of the collateral dependent loan as of the date indicated:

September 30, 2023

Related Allowance

As of March 31, 2024, five of the Company’s individually evaluated loans were collateral dependent.

As of December 31, 2023, three of the Company’s individually evaluated loans were collateral dependent.

All collateral dependent loans were secured by real estate as of March 31, 2024 and December 31, 2023.

The following table details the amortized cost of the collateral dependent loans as of the date indicated:

March 31, 2024

December 31, 2023

Consumer Real Estate

Residential closed-end first lien

$ 121 $ - $ 7 -

Commercial Real Estate

Commercial real estate, owner occupied

2,156 - 2,177 -

$ 2,277 $ - $ 2,184 $ -

Credit Quality

3 unchanged sentences

Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information.

General descriptions of risk ratings are as follows:

loans with acceptable credit quality are rated pass.

Special mention:

loans with potential weaknesses due to challenging economic or financial conditions are rated special mention.

loans with well-defined weaknesses that heighten the risk of default are rated classified.

The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of the date indicated.

Term Loans Amortized Cost Basis by Origination Year

September 30, 2023  

Revolving  

Loans rated pass have acceptable credit quality.

Loans rated special mention have potential weakness due to challenging economic or financial conditions.

Loans rated classified have well-defined weaknesses that heighten the risk of default.

The tables below present the loan portfolio by amortized cost basis, year of origination, loan class, credit quality, and charge-offs as of the dates indicated.

Term Loans Amortized Cost Basis by Origination Year Loans

March 31, 2024 Prior

Revolving to Term Total

Construction, residential

$ 3,787  

$ 2,705  

$ 10,149  

$ 16,995  

$ - $ - $ - $ 1,216 $ 6,251 $ 219 $ 3,917 $ - $ 11,603

Construction, other

$ 3,196  

$ 1,111  

$ 1,411  

$ 23,163  

$ 11,577  

$ 4,375  

$ 2,065  

$ 46,898  

$ 3,196  

$ 1,111  

$ 1,411  

$ 23,451  

$ 11,577  

$ 4,375  

$ 2,065  

$ 47,186  

$ 16,553  

$ 16,612  

$ 16,595  

$ 16,654  

$ 3,748 $ 1,280 $ 9,211 $ 21,615 $ 5,596 $ 4,960 $ 3,193 $ - $ 49,603

- - 280 - - - - - 280

$ 3,748 $ 1,280 $ 9,491 $ 21,615 $ 5,596 $ 4,960 $ 3,193 $ - $ 49,883

$ 76 $ - $ - $ - $ - $ - $ 17,303 $ 47 $ 17,426

- - - - - - 90 - 90

$ 76 $ - $ - $ - $ - $ - $ 17,393 $ 47 $ 17,516

Residential closed-end first liens

$ 33,129  

$ 5,874  

$ 14,784  

$ 32,074  

$ 28,768  

$ 8,681  

$ 123,310  

$ 33,429  

$ 5,874  

$ 14,784  

$ 32,074  

$ 28,768  

$ 8,681  

$ 123,610  

YTD gross charge-offs

$ 37,144 $ 14,707 $ 30,734 $ 30,468 $ 12,135 $ 4,170 $ - $ - $ 129,358

447 - - - - - - - 447

$ 37,591 $ 14,707 $ 30,734 $ 30,468 $ 12,135 $ 4,170 $ - $ - $ 129,805

Residential closed-end junior liens

$ 1,749  

$ 1,395  

$ 1,570  

$ 5,022  

$ 1,602 $ - $ 169 $ 1,379 $ 1,343 $ 450 $ - $ - $ 4,943

Investor-owned residential real estate

$ 23,141  

$ 5,215  

$ 14,348  

$ 19,475  

$ 13,888  

$ 3,093  

$ 1,409  

$ 80,668  

$ 23,858  

$ 5,215  

$ 14,348  

$ 19,475  

$ 13,888  

$ 3,093  

$ 1,409  

$ 81,385  

$ 28,964 $ 23,228 $ 18,699 $ 13,248 $ 4,586 $ 1,323 $ 1,934 $ - $ 91,982

700 - - - - - - - 700

$ 29,664 $ 23,228 $ 18,699 $ 13,248 $ 4,586 $ 1,323 $ 1,934 $ - $ 92,682

Multifamily residential real estate

$ 42,874  

$ 1,823  

$ 11,820  

$ 40,944  

$ 26,874  

$ 8,853  

$ 133,188  

$ 41,102 $ 2,130 $ 40,354 $ 25,647 $ 8,894 $ 62 $ 120 $ - $ 118,309

Commercial real estate, owner occupied

$ 43,438  

$ 11,295  

$ 23,661  

$ 4,843  

$ 16,731  

$ 7,757  

$ 2,255  

$ 109,980  

$ 51,271 $ 23,144 $ 4,425 $ 16,640 $ 8,027 $ 120 $ 2,426 $ - $ 106,053

Special mention

$ 52,264  

$ 11,295  

$ 23,661  

$ 4,843  

$ 16,731  

$ 7,757  

$ 2,255  

$ 118,806  

6,396 - - - - - - - 6,396

2,381 - - - - - - - 2,381

$ 60,048 $ 23,144 $ 4,425 $ 16,640 $ 8,027 $ 120 $ 2,426 $ - $ 114,830

Commercial real estate, other

$ 70,064  

$ 22,033  

$ 19,300  

$ 36,272  

$ 22,600  

$ 1,957  

$ 172,771  

$ 89,181 $ 18,902 $ 35,780 $ 22,476 $ 13,216 $ 1,215 $ 706 $ - $ 181,476

Commercial and industrial

$ 6,100  

$ 1,189  

$ 13,059  

$ 7,439  

$ 6,634  

$ 7,552  

$ 42,467  

$ 6,331  

$ 1,189  

$ 13,059  

$ 7,446  

$ 6,634  

$ 7,787  

$ 42,940  

YTD gross charge-offs

$ 6,338 $ 944 $ 12,299 $ 6,475 $ 6,164 $ 2,139 $ 7,239 $ - $ 41,598

210 - - 7 - - 20 - 237

$ 6,548 $ 944 $ 12,299 $ 6,482 $ 6,164 $ 2,139 $ 7,259 $ - $ 41,835

Public sector and IDA

$ 20,942  

$ 17,683  

$ 6,438  

$ 6,275  

$ 51,591  

$ 4,574  

YTD gross charge-offs

$ 1,846  

$ 3,146  

$ 5,900  

$ 11,974  

$ 1,846  

$ 3,146  

$ 5,900  

$ 11,977  

$ 20,432 $ 231 $ 26,375 $ 6,242 $ 6,462 $ - $ - $ - $ 59,742

$ - $ - $ - $ - $ - $ - $ 4,666 $ - $ 4,666

YTD gross charge-offs

$ - $ - $ - $ - $ - $ - $ 22 $ - $ 22

$ 182 $ 437 $ 1,388 $ 2,375 $ 6,448 $ 2,091 $ - $ - $ 12,921

Other consumer

$ 2,273  

$ 6,770  

$ 11,206  

$ 1,003  

$ 22,709  

$ 2,273  

$ 6,771  

$ 11,214  

$ 1,003  

$ 22,718  

YTD gross charge-offs

$ 244,917  

$ 48,664  

$ 88,606  

$ 191,928  

$ 149,413  

$ 69,006  

$ 46,105  

$ 838,759  

$ 367 $ 691 $ 1,673 $ 5,109 $ 10,180 $ 5,092 $ 734 $ - $ 23,846

Special Mention

$ 254,991  

$ 48,667  

$ 88,606  

$ 192,216  

$ 149,421  

$ 69,014  

$ 46,382  

$ 849,417  

- - - - 15 11 - - 26

- - - - - 8 - - 8

$ 367 $ 691 $ 1,673 $ 5,109 $ 10,195 $ 5,111 $ 734 $ - $ 23,880

YTD gross charge-offs

The following table presents the recorded investment by loan pool and credit quality as of December 31, 2022.

December 31, 2022

$ - $ 4 $ - $ 13 $ 46 $ 24 $ - $ - $ 87

$ 280,407 $ 85,694 $ 181,107 $ 152,890 $ 89,302 $ 21,841 $ 42,238 $ 47 $ 853,526

Special Mention

Real Estate Construction

Construction, 1-4 family residential

$ 12,538  

6,396 - - - 15 11 - - 6,422

3,738 - 280 7 - 8 110 - 4,143

$ 290,541 $ 85,694 $ 181,387 $ 152,897 $ 89,317 $ 21,860 $ 42,348 $ 47 $ 864,091

YTD gross charge-offs

$ - $ 4 $ - $ 13 $ 46 $ 24 $ 22 $ - $ 109

Term Loans Amortized Cost Basis by Origination Year Loans

December 31, 2023 Prior

Revolving to Term Total

Construction, residential

$ - $ - $ 246 $ 158 $ 3,275 $ 5,157 $ 4,606 $ - $ 13,442

Construction, other

41,741  

Consumer Real Estate

15,026  

$ 2,741 $ 1,094 $ 1,305 $ 12,671 $ 17,397 $ 4,884 $ 1,559 $ - $ 41,651

- - - 286 - - - - 286

$ 2,741 $ 1,094 $ 1,305 $ 12,957 $ 17,397 $ 4,884 $ 1,559 $ - $ 41,937

$ 51 $ - $ - $ - $ - $ - $ 17,182 $ - $ 17,233

- - - - - - 49 - 49

$ 51 $ - $ - $ - $ - $ - $ 17,231 $ - $ 17,282

Residential closed-end first liens

122,187  

$ 32,404 $ 5,806 $ 14,634 $ 31,414 $ 29,787 $ 11,208 $ - $ - $ 125,253

426 - - - - - - - 426

$ 32,830 $ 5,806 $ 14,634 $ 31,414 $ 29,787 $ 11,208 $ - $ - $ 125,679

YTD gross charge-offs

$ - $ - $ 17 $ - $ - $ - $ - $ - $ 17

Residential closed-end junior liens

$ 1,499 $ 116 $ - $ 172 $ 1,387 $ 1,850 $ - $ 15 $ 5,039

Investor-owned residential real estate

80,143  

Commercial Real Estate

$ 24,556 $ 5,162 $ 23,649 $ 19,062 $ 14,166 $ 4,880 $ 1,283 $ 98 $ 92,856

708 - - - - - - - 708

$ 25,264 $ 5,162 $ 23,649 $ 19,062 $ 14,166 $ 4,880 $ 1,283 $ 98 $ 93,564

Multifamily residential real estate

127,312  

$ 40,092 $ 1,806 $ 2,148 $ 40,544 $ 25,681 $ 8,850 $ 126 $ - $ 119,247

Commercial real estate, owner occupied

126,550  

$ 41,573 $ 11,091 $ 23,407 $ 4,792 $ 16,720 $ 7,914 $ 2,919 $ - $ 108,416

Special mention

6,396 - - - - - - - 6,396

2,409 - - - - - - - 2,409

$ 50,378 $ 11,091 $ 23,407 $ 4,792 $ 16,720 $ 7,914 $ 2,919 $ - $ 117,221

Commercial real estate, other

181,443  

Commercial Non Real Estate

$ 68,889 $ 21,841 $ 19,098 $ 36,157 $ 22,697 $ 13,279 $ 701 $ - $ 182,662

Commercial and industrial

57,381  

$ 6,004 $ 438 $ 1,060 $ 12,667 $ 6,954 $ 6,938 $ 7,267 $ - $ 41,328

220 - - - 7 - - - 227

$ 6,224 $ 438 $ 1,060 $ 12,667 $ 6,961 $ 6,938 $ 7,267 $ - $ 41,555

YTD gross charge-offs

$ - $ 12 $ - $ - $ - $ 12 $ 190 $ - $ 214

Public sector and IDA

States and political subdivisions

48,074  

Consumer Non-Real Estate

$ 20,817 $ - $ 235 $ 26,702 $ 6,335 $ 6,462 $ - $ - $ 60,551

$ - $ - $ - $ - $ - $ - $ 4,668 $ - $ 4,668

YTD gross charge-offs

$ - $ - $ - $ - $ - $ - $ 39 $ - $ 39

$ 78 $ 204 $ 563 $ 1,619 $ 2,750 $ 7,047 $ - $ - $ 12,261

YTD gross charge-offs

$ - $ 3 $ - $ 1 $ 38 $ - $ - $ - $ 42

Other Consumer

19,398  

$ 848,768  

$ 1,393  

$ 93 $ 334 $ 811 $ 1,943 $ 5,815 $ 12,356 $ 672 $ - $ 22,024

Special mention

- - - - - 17 - - 17

- - - - 11 15 - - 26

$ 93 $ 334 $ 811 $ 1,943 $ 5,826 $ 12,388 $ 672 $ - $ 22,067

YTD gross charge-offs

$ - $ - $ - $ 19 $ 52 $ 95 $ - $ - $ 166

$ 238,797 $ 47,892 $ 87,156 $ 187,901 $ 152,964 $ 90,825 $ 40,983 $ 113 $ 846,631

Special mention

6,396 - - - - 17 - - 6,413

3,763 - - 286 18 15 49 - 4,131

$ 248,956 $ 47,892 $ 87,156 $ 188,187 $ 152,982 $ 90,857 $ 41,032 $ 113 $ 857,175

YTD gross charge-offs

$ - $ 15 $ 17 $ 20 $ 90 $ 107 $ 229 $ - $ 478

Loan Modifications to Borrowers Experiencing Financial Difficulty

1 unchanged sentence

At the date of modification, the Company assesses whether the borrower is experiencing financial difficulty.

If the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated and is typically changed to special mention or classified, which results in individual evaluation of the loan for the ACLL.

The Company modified one loan to a borrower experiencing financial difficulty during the nine month period ended September 30, 2023.

No loans were modified for borrowers experiencing financial difficulty during the three months period ended September 30, 2023.

During the three and nine month periods ended September 30, 2022, no loans were modified for borrowers experiencing financial difficulty.

The following table presents the amortized cost basis as of September 30, 2023 of the loan modified for a borrower experiencing financial difficulty.

Interest Only Payments

% of Portfolio

There were two loans modified for borrowers experiencing financial difficulty during the three months period ended March 31, 2024.

There were no loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023.

The following table presents information about loans modified for borrowers experiencing financial difficulty during the three months and as of the date indicated.

March 31, 2024

Financial Effect

1 unchanged sentence

Commercial real estate owner-occupied

$ 6,396  

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 to borrowers experiencing financial difficulty.

The commercial real estate owner-occupied loan is in current status as of September 30, 2023.

The Company analyzed its modified loan portfolio for loans that defaulted during the three and nine month period ended September 30, 2023, and that were modified within 12 months prior to default.

The Company designates three circumstances that indicate default:

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

Of the Company’s modifications at September 30, 2023, none were modified within 12 months prior to default.

$ 6,396 5.57 % Interest only payments

6 months of interest only payments, re-amortization of the balance to contractual maturity.

Commercial Non real estate

Commercial and industrial

$ 7 0.02 % Term extension

Renewal of single-payment note for an additional 3 months.

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

Both loans are in current status as of March 31, 2024.

There were no loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2024 and 2023 and were modified in the twelve months prior to that default.

Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure.

Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.

Residential Real Estate Loans In Process of Foreclosure

As of March 31, 2024 the Company had three 1 - 4 family residential real estate loans totaling $ 126 in process of foreclosure.

As of December 31, 2023, one 1 - 4 family residential real estate loan of $ 7 was in process of foreclosure.

ACL on Unfunded Commitments

The following table presents the balance and activity in the ACL for unfunded commitments for the nine months ended September 30, 2023:

The following tables present the balance and activity in the ACL for unfunded commitments for the three months ended March 31, 2024 and 2023:

Allowance for Credit Losses on Unfunded Commitments

Balance, December 31, 2023

Recovery of credit losses

Balance, March 31, 2024

Allowance for Credit Losses on Unfunded Commitments

Balance, December 31, 2022

Adoption of ASU 2016-13

Provision for credit losses

Balance, September 30, 2023

Recovery of credit losses

Balance, March 31, 2023

The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses as of the dates indicated are summarized as follows:

September 30, 2023

Available for Sale:

March 31, 2024

Unrealized Gains

Unrealized Losses

government agencies and corporations

353,845  

57,856  

295,989  

$ 352,961 $ - $ 44,972 $ 307,989

States and political subdivisions

179,672  

42,603  

137,069  

179,343 - 31,344 147,999

Mortgage-backed securities

161,067  

152,112  

153,572 6 6,255 147,323

Corporate debt securities

6,505 - 817 5,688

Total securities available for sale

$ 702,083  

$ 110,531  

$ 591,552  

$ 693,378 $ 6 $ 83,416 $ 609,968

December 31, 2023

Available for Sale:

Unrealized Gains

Unrealized Losses

government agencies and corporations

391,538  

55,002  

336,575  

$ 353,904 $ - $ 42,060 $ 311,844

States and political subdivisions

190,192  

38,018  

152,200  

179,507 - 29,614 149,893

Mortgage-backed securities

170,694  

161,477  

156,875 - 6,724 150,151

Corporate debt securities

6,504 - 754 5,750

Total securities available for sale

$ 759,917  

$ 103,152  

$ 656,852  

No allowance for credit loss on securities available for sale was recorded as of September 30, 2023.

Accrued interest receivable on securities, included in accrued interest receivable on the Consolidated Balance Sheets, totaled $ 3,420 at September 30, 2023 and $ 3,485  at December 

The deferred tax asset for the net unrealized loss on securities available for sale was $ 23,211 as of September 30, 2023 and $ 21,644 as of December 31, 2022.

$ 697,786 $ - $ 79,185 $ 618,601

No allowance for credit loss on securities available for sale was recorded as of March 31, 2024 or December 31, 2023.

Accrued interest receivable on securities, included in accrued interest receivable on the Consolidated Balance Sheets, totaled $ 3,444 at March 31, 2024 and $ 3,281 at December 31, 2023.

The deferred tax asset for the net unrealized loss on securities available for sale was $ 17,516 as of March 31, 2024 and $ 16,629 as of December 31, 2023.

The deferred tax asset is included in other assets on the Consolidated Balance Sheets.

The amortized cost and fair value of single maturity securities available for sale at September 30, 2023, by contractual maturity, are shown below.

The amortized cost and fair value of single maturity securities available for sale at March 31, 2024, by contractual maturity, are shown below.

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Mortgage-backed securities included in these totals are categorized by final maturity.

September 30, 2023

March 31, 2024

Amortized Cost

1 unchanged sentence

Due in one year or less

$ 1,755  

$ 1,730  

$ 13,749 $ 13,419

Due after one year through five years

154,209  

140,650  

180,902 166,926

Due after five years through ten years

293,046  

239,668  

273,587 232,336

Due after ten years

253,073  

209,504  

225,140 197,287

Total securities available for sale

$ 702,083  

$ 591,552  

$ 693,378 $ 609,968

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

September 30, 2023

March 31, 2024

Less Than 12 Months

1 unchanged sentence

government agencies and corporations

295,989  

57,856  

States and political subdivisions

135,979  

42,562  

$ - $ - $ 307,989 $ 44,972

State and political subdivisions

1,507 126 146,492 31,218

Mortgage-backed securities

150,448  

583 1 135,492 6,254

Corporate debt securities

- - 5,688 817

Total temporarily impaired securities

$ 2,509  

$ 588,798  

$ 110,451  

$ 2,090 $ 127 $ 596,630 $ 83,289

December 31, 2023

Less Than 12 Months

12 Months or More  

government agencies and corporations

144,574  

12,699  

190,950  

42,303  

States and political subdivisions

94,657  

18,373  

52,134  

19,645  

$ - $ - $ 311,844 $ 42,060

State and political subdivisions

884 1 148,763 29,613

Mortgage-backed securities

144,198  

15,165  

1,616 26 147,922 6,698

Corporate debt securities

- - 5,750 754

Total temporarily impaired securities

$ 389,208  

$ 39,109  

$ 259,070  

$ 64,043  

$ 2,500 $ 27 $ 615,242 $ 79,158

The Company evaluates securities available for sale that are in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors.

Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At September 30, 2023, the Company had 577 securities with a fair value of $ 591,307 in an unrealized loss position.

At March 31, 2024, the Company had 574 securities with a fair value of $ 598,720 in an unrealized loss position.

The Company reviews securities in an unrealized loss position to evaluate credit risk.

The Company considers payment history, risk ratings from external parties, financial statements for municipal and corporate securities, public statements from issuers and other available credible published sources in evaluating credit risk.

No credit risk was found and no ACL on securities available for sale was recorded as of September 30, 2023.

No credit risk was found and no ACL on securities available for sale was recorded as of March 31, 2024.

The unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions.

4 unchanged sentences

The Company holds restricted stock that is reported separately from available for sale securities.

As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities.

Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets.

As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities.

Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets.

The Company purchases stock from or sells stock back to the correspondents based on their calculations.

2 unchanged sentences

At its discretion, the FHLB may declare dividends on the stock.

In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling $ 510,786 at September 30, 2023.

The Company’s management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at September 30, 2023, did not determine any impairment.

Defined Benefit Plan          

The following tables present components of Net Periodic Benefit Cost for the periods indicated:

Pension Benefits

Three Months Ended September 30,

Interest cost

Expected return on plan assets

Amortization of prior service cost

Recognized net actuarial loss

Net periodic benefit (income) cost

The Company’s management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at March 31, 2024, did not determine any impairment.

Realized Securities Gains and Losses

There were no sales of securities during 2024.

During the first three months of 2023, the Company realized net securities gains of $ 12 on the sale of securities with an amortized cost basis of $ 17,987 .

The sales were part of the Company’s interest rate risk management strategy.

Defined Benefit Plan

The following table presents components of Net Periodic Benefit Cost for the periods indicated:

Pension Benefits

Nine Months Ended September 30,

Three Months Ended March 31,

Interest cost

Expected return on plan assets

( 608 ) ( 518 )

Amortization of prior service cost

Recognized net actuarial loss

Net periodic benefit (income) cost

Net periodic benefit income

$ ( 12 ) $ ( 25 )

The service cost component of net periodic benefit cost is included in salaries and employee benefits expense in the Consolidated Statements of Income.

All other components are included in other noninterest expense in the Consolidated Statements of Income.

No contributions to the defined benefit plan have been made during 2023.

All other components are included in other operating expense in the Consolidated Statements of Income.

In April of 2024, the Company made a contribution of $ 3,000 to the defined benefit plan.

Fair Value Measurements

4 unchanged sentences

These levels are:

Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2 –

Valuation is based on observable inputs including:

Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2 – Valuation is based on observable inputs including:

quoted prices in active markets for similar assets and liabilities,

2 unchanged sentences

model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

Level 3 – Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

Fair value is best determined by quoted market prices.

11 unchanged sentences

Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2 ).

The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables.

The carrying value of restricted Federal Reserve Bank of Richmond and Federal Home Loan Bank of Atlanta stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables.

The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated.

September 30, 2023

Fair Value Measurements Using

Fair Value Measurement Using

March 31, 2024

government agencies and corporations

295,989  

$ 307,989 $ - $ 307,989 $ -

States and political subdivisions

137,069  

147,999 - 147,999 -

Mortgage-backed securities

152,112  

147,323 - 147,323 -

Corporate debt securities

5,688 - 5,688 -

Total securities available for sale

$ 591,552  

$ 609,968 $ - $ 609,968 $ -

Fair Value Measurement Using

December 31, 2023

Fair Value Measurements Using

government agencies and corporations

336,575  

$ 311,844 $ - $ 311,844 $ -

States and political subdivisions

152,200  

149,893 - 149,893 -

Mortgage-backed securities

161,477  

150,151 - 150,151 -

Corporate debt securities

5,750 - 5,750 -

Total securities available for sale

$ 656,852  

The Company’s securities portfolio is valued using Level 2 inputs.

$ 618,601 $ - $ 618,601 $ -

The Company’s securities portfolio is valued using Level 2 inputs.

The Company relies on an independent third party vendor to provide market valuations.

2 unchanged sentences

The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process.

Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio.

Level 2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any, may impact securities fair value, deferred tax assets or liabilities, or expense.

Interest Rate Loan Contracts and Forward Sale Commitment

The Company originates consumer real estate loans which it intends to sell to a correspondent lender.

Interest rate loan contracts and forward sale commitments result from originating loans held for sale and are derivatives reported at fair value.

The Company enters interest rate lock commitments with customers who apply for a loan which the Company intends to sell to a correspondent lender.

The interest rate loan contract ends when the loan closes or the customer withdraws their application.

Fair value of the interest rate loan contract is based upon the correspondent lender’s pricing quotes at the report date.

Fair value is adjusted for the estimated probability of the loan closing with the borrower.

At the time the Company enters into an interest rate loan contract with a customer, it also enters into a best efforts forward sales commitment with the correspondent lender.

If the loan is closed and funded, the best efforts commitment converts to a mandatory forward sales commitment.

Fair value is based on the gain or loss that would occur if the Company were to pair-off the transaction with the investor at the measurement date.

This is a Level 3 input.

The Company measures and reports best efforts commitments at fair value.

Interest rate loan contracts and forward sale commitments are valued based on quotes from the correspondent lender at the reporting date.

Pricing changes daily and if a loan has not been sold to the correspondent by the next reporting date, the fair value may be different from that reported currently.

Changes in fair value measurement impacts net income.

The Company had two rate lock commitments as of March 31, 2024, resulting in interest rate loan contracts and forward sales commitments.

The interest rate lock commitments gave rise to an asset and the forward loan sales contracts gave rise to a liability.

The Company had one rate lock commitment as of December 31, 2023, resulting in an interest rate loan contract and a forward sales commitment.

The interest rate lock commitment gave rise to an asset and the forward loan sales contracts gave rise to a liability.

The following tables present information on the interest rate loan contracts and forward sale commitments as of the date indicated:

Fair Value Measurement Using

March 31, 2024

Interest rate loan contract

$ 2 $ - $ - $ 2

Forward sale commitment

$ ( 2 ) $ - $ - $ ( 2 )

March 31, 2024

Valuation Technique

Unobservable Input

Range (Weighted Average)

Interest rate loan contract

Market approach

Pull-through rate

Forward sale commitment

Market approach

Pull-through rate

Interest rate loan contract

Market approach

Current reference price

- 103.05% (102.76%) (2)

Forward sale commitment

Market approach

Current reference price

- 103.05% (102.76%) (2)

Fair Value Measurement Using

December 31, 2023

Interest rate loan contract

$ 3 $ - $ - $ 3

Forward sale commitment

$ ( 4 ) $ - $ - $ ( 4 )

December 31, 2023

Valuation Technique

Unobservable Input

Range (Weighted Average)

Interest rate loan contract

Market approach

Pull-through rate

Forward sale commitment

Market approach

Pull-through rate

Interest rate loan contract

Market approach

Current reference price

Forward sale commitment

Market approach

Current reference price

- 102.64% (101.98%) (2)

All contracts are valued using the same pull-through rate

Current reference prices were weighted by the relative amount of the loan

Comprised of only one loan.

Financial Instruments Measured at Fair Value on a Non-Recurring Basis

7 unchanged sentences

As such, the Company records any fair value adjustments on a nonrecurring basis.

No nonrecurring fair value adjustments were recorded on loans held for sale at September 30, 2023 or December 31, 2022.

No nonrecurring fair value adjustments were recorded on loans held for sale at March 31, 2024 or December 31, 2023.

Collateral Dependent Loans

Loans that do not share risk characteristics with the rest of their class and that are collateral dependent are individually evaluated on a non-recurring basis using the fair value of collateral.

If the fair value of the collateral is lower than the loan’s amortized cost basis, the shortfall is recognized in the ACLL.

Collateral dependent loans are measured on a non-recurring basis for the ACL.

If the fair value of the collateral is lower than the loan’s amortized cost basis, the shortfall is recognized in the ACLL.

When repayment is expected from the operation of the collateral, fair value is estimated as the present value of expected cash flows from the operation of the collateral.

1 unchanged sentence

The ACLL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

For loans secured by real estate, fair value of collateral is determined by the “as-is”

value of appraisals or third party evaluations that are less than 24 months of age.

For loans secured by real estate, fair value of collateral is determined by the “as-is” value of appraisals or third party evaluations that are less than 24 months of age.

Appraisals are prepared by independent, licensed appraisers.

2 unchanged sentences

The Company may further discount appraisals for marketing strategies, which results in Level 3 categorization.

The value of business equipment is based upon an outside appraisal (Level 2 ) if deemed significant, or the net book value on the applicable business’

financial statements (Level 3 ) if not considered significant.

The value of business equipment is based upon an outside appraisal (Level 2 ) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3 ) if not considered significant.

Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3 ).

As of September 30, 2023, one consumer real estate loan with a balance of $ 7 was collateral dependent.

The valuation was based upon a third party evaluation (Level 2 ) and did not result in a specific allocation.

As of December 31, 2022, measurement of the Company’s impaired loans did not result in any specific allocations.

Other Real Estate Owned ( “

OREO ”

As of March 31, 2024, three consumer real estate loan totaling $ 121 and two commercial real estate loans totaling $ 2,156 were collateral dependent.

Valuations were based upon a third party evaluation (Level 2 ) and did not result in a specific allocation.

Other Real Estate Owned ( “ OREO ” )

Certain assets such as OREO are measured at fair value less cost to sell.

Valuation of OREO is determined using current appraisals from independent parties, a Level 2 input.

The Company works with a realtor to determine the list price, which may be set at appraised value or at a different amount based on the realtor’s advice and management’s judgement of marketability.

Discounts to appraisals for selling costs or for marketability result in a Level 3 estimate.

The following table summarizes the Company’s OREO that was measured at fair value on a nonrecurring basis as of the dates indicated.

September 30, 2023

OREO, net of valuation allowance

December 31, 2022

OREO, net of valuation allowance

The following table presents information about OREO and Level 3 Fair Value Measurements as of the dates indicated.

Valuation Technique

Unobservable Input

(Weighted Average)

September 30, 2023

Discounted appraised value

September 30, 2023

Discounted appraised value

Discount for lack of marketability

34.72%  

December 31, 2022

Discounted appraised value

December 31, 2022

Discounted appraised value

Discount for lack of marketability

34.72 %  

At September 30, 2023 and December 31, 2022, the Company held a single OREO property, measured using appraised value, discounted for marketability and selling cost.

During 2022, the Company reduced the list price as part of a marketing strategy and recorded an additional discount for marketability.

There is uncertainty in determining discounts to appraised value.

If the final sale price is different from the list price, the amount of selling costs will also be different from those estimated.

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

Ultimate proceeds from the sale of OREO property may be less than the estimated fair value, reducing net income.

The Company did not have any OREO as of March 31, 2024 or December 31, 2023.

Fair Value Summary

The following presents the recorded amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of the dates indicated.

Fair values are estimated using the exit price notion.

September 30, 2023

Recorded Amount

Estimated Fair Value

March 31, 2024

Carrying Amount

Financial assets:

Cash and due from banks

$ 13,089  

$ 10,656 $ 10,656 $ - $ -

Interest-bearing deposits

40,353  

Securities available for sale, at fair value

591,552  

Restricted securities

Mortgage loans held for sale

838,794  

792,126  

110,527 110,527 - -

Securities available for sale

609,968 - 609,968 -

Restricted stock, at cost

1,248 - 1,248 -

854,493 - - 790,540

Accrued interest receivable

6,478 - 6,478 -

Bank-owned life insurance

43,327  

43,840 - 43,840 -

Interest rate loan contract

Financial liabilities:

$ 1,465,000  

$ 1,277,115  

$ 186,480  

$ 1,537,808 $ - $ 1,297,907 $ 241,538

Accrued interest payable

2,514 - 2,514 -

Forward sale commitment

Estimated Fair Value

December 31, 2023

Recorded Amount

Carrying Amount

Financial assets:

Cash and due from banks

$ 12,403  

$ 12,967 $ 12,967 $ - $ -

Interest-bearing deposits

59,026  

Securities available for sale, at fair value

656,852  

Restricted securities

844,519  

781,749  

73,636 73,636 - -

Securities available for sale

618,601 - 618,601 -

Restricted stock, at cost

1,264 - 1,264 -

Mortgage loans held for sale

847,552 - - 793,800

Accrued interest receivable

6,313 - 6,313 -

Bank-owned life insurance

43,312  

43,583 - 43,583 -

Interest rate loan contract

Financial liabilities:

$ 1,542,725  

$ 1,475,096  

$ 67,542  

$ 1,503,972 $ - $ 1,280,732 $ 222,374

Accrued interest payable

1,416 - 1,416 -

Forward sale commitment

Components of Accumulated Other Comprehensive Loss

3 unchanged sentences

Accumulated Other

Comprehensive

Balance at June 30, 2022

Unrealized holding loss on available for sale securities, net of tax of ($ 7,822 )

Balance at September 30, 2022

Balance at June 30, 2023

Unrealized holding loss on available for sale securities, net of tax of ($ 4,099 )

Balance at September 30, 2023

Net Unrealized

Gain (Loss) on

Pension Benefits

Accumulated Other

Comprehensive

Comprehensive Loss

Balance at December 31, 2022

$ 2,854  

Unrealized holding loss on available for sale securities, net of tax of ($ 23,431 )

Balance at September 30, 2022

$ ( 81,421 ) $ ( 2,345 ) $ ( 83,766 )

Unrealized holding gain on available for sale securities, net of tax of $ 3,121

11,738 - 11,738

Reclassification adjustment, net of tax of ($3)

( 9 ) - ( 9 )

Balance at March 31, 2023

$ ( 69,692 ) $ ( 2,345 ) $ ( 72,037 )

Balance at December 31, 2023

$ ( 62,556 ) $ ( 2,310 ) $ ( 64,866 )

Unrealized holding loss on available for sale securities, net of tax of ($887)

Reclassification adjustment, net of tax of $ 700

Balance at September 30, 2023

( 3,338 ) - ( 3,338 )

Balance at March 31, 2024

$ ( 65,894 ) $ ( 2,310 ) $ ( 68,204 )

Revenue Recognition

Substantially all of the Company’s revenue is generated from contracts with customers.

Noninterest revenue streams such as service charges on deposit accounts, other service charges and fees, credit and debit card fees, trust income, and annuity and insurance commissions are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”.

Substantially all of the Company’s revenue is generated from contracts with customers.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities.

In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance.

Noninterest revenue streams within the scope of Topic 606 are discussed below. 

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees, and other deposit account related fees.

The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided.

Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’

The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided.

Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM.

Wire transfer fees, overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.

Other Service Charges and Fees

2 unchanged sentences

The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

Check ordering charges are transactional based, and therefore the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.

Credit and Debit Card Fees

Credit and debit card fees are primarily comprised of interchange fee income and merchant services income.

Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa and MasterCard.

Merchant services income mainly represents commission fees based upon merchant processing volume.

The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion.

Payment is typically received immediately or in the following month.

1 unchanged sentence

Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets.

The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate.

Payment is generally received a few days after month end through a direct charge to customers’

Payment is generally received a few days after month end through a direct charge to customers’ accounts.

The Company does not earn performance-based incentives.

3 unchanged sentences

Insurance income primarily consists of commissions received on insurance product sales.

The Company acts as an intermediary between the Company’s customer and the insurance carrier.

The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy.

The Company acts as an intermediary between the Company’s customer and the insurance carrier.

The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy.

Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue.

Investment income consists of recurring revenue streams such as commissions from sales of mutual funds and other investments.

Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.

Investment income consists of recurring revenue streams such as commissions from sales of mutual funds, annuities and other investments.

Commissions from the sale of mutual funds, annuities and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.

The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value.

5 unchanged sentences

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated.

Three Months Ended September 30,

Noninterest Income

In-scope of Topic 606:

Service charges on deposit accounts

Other service charges and fees

Credit and debit card fees, net

Insurance and Investment (included within Other Income on the Consolidated Statements of Income)

Noninterest Income (in-scope of Topic 606)

$ 1,835  

$ 1,795  

Noninterest Income (out-of-scope of Topic 606)

Total noninterest income

$ 2,115  

$ 2,140  

Nine Months Ended September 30,

Three Months March 31,

Noninterest Income

1 unchanged sentence

Service charges on deposit accounts

$ 1,871  

$ 1,826  

Other service charges and fees

Credit and debit card fees, net

Insurance and Investment (included within Other Income on the Consolidated Statements of Income)

Insurance and Investment (included within Other Income in the Consolidated Statements of Income)

Noninterest Income (in-scope of Topic 606)

$ 5,370  

$ 5,271  

$ 1,903 $ 1,842

Noninterest Income (out-of-scope of Topic 606)

Total noninterest income

$ 7,105  

$ 6,543  

The Company’s leases are recorded under ASC Topic 842, “Leases”.

$ 2,199 $ 2,199

The Company’s leases are recorded under ASC Topic 842, “Leases”.

The Company examines its contracts to determine whether they are or contain a lease.

3 unchanged sentences

Right-of-use assets and lease liabilities are recognized for operating and finance leases.

Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows.

Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. 

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows.

Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease.

Lease payments

5 unchanged sentences

If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability.

One of the Company’s leases provides a known escalator that is included in the determination of the lease liability.

The remaining leases do not have variable payments during the term of the lease.

Options to Extend, Residual Value Guarantees, and Restrictions and Covenants

Of the Company’s six operating leases as of September 30, 2023, four leases offer the option to extend the lease term.

Two of the leases have two options of five years each and one lease has two options of three years each.

Another lease has one option to extend the term for an additional five years.

The Company exercised a previous option to extend this lease in 2020.

Options to Extend, Residual Value Guarantees, Restrictions and Covenants

Of the Company’s six operating leases as of March 31, 2024, four leases offer the option to extend the lease term.

At the time of capitalization, the Company was not reasonably certain whether it would exercise the options and did not include the time period in the calculation of the lease liability.

The lease agreements provide that the lease payment will increase at the exercise date based on the Consumer Price Index for All Urban Consumers (“CPI-U”).

Because the CPI-U at the exercise date is unknown, the increase is not included in the cash flows determining the lease liability.

None of the Company’s leases provide for residual value guarantees and none provide restrictions or covenants that would impact dividends or require incurring additional financial obligations.

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

The Company’s lease right of use asset is included in other assets and the lease liability is included in other liabilities.

The following tables present information about leases as of the dates and for the periods indicated:

September 30, 2023

March 31, 2024

December 31, 2023

Lease liability

$ 1,205  

$ 1,444  

$ 1,048 $ 1,127

Right-of-use asset

$ 1,175  

$ 1,415  

$ 1,018 $ 1,096

Weighted average remaining lease term (in years)

Weighted average discount rate

For the Three Months Ended September 30,

Lease Expense

Operating lease expense

Short-term lease expense

Total lease expense

Cash paid for amounts included in lease liabilities

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

For the Nine Months Ended September 30,

3.28 % 3.29 %

For the Three Months Ended March 31,

Lease Expense

6 unchanged sentences

Undiscounted Cash Flow for the Period

September 30, 2023

Twelve months ending September 30, 2024

Twelve months ending September 30, 2025

Twelve months ending September 30, 2026

Twelve months ending September 30, 2027

Twelve months ending September 30, 2028

March 31, 2024

Twelve months ending March 31, 2025

Twelve months ending March 31, 2026

Twelve months ending March 31, 2027

Twelve months ending March 31, 2028

Twelve months ending March 31, 2029

Total undiscounted cash flows

$ 1,299  

Lease liability

$ 1,205  

The contracts in which the Company is lessee are not with related parties.

Stock Based Compensation

The Company’s 2023 Stock Incentive Plan (“the Plan”) was approved by shareholders at the annual shareholder’s meeting on May 9, 2023.

The Plan provides for the grant of various forms of stock-based compensation awards that may be settled in, or based upon the value of, the Company’s common stock.

The Company’s 2023 Stock Incentive Plan (“the Plan”) was approved by shareholders at the annual shareholder’s meeting on May 9, 2023.

The Plan provides for the grant of various forms of stock-based compensation awards that may be settled in, or based upon the value of, the Company’s common stock.

The maximum number of shares available for issuance under the Plan is 120,000 shares.

For further information on the Plan, refer to the Company’s Proxy Statement filed with the SEC on March 10, 2023 and the Company’s S- 8 filed with the SEC on June 7, 2023.

Restricted Stock Awards

Under the Plan, part of the June 2023 semi-annual retainer for non-employee directors was paid in restricted stock awards (“RSAs”).

A summary of changes in the Company’s nonvested RSAs under the Plan for the three months ended September 30, 2023 follows:

Under the Plan, part of the June and December 2023 semi-annual retainer for non-employee directors was paid in restricted stock awards (“RSAs”).

A summary of changes in the Company’s nonvested RSAs under the Plan for the three months ended March 31, 2024 follows:

Weighted-Average Grant

Date Fair Value

Nonvested at July 1, 2023

$ 30.70  

Nonvested at September 30, 2023

$ 30.70  

Nonvested at January 1, 2024

4,095 $ 30.73

Nonvested at March 31, 2024

4,095 $ 30.73

The RSAs have a one year vesting period.

Expense for the RSAs will be recognized over the vesting period based on the fair value of the stock at the issue date.

Stock based compensation expense charged against income was $ 16 for the three months ended September 30, 2023 and $ 21 for the nine months ended September 30, 2023.

As of September 30, 2023, expense of $ 42 related to the nonvested RSAs is expected to be recognized over the coming 8 months.

Stock based compensation expense charged against income was $ 32 for the three months ended March 31, 2024.

As of March 31, 2024, expense of $ 52 related to the nonvested RSAs is expected to be recognized over the coming 9 months.

Earnings Per Share

The factors used in the earnings per share computation for the periods indicated are presented below:

For the Three Months Ended September 30,

$ in thousands, except per share amounts

(Denominator)

Basic earnings per share

$ 3,074  

5,889,687  

$ 0.52  

$ 6,162  

5,974,961  

$ 1.03  

Dilutive shares for restricted stock awards:

Diluted earnings per share

$ 3,074  

5,889,939  

$ 0.52  

$ 6,162  

5,974,961  

$ 1.03  

For the Nine Months Ended September 30,

$ in thousands, except per share amounts

For the Three Months Ended March 31,

Common Shares 1

(Denominator)

Basic earnings per share

$ 11,506  

5,889,687  

$ 1.95  

$ 16,622  

6,008,607  

$ 2.77  

Basic earnings per common share

$ 2,174 5,889,687 $ 0.37 $ 4,531 5,889,687 $ 0.77

Dilutive shares for restricted stock awards:

Diluted earnings per share

$ 11,506  

5,889,778  

$ 1.95  

$ 16,622  

6,008,607  

$ 2.77  

Diluted earnings per common share

$ 2,174 5,891,651 $ 0.37 $ 4,531 5,889,687 $ 0.77

Weighted average outstanding

RSA grants are disregarded in the computation of diluted earnings per share if they are determined to be anti-dilutive.

There were no anti-dilutive RSAs for the three or nine month periods ended September 30, 2023.

There were no anti-dilutive RSAs for the three month periods ended March 31, 2024 and March 31, 2023.

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

What changed 10-Q

Item 1. Financial Statements