10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 0-15204

NATIONAL BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Virginia	54-1375874
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

101 Hubbard Street

Blacksburg, Virginia

24062-9002

(Address of principal executive offices) (Zip Code)

(540) 951-6300

(Registrant’s telephone number, including area code)

(Not applicable)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.25 per share	NKSH	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Outstanding shares of common stock at May 14, 2025
6,363,371

NATIONAL BANKSHARES, INC.

Form 10-Q

Index

Part I – Financial Information		Page
Item 1	Financial Statements	3
	Consolidated Balance Sheets, March 31, 2025 (Unaudited) and December 31, 2024	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2025 and 2024 (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2025 and 2024 (Unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2025 and 2024 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4	Controls and Procedures	37
Part II – Other Information
Item 1	Legal Proceedings	37
Item 1A	Risk Factors	37
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3	Defaults Upon Senior Securities	37
Item 4	Mine Safety Disclosures	37
Item 5	Other Information	38
Item 6	Exhibits	38
Signatures		39

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

National Bankshares, Inc.

Consolidated Balance Sheets


(in thousands, except share and per share data)			December 31, 2024
Assets
Cash and due from banks	14,892		$	13,564
Interest-bearing deposits	107,385			94,254
Federal funds sold	258			299
Total cash and cash equivalents	122,535			108,117
Securities available for sale, at fair value	596,253			601,898
Restricted stock, at cost	1,848			1,848
Mortgage loans held for sale	938			619
Loans:
Real estate construction loans	42,942			50,798
Consumer real estate loans	311,549			307,855
Commercial real estate loans	497,072			478,078
Commercial non real estate loans	53,156			51,844
Public sector and IDA loans	56,981			57,171
Consumer non real estate loans	42,205			42,867
Total loans	1,003,905			988,613
Less: deferred fees and costs	(641	)		(663	)
Loans, net of deferred fees and costs	1,003,264			987,950
Less: allowance for credit losses	(10,490	)		(10,262	)
Loans, net	992,774			977,688
Premises and equipment, net	17,593			16,878
Accrued interest receivable	6,673			6,469
Goodwill	10,718			10,718
Core deposit intangible, net	1,766			1,863
Bank-owned life insurance ("BOLI")	47,661			47,369
Other assets	36,958			38,169
Total assets	1,835,717		$	1,811,636
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits	301,149		$	290,088
Interest-bearing demand deposits	879,215			864,753
Savings deposits	178,737			177,297
Time deposits	298,659			312,614
Total deposits	1,657,760			1,644,752
Accrued interest payable	1,434			1,462
Other liabilities	9,245			9,013
Total liabilities	1,668,439			1,655,227
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value, 5,000,000 shares authorized; none issued and outstanding	-			-
Common stock of 1.25 par value and additional paid in capital. Authorized 10,000,000 shares; issued and outstanding 6,363,371 (including 4,961 unvested) shares as of March 31, 2025 and December 31, 2024	21,874			21,831
Retained earnings	199,579			196,343
Accumulated other comprehensive loss, net	(54,175	)		(61,765	)
Total stockholders' equity	167,278			156,409
Total liabilities and stockholders' equity	1,835,717		$	1,811,636

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

National Bankshares, Inc.

Consolidated Statements of Income

(Unaudited)

	Three Months Ended March 31,
(in thousands, except share and per share data)	2025		2024
Interest Income
Interest and fees on loans	$	12,942	$	10,277
Interest on federal funds sold		3		-
Interest on interest-bearing deposits		1,039		1,129
Interest on securities – taxable		3,883		4,276
Interest on securities – nontaxable		336		339
Total interest income		18,203		16,021
Interest Expense
Interest on time deposits		3,145		2,552
Interest on other deposits		4,802		5,224
Total interest expense		7,947		7,776
Net interest income		10,256		8,245
Provision for (recovery of) credit losses		276		(10	)
Net interest income after provision for (recovery of) credit losses		9,980		8,255
Noninterest Income
Service charges on deposit accounts		736		675
Other service charges and fees		63		46
Credit and debit card fees, net		417		374
Trust income		579		503
BOLI income		292		258
Gain on sale of mortgage loans held for sale		25		24
Other income		443		319
Total noninterest income		2,555		2,199
Noninterest Expense
Salaries and employee benefits		5,188		4,466
Occupancy, furniture and fixtures		656		539
Data processing and ATM		1,078		867
FDIC assessment		207		187
Intangible asset amortization		97		-
Franchise taxes		373		350
Professional services		299		240
Merger-related expense		-		484
Conversion expense		46		-
Other operating expenses		689		629
Total noninterest expense		8,633		7,762
Income before income tax expense		3,902		2,692
Income tax expense		666		518
Net Income	$	3,236	$	2,174
Basic net income per common share	$	0.51	$	0.37
Diluted net income per common share	$	0.51	$	0.37
Weighted average number of common shares outstanding, basic		6,358,410		5,889,687
Weighted average number of common shares outstanding, diluted		6,360,392		5,891,651

See accompanying notes to consolidated financial statements.

National Bankshares, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31, 2025 and 2024

(Unaudited)


(in thousands)		2024
Net Income	3,236	$	2,174
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of 2,017 and (887) for the periods ended March 31, 2025 and 2024, respectively	7,590		(3,338	)
Other comprehensive income (loss), net of tax	7,590		(3,338	)
Total Comprehensive Income (Loss)	10,826	$	(1,164	)

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

National Bankshares, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2025 and 2024

(Unaudited)

(in thousands except per share data)		Retained<br>Earnings		Accumulated<br>Other<br>Comprehensive<br>Loss			Total
Balances at December 31, 2023	7,404	$	197,984	$	(64,866	)	$	140,522
Net income	–		2,174		–			2,174
Other comprehensive loss, net of tax of (887)	–		–		(3,338	)		(3,338	)
Stock based compensation	32		–		–			32
Balances at March 31, 2024	7,436	$	200,158	$	(68,204	)	$	139,390
Balances at December 31, 2024	21,831	$	196,343	$	(61,765	)	$	156,409
Net income	–		3,236		–			3,236
Other comprehensive income, net of tax of 2,017	–		–		7,590			7,590
Stock based compensation	43		–		–			43
Balances at March 31, 2025	21,874	$	199,579	$	(54,175	)	$	167,278

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

National Bankshares, Inc.

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2025 and 2024

(Unaudited)

	For the Three Months Ended March 31,
(in thousands)	2025			2024
Cash Flows from Operating Activities
Net income	$	3,236		$	2,174
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) credit losses		276			(10	)
Depreciation of premises and equipment		248			210
Amortization of premiums and accretion of discounts on securities, net		275			259
Amortization of core deposit intangible		97			-
Accretion of fair value of acquired loans		(251	)		-
Amortization of fair value of acquired time deposits and leases		53			-
Origination of mortgage loans held for sale		(1,442	)		(1,023	)
Proceeds from sale of mortgage loans held for sale		1,148			1,453
Gain on sale of mortgage loans held for sale		(25	)		(24	)
Increase in cash value of bank-owned life insurance		(292	)		(258	)
Equity based compensation expense		43			32
Net change in:
Accrued interest receivable		(204	)		(165	)
Other assets		(395	)		44
Accrued interest payable		(28	)		1,098
Other liabilities		(173	)		50
Net cash provided by operating activities		2,566			3,840
Cash Flows from Investing Activities
Proceeds from repayments of mortgage-backed securities		2,977			3,149
Proceeds from calls, sales and maturities of securities available for sale		12,000			1,000
Net change in restricted stock		-			16
Purchase of loan participations		(15,977	)		(5,609	)
Collection of loan participations		1,482			610
Loan originations and principal collections, net		(680	)		(2,012	)
Recoveries on loans charged off		63			65
Purchases of premises and equipment		(963	)		(315	)
Net cash used in investing activities		(1,098	)		(3,096	)
Cash Flows from Financing Activities
Net change in time deposits		(14,013	)		16,661
Net change in other deposits		26,963			17,175
Net cash provided by financing activities		12,950			33,836
Net change in cash and cash equivalents		14,418			34,580
Cash and cash equivalents at beginning of period		108,117			86,603
Cash and cash equivalents at end of period	$	122,535		$	121,183

	For the Three Months Ended March 31,
(in thousands)	2025		2024
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest on deposits and borrowings	$	7,975	$	6,678
Income taxes		-		260
Supplemental Disclosure of Noncash Activities
Loans charged against the allowance for credit losses	$	112	$	109
Unrealized holding gains (losses) on securities available for sale		9,607		(4,225	)

See accompanying notes to consolidated financial statements.

National Bankshares, Inc.

Notes to Consolidated Financial Statements

March 31, 2025

(Unaudited)

$ in thousands, except per share data

Note 1: 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. All 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.

Application of the principles of GAAP and practices within the banking industry require management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments 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 and acquisition accounting.

The results of operations for the three months ended March 31, 2025 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, 2024 (“2024 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 Company's 2024 Form 10-K. All amounts and disclosures included in this quarterly report as of December 31, 2024, were derived from the Company’s audited consolidated financial statements. 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. The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com.

Risks and Uncertainties

The Company is closely monitoring risks that may impact its business, including high inflation, along with U.S. monetary policy maneuvers to reduce inflation. Inflation and U.S. monetary policy maneuvers to reduce it may impact the Company’s customers’ demand for banking services and ability to qualify for and/or repay loans. These risks could adversely affect the Company’s business, financial condition, results of operations, cash flows, credit risk, asset valuations and capital position.

Recent Accounting Pronouncements

ASU 2023-09

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“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.

ASU 2024-03

In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset

amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.

Note 2: Business Combination

On June 1, 2024 (the “Acquisition Date”), the Company completed its acquisition of Frontier Community Bank ("FCB"), a Virginia chartered commercial bank headquartered in Waynesboro, Virginia, in accordance with the definitive merger agreement entered on January 23, 2024, by and among the Company, the Bank and FCB. Upon completion of the merger, FCB merged with and into the Bank. Each share of FCB common stock was converted into either $14.48 in cash or 0.4250 shares of the Company’s common stock, with FCB shareholders having the ability to elect the merger consideration to be received, subject to the allocation and proration procedures set forth in the FCB Merger Agreement. The Company issued 464,855 shares of common stock and paid cash consideration of $2,050 to former FCB shareholders in the acquisition. As a result of the transaction, the Bank expanded its operations into the Waynesboro, Staunton and Lynchburg, Virginia markets.

The acquisition of FCB was accounted for as a business combination using the acquisition method of accounting. Assets acquired, liabilities assumed, and consideration paid were recorded at estimated fair value on the Acquisition Date. The excess of the purchase price over the fair value of the net assets was recorded as provisional goodwill and represents the benefit from the transaction that is not otherwise quantifiable, including expected management and operational synergies and intangible assets that do not qualify for separate recognition. The Company does not expect that any portion of goodwill will be deductible. Please refer to the Company’s 2024 Form 10-K, Note 22: Business Combinations for additional information of the acquisition of FCB.

The following table presents the calculation of the purchase price and the fair value of the identifiable assets and liabilities as of the Acquisition Date.

June 1, 2024	As Recorded by FCB			Estimated Fair Value Adjustments			Estimated Fair Values as Recorded by NBI
Purchase Price Consideration:
Stock consideration(1)							$	14,299
Cash consideration (2)								2,050
Total purchase price consideration							$	16,349
Identifiable assets:
Cash and cash equivalents	$	8,993		$	(59	)	$	8,934
Securities		9,325			(5	)		9,320
Loans, gross, purchased performing		115,589			(7,720	)		107,869
Loans, gross, purchased credit deteriorated		11,157			(822	)		10,335
Loans in process		539			–			539
Deferred fees and costs on loans		34			(34	)		–
Allowance for credit losses on loans		(881	)		881			–
Premises and equipment		3,003			449			3,452
Core deposit intangible		–			2,100			2,100
Other assets		4,998			966			5,964
Total identifiable assets acquired	$	152,757		$	(4,244	)	$	148,513
Identifiable Liabilities
Deposits	$	130,323		$	(606	)	$	129,717
Borrowings		5,250			(20	)		5,230
Other liabilities		1,960			131			2,091
Total identifiable liabilities assumed	$	137,533		$	(495	)	$	137,038
Fair value of net assets acquired							$	11,475
Goodwill (3)							$	4,874

The Company issued 464,855 shares of its common stock valued at $30.76 per share, which was the closing price of the Company’s common stock on May 31, 2024, the last day of trading prior to the consummation of the acquisition.
Cash consideration was paid for shareholder elections, fractional shares and to settle outstanding vested stock options. The merger agreement provided for up to 10% of consideration to be paid in cash of $14.48 per FCB common share, at the shareholders’ election. Payments for shareholder elections and fractional shares totaled $1,769. Outstanding and vested options were settled at the difference between $14.48 and the strike price and totaled $281.
The Company kept the measurement of goodwill open until December 31, 2024 in order to reflect any adjustments to the fair value of assets acquired and liabilities assumed that arose during the Company’s final review procedures. The Company recorded a small measurement period adjustment to goodwill between the acquisition date and December 31, 2024. For more information, please refer to the Company’s 2024 Form 10-K, Note 17: Goodwill and Other Intangibles.

Note 3: Loans and Allowance for Credit Losses

Loans

Loans include acquired loans and originated loans. Acquired loans are presented at their outstanding principal balance, net of the remaining purchase discount of $7,312 as of March 31, 2025 and $7,564 as of December 31, 2024. Originated loans as of March 31, 2025 and December 31, 2024 are presented at amortized cost, net of deferred fees and costs. The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated.

	March 31,			December 31,
	2025			2024
Real estate construction	$	42,942		$	50,798
Consumer real estate		311,549			307,855
Commercial real estate		497,072			478,078
Commercial non real estate		53,156			51,844
Public sector and IDA		56,981			57,171
Consumer non real estate		42,205			42,867
Gross loans	$	1,003,905		$	988,613
Less deferred fees and costs		(641	)		(663	)
Loans, net of deferred fees and costs	$	1,003,264		$	987,950
Allowance for credit losses on loans		(10,490	)		(10,262	)
Total loans, net	$	992,774		$	977,688

Accrued interest receivable of $3,384 at March 31, 2025 and $3,299 at December 31, 2024 is not included in total loans above.

Past Due and Nonaccrual Loans

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

March 31, 2025	Accruing<br>Current<br>Loans		Accruing<br>Loans <br>30 – 89<br>Days<br>Past Due		Accruing<br>Loans <br>90 or<br>More<br>Days Past<br>Due		Nonaccrual<br>Loans		Total<br>Loans		Accruing<br>and<br>Nonaccrual<br>90 or<br>More<br>Days Past<br>Due
Real Estate Construction
Construction, 1-4 family residential	$	14,605	$	-	$	-	$	-	$	14,605	$	-
Construction, other		28,323		14		-		-		28,337		-
Consumer Real Estate
Equity line		22,783		-		-		-		22,783		-
Residential closed-end first liens		174,969		209		-		-		175,178		-
Residential closed-end junior liens		9,283		8		-		-		9,291		-
Investor-owned residential real estate		104,175		122		-		-		104,297		-
Commercial Real Estate
Multifamily residential real estate		158,965		196		-		-		159,161		-
Commercial real estate owner-occupied		136,829		147		-		2,173		139,149		204
Commercial real estate, other		198,217		545		-		-		198,762		-
Commercial Non Real Estate
Commercial and industrial		52,680		338		138		-		53,156		138
Public Sector and IDA
States and political subdivisions		56,981		-		-		-		56,981		-
Consumer Non Real Estate
Credit cards		4,402		2		3		-		4,407		3
Automobile		12,662		161		5		-		12,828		5
Other consumer loans		24,822		128		20		-		24,970		20
Total	$	999,696	$	1,870	$	166	$	2,173	$	1,003,905	$	370
December 31, 2024	Accruing<br>Current<br>Loans		Accruing<br>Loans <br>30 – 89<br>Days<br>Past Due		Accruing<br>Loans <br>90 or<br>More<br>Days Past<br>Due		Nonaccrual<br>Loans		Total<br>Loans		Accruing<br>and<br>Nonaccrual<br>90 or More<br>Days Past<br>Due
---	---	---	---	---	---	---	---	---	---	---	---	---
Real Estate Construction
Construction, 1-4 family residential	$	16,162	$	-	$	-	$	-	$	16,162	$	-
Construction, other		34,636		-		-		-		34,636		-
Consumer Real Estate
Equity line		22,551		67		-		-		22,618		-
Residential closed-end first liens		170,110		949		323		-		171,382		323
Residential closed-end junior liens		8,565		9		-		-		8,574		-
Investor-owned residential real estate		104,756		347		178		-		105,281		178
Commercial Real Estate
Multifamily residential real estate		143,444		186		-		-		143,630		-
Commercial real estate owner-occupied		138,284		147		-		2,222		140,653		209
Commercial real estate, other		193,249		546		-		-		193,795		-
Commercial Non Real Estate
Commercial and industrial		51,547		253		44		-		51,844		44
Public Sector and IDA
States and political subdivisions		57,171		-		-		-		57,171		-
Consumer Non Real Estate
Credit cards		4,696		2		-		-		4,698		-
Automobile		12,802		193		-		-		12,995		-
Other consumer loans		24,921		250		3		-		25,174		3
Total	$	982,894	$	2,949	$	548	$	2,222	$	988,613	$	757

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

	March 31, 2025						December 31, 2024
	With No<br>Allowance		With an<br>Allowance		Total		With No<br>Allowance		With an<br>Allowance		Total
Commercial Real Estate
Commercial real estate owner-occupied	$	1,969	$	204	$	2,173	$	2,013	$	209	$	2,222
Total	$	1,969	$	204	$	2,173	$	2,013	$	209	$	2,222

No accrued interest receivable was reversed against interest income during the three months ended March 31, 2025 or March 31, 2024.

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 ACLL for the Three Months Ended March 31, 2025
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate		Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2024	$	348		$	3,926		$	4,299	$	655		$	336	$	648		$	50		$	10,262
Charge-offs		-			(3	)		-		-			-		(109	)		-			(112	)
Recoveries		-			-			8		30			-		25			-			63
Provision for (recovery of) credit losses		(18	)		(32	)		284		(22	)		15		65			(15	)		277
Balance, March 31, 2025	$	330		$	3,891		$	4,591	$	663		$	351	$	629		$	35		$	10,490
	Activity in the ACLL for the Three Months Ended March 31, 2024
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Real Estate<br>Construction			Consumer<br>Real Estate			Commercial<br>Real Estate		Commercial<br>Non Real<br>Estate			Public<br>Sector and<br>IDA			Consumer<br>Non Real<br>Estate			Unallocated		Total
Balance, December 31, 2023	$	408		$	3,162		$	3,576	$	682		$	333		$	583		$	350	$	9,094
Charge-offs		-			-			-		-			-			(109	)		-		(109	)
Recoveries		-			-			16		2			-			47			-		65
Provision for (recovery of) credit losses		(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 ACLL for the Year Ended December 31, 2024
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Real Estate<br>Construction			Consumer<br>Real Estate		Commercial<br>Real Estate		Commercial<br>Non Real<br>Estate			Public<br>Sector and<br>IDA		Consumer<br>Non Real<br>Estate			Unallocated			Total
Balance, December 31, 2023	$	408		$	3,162	$	3,576	$	682		$	333	$	583		$	350		$	9,094
Charge-offs		-			-		-		(166	)		-		(353	)		-			(519	)
Recoveries		-			-		53		79			-		138			-			270
Provision for (recovery of) credit losses		(70	)		667		615		56			3		271			(300	)		1,242
Merger adjustment(1)		10			97		55		4			-		9			-			175
Balance, December 31, 2024	$	348		$	3,926	$	4,299	$	655		$	336	$	648		$	50		$	10,262

(1) Adjustment for PCD acquired loans.

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

	ACLL by Segment and Evaluation Method
March 31, 2025	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated	$	–	$	29	$	47	$	–	$	–	$	–	$	–	$	76
Collectively evaluated		330		3,862		4,544		663		351		629		35		10,414
Total	$	330	$	3,891	$	4,591	$	663	$	351	$	629	$	35	$	10,490

	ACLL by Segment and Evaluation Method
December 31, 2024	Real Estate<br>Construction		Consumer<br>Real Estate		Commercial<br>Real Estate		Commercial<br>Non Real<br>Estate		Public<br>Sector and<br>IDA		Consumer<br>Non Real<br>Estate		Unallocated		Total
Individually evaluated	$	-	$	31	$	49	$	-	$	-	$	-	$	-	$	80
Collectively evaluated		348		3,895		4,250		655		336		648		50		10,182
Total	$	348	$	3,926	$	4,299	$	655	$	336	$	648	$	50	$	10,262

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

	Loans by Segment and Evaluation Method
March 31, 2025	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Total
Individually evaluated	$	–	$	486	$	9,928	$	–	$	–	$	–	$	10,414
Collectively evaluated		42,942		311,063		487,144		53,156		56,981		42,205		993,491
Total	$	42,942	$	311,549	$	497,072	$	53,156	$	56,981	$	42,205	$	1,003,905
	Loans by Segment and Evaluation Method
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
December 31, 2024	Real Estate<br>Construction		Consumer<br>Real Estate		Commercial<br>Real Estate		Commercial<br>Non Real<br>Estate		Public<br>Sector and<br>IDA		Consumer<br>Non Real<br>Estate		Total
Individually evaluated	$	-	$	497	$	10,024	$	-	$	-	$	-	$	10,521
Collectively evaluated		50,798		307,358		468,054		51,844		57,171		42,867		978,092
Total	$	50,798	$	307,855	$	478,078	$	51,844	$	57,171	$	42,867	$	988,613

Collateral Dependent Loans

Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually evaluated. The Company measures the ACLL on collateral dependent loans based upon the fair value of the collateral. Fair value of the collateral is adjusted for liquidation costs/discounts. If the fair value of the collateral falls below the amortized cost of the loan, the shortfall is recognized in the ACLL. If the fair value of the collateral exceeds the amortized cost, no ACLL is required.

As of March 31, 2025, three of the Company’s individually evaluated loans were collateral dependent. As of December 31, 2024, three of the Company’s individually evaluated loans were collateral dependent. All collateral dependent loans were secured by real estate as of March 31, 2025 and December 31, 2024. The following table provides detail on collateral dependent loans as of the dates indicated:

	March 31, 2025				December 31, 2024
	Balance		Related<br>Allowance		Balance		Related<br>Allowance
Commercial Real Estate
Commercial real estate, owner occupied	$	8,313	$	-	$	8,387	$	-
Commercial real estate, other		686		-		872		-
Total Loans	$	8,999	$	-	$	9,259	$	-

Credit Quality

The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, payment history, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. General descriptions of risk ratings are as follows:

Pass: loans with acceptable credit quality are rated pass.
Special mention: loans with potential weakness due to challenging economic or financial conditions are rated special mention.
Classified: loans with well-defined weaknesses that heighten the risk of default are rated classified.

The following tables present the amortized cost basis of the loan portfolio by year of origination, loan class and credit quality as of March 31, 2025 and December 31, 2024, and gross charge-offs by year of origination for the three months ended March 31, 2025 and the year ended December 31, 2024.

	Term Loans Amortized Cost Basis by Origination Year														Revolving<br>Loans<br>Converted
March 31, 2025	Prior		2021		2022		2023		2024		2025		Revolving		to Term		Total
Construction, residential
Pass	$	-	$	-	$	397	$	877	$	3,181	$	277	$	9,873	$	-	$	14,605
Construction, other
Pass	$	3,988	$	791	$	1,717	$	10,152	$	3,228	$	3,146	$	5,315	$	-	$	28,337
Equity lines
Pass	$	598	$	372	$	569	$	720	$	482	$	-	$	20,042	$	-	$	22,783
Residential closed-end first liens
Pass	$	57,640	$	33,634	$	34,962	$	22,239	$	22,212	$	3,599	$	406	$	-	$	174,692
Special Mention		364		-		-		-		-		-		-		-		364
Classified		-		-		-		122		-		-		-		-		122
Total	$	58,004	$	33,634	$	34,962	$	22,361	$	22,212	$	3,599	$	406	$	-	$	175,178
YTD gross charge-offs	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	3
Residential closed-end junior liens
Pass	$	1,588	$	269	$	2,031	$	1,552	$	2,974	$	846	$	31	$	-	$	9,291
Investor-owned residential real estate
Pass	$	50,550	$	18,435	$	15,512	$	9,303	$	4,158	$	3,359	$	2,257	$	-	$	103,574
Special Mention		-		-		136		-		-		-		-		-		136
Classified		587		-		-		-		-		-		-		-		587
Total	$	51,137	$	18,435	$	15,648	$	9,303	$	4,158	$	3,359	$	2,257	$	-	$	104,297
Multifamily residential real estate
Pass	$	41,106	$	39,272	$	40,252	$	6,075	$	13,163	$	19,141	$	152	$	-	$	159,161
Commercial real estate, owner occupied
Pass	$	74,921	$	7,328	$	27,677	$	10,327	$	5,825	$	1,573	$	2,143	$	-	$	129,794
Special mention		6,344		-		-		-		-		-		-		-		6,344
Classified		3,003		-		-		-		-		-		8		-		3,011
Total	$	84,268	$	7,328	$	27,677	$	10,327	$	5,825	$	1,573	$	2,151	$	-	$	139,149
Commercial real estate, other
Pass	$	103,602	$	36,074	$	32,213	$	16,895	$	6,301	$	1,332	$	1,659	$	-	$	198,076
Classified		686		-		-		-		-		-		-		-		686
Total	$	104,288	$	36,074	$	32,213	$	16,895	$	6,301	$	1,332	$	1,659	$	-	$	198,762
Commercial and industrial
Pass	$	8,115	$	11,410	$	5,118	$	5,467	$	6,913	$	2,811	$	13,226	$	-	$	53,060
Special Mention		-		-		-		-		-		-		96		-		96
Total	$	8,115	$	11,410	$	5,118	$	5,467	$	6,913	$	2,811	$	13,322	$	-	$	53,156
Public sector and IDA
Pass	$	19,730	$	24,934	$	5,826	$	6,491	$	-	$	-	$	-	$	-	$	56,981
Credit cards
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	4,407	$	-	$	4,407
YTD gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	11	$	-	$	11
Automobile
Pass	$	202	$	550	$	1,385	$	3,736	$	5,273	$	1,669	$	-	$	-	$	12,815
Special Mention		-		-		-		4		-		-		-		-		4
Classified		-		3		-		6		-		-		-		-		9
Total	$	202	$	553	$	1,385	$	3,746	$	5,273	$	1,669	$	-	$	-	$	12,828
YTD gross charge-offs	$	-	$	-	$	-	$	20	$	-	$	-	$	-	$	-	$	20
Other consumer
Pass	$	509	$	699	$	1,941	$	4,330	$	12,076	$	3,792	$	1,586	$	-	$	24,933
Special Mention		-		1		-		-		8		5		-		-		14
Classified		-		-		2		13		8		-		-		-		23
Total	$	509	$	700	$	1,943	$	4,343	$	12,092	$	3,797	$	1,586	$	-	$	24,970
YTD gross charge-offs	$	-	$	-	$	6	$	-	$	45	$	27	$	-	$	-	$	78
Total Loans
Pass	$	362,549	$	173,768	$	169,600	$	98,164	$	85,786	$	41,545	$	61,097	$	-	$	992,509
Special Mention		6,708		1		136		4		8		5		96		-		6,958
Classified		4,276		3		2		141		8		-		8		-		4,438
Total	$	373,533	$	173,772	$	169,738	$	98,309	$	85,802	$	41,550	$	61,201	$	-	$	1,003,905
YTD gross charge-offs	$	3	$	-	$	6	$	20	$	45	$	27	$	11	$	-	$	112

	Term Loans Amortized Cost Basis by Origination Year														Revolving<br>Loans<br>Converted
December 31, 2024	Prior		2019		2020		2022		2023		2024		Revolving		to Term		Total
Construction, residential
Pass	$	-	$	-	$	-	$	337	$	2,312	$	3,328	$	10,185	$	-	$	16,162
Construction, other
Pass	$	2,938	$	1,138	$	805	$	10,795	$	8,669	$	6,194	$	4,097	$	-	$	34,636
Equity lines
Pass	$	363	$	249	$	387	$	470	$	816	$	402	$	19,894	$	12	$	22,593
Classified		-		-		-		-		-		-		25		-		25
Total	$	363	$	249	$	387	$	470	$	816	$	402	$	19,919	$	12	$	22,618
Residential closed-end first liens
Pass	$	42,211	$	18,111	$	33,630	$	35,557	$	21,593	$	18,991	$	-	$	303	$	170,396
Special mention		367		-		-		-		-		-		-		-		367
Classified		441		-		-		178		-		-		-		-		619
Total	$	43,019	$	18,111	$	33,630	$	35,735	$	21,593	$	18,991	$	-	$	303	$	171,382
Residential closed-end junior liens
Pass	$	1,596	$	-	$	277	$	2,048	$	1,597	$	3,004	$	31	$	21	$	8,574
Investor-owned residential real<br> estate
Pass	$	28,919	$	22,946	$	19,280	$	16,242	$	8,175	$	3,266	$	1,907	$	3,668	$	104,403
Special mention		-		-		-		138		-		-		-		-		138
Classified		740		-		-		-		-		-		-		-		740
Total	$	29,659	$	22,946	$	19,280	$	16,380	$	8,175	$	3,266	$	1,907	$	3,668	$	105,281
Multifamily residential real estate
Pass	$	39,665	$	2,055	$	39,879	$	40,198	$	8,470	$	13,205	$	158	$	-	$	143,630
Commercial real estate, owner<br> occupied
Pass	$	52,916	$	24,539	$	7,432	$	28,753	$	10,351	$	3,810	$	3,422	$	83	$	131,306
Special mention		6,375		-		-		-		-		-		-		-		6,375
Classified		2,222		738		-		-		-		-		12		-		2,972
Total	$	61,513	$	25,277	$	7,432	$	28,753	$	10,351	$	3,810	$	3,434	$	83	$	140,653
Commercial real estate, other
Pass	$	90,358	$	17,919	$	36,777	$	23,775	$	16,990	$	5,583	$	1,703	$	-	$	193,105
Classified		690		-		-		-		-		-		-		-		690
Total	$	91,048	$	17,919	$	36,777	$	23,775	$	16,990	$	5,583	$	1,703	$	-	$	193,795
Commercial and industrial
Pass	$	6,437	$	2,070	$	11,849	$	5,528	$	5,903	$	8,407	$	11,644	$	-	$	51,838
Classified		-		-		-		6		-		-		-		-		6
Total	$	6,437	$	2,070	$	11,849	$	5,534	$	5,903	$	8,407	$	11,644	$	-	$	51,844
YTD gross charge-offs	$	125	$	-	$	-	$	-	$	-	$	22	$	19	$	-	$	166
Public sector and IDA
Pass	$	19,309	$	218	$	25,232	$	5,922	$	6,490	$	-	$	-	$	-	$	57,171
Credit cards
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	4,698	$	-	$	4,698
YTD gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	53	$	-	$	53
Automobile
Pass	$	36	$	243	$	727	$	1,640	$	4,474	$	5,832	$	-	$	-	$	12,952
Special mention		-		-		-		-		4		-		-		-		4
Classified		-		-		-		-		28		11		-		-		39
Total	$	36	$	243	$	727	$	1,640	$	4,506	$	5,843	$	-	$	-	$	12,995
YTD gross charge-offs	$	-	$	-	$	6	$	14	$	16	$	11	$	-	$	-	$	47
Other Consumer
Pass	$	184	$	401	$	874	$	2,274	$	4,804	$	15,846	$	760	$	-	$	25,143
Special mention		-		-		1		-		-		9		-		-		10
Classified		-		-		-		2		14		5		-		-		21
Total	$	184	$	401	$	875	$	2,276	$	4,818	$	15,860	$	760	$	-	$	25,174
YTD gross charge-offs	$	-	$	4	$	15	$	19	$	94	$	121	$	-	$	-	$	253
Total Loans
Pass	$	284,932	$	89,889	$	177,149	$	173,539	$	100,644	$	87,868	$	58,499	$	4,087	$	976,607
Special mention		6,742		-		1		138		4		9		-		-		6,894
Classified		4,093		738		-		186		42		16		37		-		5,112
Total	$	295,767	$	47,892	$	87,156	$	188,187	$	152,982	$	90,857	$	41,032	$	113	$	988,613
YTD gross charge-offs	$	125	$	4	$	21	$	33	$	110	$	154	$	72	$	-	$	519

Loan Modifications to Borrowers Experiencing Financial Difficulty

On the date a loan is modified, the Company assesses whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan is risk rated special mention or classified, as determined appropriate. If the loan exceeds $400, if it is placed in nonaccrual, or if foreclosure is probable, the loan is individually evaluated for the ACLL.

During the three months ended March 31, 2025, no loans were modified for borrowers experiencing financial difficulty. During the three months ended March 31, 2024, the Company modified two loans to borrowers experiencing financial difficulty.

The following table presents information as of March 31, 2024 about loans modified for borrowers experiencing financial difficulty during the three months ended March 31, 2024.

March 31, 2024	Amortized<br>Cost Basis				Type of<br>Modification	Financial Effect
Commercial Real Estate
Commercial real estate owner-occupied	$	6,396	5.57	%	Interest only<br>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. As of March 31, 2024, the loans were in current status and individually evaluated. There were no modified loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2025 and 2024 and that were modified in the twelve months prior. Default occurs when a payment is 90 days past due, the loan is fully or partially charged off or the Company forecloses on the collateral.

Consumer Real Estate Loans In Process of Foreclosure

As of March 31, 2025, the Company had one consumer real estate loan with an amortized cost of $122 in process of foreclosure. As of December 31, 2024, three consumer real estate loans totaling $37 were in process of foreclosure.

ACL for Unfunded Commitments

The following tables present the balance and activity in the ACL for unfunded commitments for the three months ended March 31, 2025 and 2024:

Allowance for Credit Losses on Unfunded Commitments
Balance, December 31, 2024	$	251
Recovery of credit losses		(1	)
Balance, March 31, 2025	$	250
Balance, December 31, 2023	$	259
Recovery of credit losses		(15	)
Balance, March 31, 2024	$	244

Note 4: Securities

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:

March 31, 2025	Amortized<br>Cost		Gross<br>Unrealized<br>Gains		Gross<br>Unrealized<br>Losses		Fair<br>Value
U.S. government agencies and corporations	$	340,195	$	-	$	33,268	$	306,927
States and political subdivisions		177,944		-		30,332		147,612
Mortgage-backed securities		140,597		29		4,698		135,928
Corporate debt securities		6,508		-		722		5,786
Total securities available for sale	$	665,244	$	29	$	69,020	$	596,253
December 31, 2024	Amortized<br>Cost		Gross<br>Unrealized<br>Gains		Gross<br>Unrealized<br>Losses		Fair<br>Value
---	---	---	---	---	---	---	---	---
U.S. government agencies and corporations	$	351,136	$	-	$	40,012	$	311,124
States and political subdivisions		178,106		-		32,372		145,734
Mortgage-backed securities		143,747		24		5,473		138,298
Corporate debt securities		6,507		-		764		5,743
U.S. treasury		1,000		-		1		999
Total securities available for sale	$	680,496	$	24	$	78,622	$	601,898

No allowance for credit losses on securities available for sale was recorded as of March 31, 2025 or December 31, 2024.

Accrued interest receivable on securities, included in accrued interest receivable on the Consolidated Balance Sheets, totaled $3,289 at March 31, 2025 and $3,170 at December 31, 2024.

The deferred tax asset for the net unrealized loss on securities available for sale was $14,488 as of March 31, 2025 and $16,506 as of December 31, 2024. The deferred tax asset is included in other assets on the Consolidated Balance Sheets.

The amortized cost and fair value of securities available for sale at March 31, 2025, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities included in these totals are categorized by final maturity.

March 31, 2025	Amortized Cost		Fair Value
Available for Sale:
Due in one year or less	$	28,966	$	28,715
Due after one year through five years		220,924		208,049
Due after five years through ten years		233,126		199,321
Due after ten years		182,228		160,168
Total securities available for sale	$	665,244	$	596,253

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.

March 31, 2025	Less Than 12 Months				12 Months or More
	Fair <br>Value		Gross<br>Unrealized<br>Losses		Fair <br>Value		Gross<br>Unrealized<br>Losses
U.S. government agencies and corporations	$	-	$	-	$	306,927	$	33,268
State and political subdivisions		-		-		147,612		30,332
Mortgage-backed securities		1,386		18		109,515		4,680
Corporate debt securities		-		-		5,786		722
Total temporarily impaired securities	$	1,386	$	18	$	569,840	$	69,002

December 31, 2024	Less Than 12 Months				12 Months or More
	Fair <br>Value		Gross<br>Unrealized<br>Losses		Fair <br>Value		Gross<br>Unrealized<br>Losses
U.S. government agencies and corporations	$	-	$	-	$	311,124	$	40,012
State and political subdivisions		885		118		144,849		32,254
Mortgage-backed securities		5,336		28		115,011		5,445
Corporate debt securities		-		-		5,743		764
U.S. treasury		-		-		999		1
Total temporarily impaired securities	$	6,221	$	146	$	577,726	$	78,476

The Company evaluates securities available for sale that are in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At March 31, 2025, the Company had 545 securities with a fair value of $571,226 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 losses were found and no ACL on securities available for sale was recorded as of March 31, 2025. The unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions. The Company does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the cost basis of the investments. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

Restricted Stock.

The Company held restricted stock of $1,848 as of March 31, 2025 and December 31, 2024. Restricted stock is reported separately from available for sale securities. As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. The Company purchases stock from or sells stock back to the correspondents based on their calculations. The stock is held by member institutions only and is not actively traded.

Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling $517,038 at March 31, 2025. The Company’s management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at March 31, 2025, did not determine any impairment.

Realized Securities Gains and Losses

There were no sales of securities during the three months ended March 31, 2025 or 2024.

Note 5: Defined Benefit Plan

The following table presents components of net periodic benefit cost (income) for the periods indicated:

	Net Periodic Benefit Cost (Income)
	Three Months Ended March 31,
	2025			2024
Service cost	$	248		$	261
Interest cost		324			302
Expected return on plan assets		(692	)		(608	)
Recognized net actuarial loss		-			33
Net periodic benefit income	$	(120	)	$	(12	)

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 operating expense in the Consolidated Statements of Income.

Note 6: Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of the observable inputs and minimize the use of the unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including:<br><ul><li><span>quoted prices in active markets for similar assets and liabilities, </span></li><li><span>quoted prices for identical or similar assets and liabilities in less active markets, </span></li><li><span>inputs other than quoted prices that are observable, and</span></li><li><span>model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.</span></li></ul>
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

Level 1 –

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

Level 2 –

Valuation is based on observable inputs including: <ul><li>quoted prices in active markets for similar assets and liabilities, </li><li>quoted prices for identical or similar assets and liabilities in less active markets, </li><li>inputs other than quoted prices that are observable, and</li><li>model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.</li></ul>

Level 3 –

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

Fair value is best determined by quoted market prices. However, in cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements.

Financial Instruments Measured at Fair Value on a Recurring Basis

Securities Available for Sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables. The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated.

			Fair Value Measurement Using
March 31, 2025	Balance		Level 1		Level 2		Level 3
U.S. government agencies and corporations	$	306,927	$	-	$	306,927	$	-
States and political subdivisions		147,612		-		147,612		-
Mortgage-backed securities		135,928		-		135,928		-
Corporate debt securities		5,786		-		5,786		-
Total securities available for sale	$	596,253	$	-	$	596,253	$	-
			Fair Value Measurement Using
---	---	---	---	---	---	---	---	---
December 31, 2024	Balance		Level 1		Level 2		Level 3
U.S. government agencies and corporations	$	311,124	$	-	$	311,124	$	-
States and political subdivisions		145,734		-		145,734		-
Mortgage-backed securities		138,298		-		138,298		-
Corporate debt securities		5,743		-		5,743		-
U.S. treasury		999		-		999		-
Total securities available for sale	$	601,898	$	-	$	601,898	$	-

The Company’s securities portfolio is valued using Level 2 inputs. The Company relies on an independent third party vendor to provide market valuations. The inputs used to determine value include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio.

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

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

Certain financial instruments are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale at March 31, 2025 or December 31, 2024.

Collateral Dependent Loans

Collateral dependent loans are measured on a non-recurring basis for the ACLL. 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. When repayment is expected from the sale of the collateral, fair value is estimated using measurement techniques discussed below and discounted by the 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 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. Appraisals are prepared by independent, licensed appraisers. Appraisals are based upon observable market data analyzed through an income or sales valuation approach. Valuation falls within Level 2 categorization. The Company may further discount appraisals for marketing strategies, which results in Level 3 categorization.

The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

As of March 31, 2025, three commercial real estate loans totaling $8,999 were collateral dependent. Valuation was based upon outside appraisals (Level 2). None of the measurements resulted in a specific allocation. As of December 31, 2024, three commercial real estate loans totaling $9,259 were measured under the fair value of collateral method using third party appraisals (Level 2). None of the measurements resulted in a specific allocation.

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.

			Estimated Fair Value
March 31, 2025	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	14,892	$	14,892	$	-	$	-
Interest-bearing deposits		107,385		107,385		-		-
Federal funds sold		258		258		-		-
Securities available for sale		596,253		-		596,253		-
Restricted stock, at cost		1,848		-		1,848		-
Mortgage loans held for sale		938		-		938		-
Loans, net		992,774		-		-		948,390
Accrued interest receivable		6,673		-		6,673		-
Bank-owned life insurance		47,661		-		47,661		-
Financial liabilities:
Deposits	$	1,657,760	$	-	$	1,359,101	$	298,759
Accrued interest payable		1,434		-		1,434		-

			Estimated Fair Value
December 31, 2024	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	13,564	$	13,564	$	-	$	-
Interest-bearing deposits		94,254		94,254		-		-
Federal funds sold		299		299		-		-
Securities available for sale		601,898		-		601,898		-
Restricted stock, at cost		1,848		-		1,848		-
Mortgage loans held for sale		619		-		619		-
Loans, net		977,688		-		-		927,581
Accrued interest receivable		6,469		-		6,469		-
Bank-owned life insurance		47,369		-		47,369		-
Financial liabilities:
Deposits	$	1,644,752	$	-	$	1,332,138	$	312,811
Accrued interest payable		1,462		-		1,462		-

Note 7: Components of Accumulated Other Comprehensive Loss

The following tables provide information about components of accumulated other comprehensive loss as of the dates indicated:

			Adjustments<br>Related to<br>Pension<br>Benefits			Accumulated<br>Other<br>Comprehensive<br>Loss
Balance at December 31, 2023	(62,556	)	$	(2,310	)	$	(64,866	)
Unrealized holding loss on available for sale securities, net of tax of (887)	(3,338	)		-			(3,338	)
Balance at March 31, 2024	(65,894	)	$	(2,310	)	$	(68,204	)
Balance at December 31, 2024	(62,093	)	$	328		$	(61,765	)
Unrealized holding gain on available for sale securities, net of tax of 2,017	7,590			-			7,590
Balance at March 31, 2025	(54,503	)	$	328		$	(54,175	)

All values are in US Dollars.

Note 8: 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 (“Topic 606”). Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance. Noninterest revenue streams within the scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.

Other Service Charges and Fees

Other service charges include safe deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transaction 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. In compliance with Topic 606, credit and debit card fee income is presented net of associated expense.

Trust Income

Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Estate management fees are based upon the size of the estate. A partial fee is recognized half-way through the estate administration and the remainder of the fee is recognized when remaining assets are distributed and the estate is closed.

Insurance and Investment

Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue.

Investment income consists of recurring revenue streams such as commissions from sales of mutual funds, 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. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined.

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

	Three Months Ended March 31,
Noninterest Income	2025		2024
In-scope of Topic 606:
Service charges on deposit accounts	$	736	$	675
Other service charges and fees		63		46
Credit and debit card fees, net		417		374
Trust income		579		503
Insurance and Investment (1)		354		305
Noninterest Income (in-scope of Topic 606)	$	2,149	$	1,903
Noninterest Income (out-of-scope of Topic 606)		406		296
Total noninterest income	$	2,555	$	2,199

(1) Included within other income in the Consolidated Statements of Income

Note 9: Leases

The Company’s leases are recorded under ASC Topic 842, “Leases”. The Company categorizes leases as short-term, operating or finance leases. Leases with terms of 12 months or less are designated as short-term and are not capitalized. Operating and finance leases are capitalized as right-of-use assets and lease liabilities. Right-of-use assets, included in other 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, included in other 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. The Company does not separate non-lease components from lease components within a single contract. Counterparties for the Company’s lease contracts are external to the Company and not related parties.

On June 1, 2024, the Company’s acquisition of FCB added two long-term branch leases. At the Acquisition Date, the leases were remeasured using the Company’s incremental borrowing rate and remaining lease terms, resulting in an increase of $548 to the right of use asset and the lease liability.

Lease payments

Short-term lease payments are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Operating and finance lease payments may be fixed for the term of the lease or variable. If the escalation factor for a variable lease payment is known, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability.

Options to Extend, Residual Value Guarantees, Restrictions and Covenants

Certain of the Company’s operating leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

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

	March 31,			December 31,
	2025			2024
Lease liability	$	1,422		$	1,523
Right-of-use asset	$	1,209		$	1,305
Weighted average remaining lease term (in years)		4.63			4.76
Weighted average discount rate		3.89	%		3.87	%
	For the Three Months Ended March 31,
---	---	---	---	---
Lease Expense	2025		2024
Operating lease expense	$	111	$	89
Short-term lease expense		-		5
Total lease expense	$	111	$	94
Cash paid for amounts included in lease liabilities	$	112	$	95

The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability:

Undiscounted Cash Flow for the Period	As of<br>March 31, 2025
Twelve months ending March 31, 2026	$	366
Twelve months ending March 31, 2027		330
Twelve months ending March 31, 2028		303
Twelve months ending March 31, 2029		273
Twelve months ending March 31, 2030		115
Thereafter		156
Total undiscounted cash flows	$	1,543
Less: discount		(121	)
Lease liability	$	1,422

Note 10: Stock Based Compensation

The Company’s 2023 Stock Incentive Plan (“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. The restricted stock has voting rights and rights to dividends, which are paid upon vest date. For further information on the Plan, please refer to the Company’s 2024 Form 10-K.

Restricted Stock Awards

Under the Plan, restricted stock awards (“RSAs”) were granted to non-employee directors as part of the semi-annual retainer and restricted stock units ("RSUs") were granted to certain executives. The RSAs and RSUs were valued at the closing stock price on the grant date and expensed over a one-year vesting period. Stock based compensation expense charged against income was $43 for the three months ended March 31, 2025 and $32 for the three months ended March 31, 2024. As of March 31, 2025, expense of $103 related to the nonvested RSAs and RSUs is expected to be recognized over the coming 12 months. A summary of changes in the Company’s nonvested RSAs under the Plan for the three months ended March 31, 2025 follows:

	Shares		Weighted-Average<br>Grant-Date<br>Fair Value
Nonvested at January 1, 2025		4,961	$	30.98
Nonvested at March 31, 2025		4,961	$	30.98

Note 11: Net Income Per Common Share

The factors used in the computation of net income per common share for the periods indicated are presented below:

	For the Three Months Ended March 31,
	2025						2024
	Net Income<br>(Numerator)		Common<br>Shares Weighted Average Outstanding <br>(Denominator)		Per<br>Share		Net Income<br>(Numerator)		Common<br>Shares Weighted Average Outstanding<br>(Denominator)		Per<br>Share
Basic net income per<br> common share	$	3,236		6,358,410	$	0.51	$	2,174		5,889,687	$	0.37
Dilutive shares for restricted stock<br> awards:				1,982						1,964
Diluted net income per<br> common share	$	3,236		6,360,392	$	0.51	$	2,174		5,891,651	$	0.37

RSA grants are disregarded in the computation of diluted net income per share if they are determined to be anti-dilutive. There were no anti-dilutive RSAs for the three months ended March 31, 2025 and March 31, 2024.

Note 12 – Goodwill and Other Intangibles

The aggregate amortization expense was $97 for the three months ended March 31, 2025. The following table provides information on the significant components of goodwill and other acquired intangible assets at March 31, 2025.

	Beginning Balance		Additions		Accumulated Amortization			Ending Balance
Goodwill	$	10,718	$	-	$	-		$	10,718
Core deposit intangible	$	1,863	$	-	$	(97	)	$	1,766

As of March 31, 2025, estimated future remaining amortization of the core deposit intangible within the years ending December 31, is as follows:

	Amortization Expense
2025	$	276
2026		331
2027		290
2028		248
2029		207
2030		165
Thereafter		249
Total amortizing core deposit intangible	$	1,766

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

$ in thousands, except per share data

The purpose of this discussion and analysis is to provide information about the financial condition and results of operations of the Company. Please refer to the financial statements and other information included in this report as well as the Company’s 2024 Form 10-K for an understanding of the following discussion and analysis. References in the following discussion and analysis to “we” or “us” refer to the Company unless the context indicates that the reference is to the Bank.

Cautionary Statement Regarding Forward-Looking Statements

We make forward-looking statements in this Form 10-Q that are subject to significant risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon management’s views and assumptions as of the date of this report. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements.

These forward-looking statements are based upon or are affected by factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, effects of or changes in:

inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments,
the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged,
the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses,
general and local economic conditions,
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation (“FDIC”), and the impact of any policies or programs implemented pursuant to financial reform legislation,
unanticipated increases in the level of unemployment in the Company’s market,
the quality or composition of the loan and/or investment portfolios,
demand for loan products,
deposit flows,
competition,
demand for financial services in the Company’s market,
the real estate market in the Company’s market,
laws, regulations and policies impacting financial institutions,
technological risks and developments, and cyber-threats, attacks or events,
the Company’s technology initiatives,
geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts,
the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events,
the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment,
performance by the Company’s counterparties or vendors,
applicable accounting principles, policies and guidelines, and
risks associated with mergers, acquisitions, and other expansion activities.

These risks and uncertainties should be considered in evaluating the forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which speak only as of the date of this report. This discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A of the Company's 2024 Form 10-K.

Overview

NBI is a financial holding company that was organized in 1986 under the laws of Virginia and is registered under the Bank Holding Company Act of 1956. NBI common stock is listed on the Nasdaq Capital Market and is traded under the symbol “NKSH.”

NBI has two wholly-owned subsidiaries; the National Bank of Blacksburg ("NBB") and National Bankshares Financial Services, Inc. ("NBFS"). NBB is a community bank and does business as National Bank from 28 office locations and one loan production office. NBB is the source of nearly all of the Company’s revenue. NBFS does business as National Bankshares Investment Services and National Bankshares Insurance Services. Income from NBFS is not significant at this time, nor is it expected to be so in the near future.

Critical Accounting Policies

The Company’s consolidated financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. Although the economics of the Company’s transactions may not change, the timing of events that would impact the transactions could change.

Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. The Company has designated the following policies as critical: those governing the allowance for credit losses, goodwill, the pension plan, core deposit intangibles and loans acquired in a business combination. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. For information on the Company's critical accounting policies, please refer to the Company’s 2024 Form 10-K, Note 1: Summary of Significant Accounting Policies.

Acquisition of Frontier Community Bank

On June 1, 2024, the Company and the Bank acquired FCB, a Virginia chartered commercial bank headquartered in Waynesboro, Virginia. FCB’s balances and results of operations are included in the Company’s consolidated results beginning on June 1, 2024.

Non-GAAP Financial Measures

This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP. Details on non-GAAP measures follow.

Net Interest Margin

The Company uses the net interest margin (non-GAAP) to measure profitability of interest generating activities, as a percentage of total interest-earning assets. The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis. The portion of interest income that is nontaxable is grossed up to the tax equivalent by adding the tax benefit based on a tax rate of 21%. Annualized FTE net interest income is divided by total average earning assets to calculate the net interest margin. The following tables present the reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, for the periods indicated.

	Three Months Ended March 31,
Net Interest Margin, FTE	2025			2024
Interest income (GAAP)	$	18,203		$	16,021
Add: FTE adjustment		238			244
Interest income, FTE (non-GAAP)		18,441			16,265
Interest expense (GAAP)		7,947			7,776
Net interest income, FTE (non-GAAP)	$	10,494		$	8,489
Average balance of interest-earning assets	$	1,768,493		$	1,638,704
Net interest margin (non-GAAP)		2.41	%		2.08	%

Efficiency Ratio

The efficiency ratio is computed by dividing noninterest expense by the sum of FTE net interest income and noninterest income, excluding certain items the Company’s management deems unusual or non-recurring. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. The components of the efficiency ratio calculation for the periods indicated are summarized in the following table.

	Three Months Ended March 31,
Efficiency Ratio	2025			2024
Noninterest expense (GAAP)	$	8,633		$	7,762
Less: merger-related expense		-			(484	)
Less: conversion expense (1)		(46	)		-
Adjusted noninterest expense (non-GAAP)	$	8,587		$	7,278
Noninterest income (GAAP)	$	2,555		$	2,199
Net interest income, FTE (non-GAAP)		10,494			8,489
Total income for efficiency ratio (non-GAAP)	$	13,049		$	10,688
Efficiency ratio (non-GAAP)		65.81	%		68.10	%

Conversion expense stems from an upcoming system upgrade that will provide greater efficiency and product offerings.

Adjusted Return on Average Assets and Adjusted Return on Average Equity

The adjusted return on average assets and adjusted return on average equity are measures of profitability, calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively. Significant income or expenses that are unusual or not expected to recur during the year are not annualized, in order to reduce distortion within the ratios. The tables below present the reconciliation of adjusted annualized net income, which is not a measurement under GAAP, for the periods indicated.


			2024
Net income per GAAP	3,236		$	2,174
Less: items not annualized:
Partnership income net of tax of (52) and (35) for the periods ended March 31, 2025 and 2024, respectively	(197	)		(134	)
Merger-related expense for the period ended March 31, 2024	-			484
Conversion expense, net of tax of 10 for the period ended March 31, 2025	36			-
Total non-annualized items	(161	)		350
Adjusted net income	3,075		$	2,524
Adjusted net income, annualized	12,471		$	10,151
Add: total non-annualized items	161			(350	)
Annualized net income for ratio calculation (non-GAAP)	12,632		$	9,801
Return on average assets (GAAP)	0.72	%		0.53	%
Adjusted return on average assets (non-GAAP)	0.69	%		0.59	%
Return on average equity (GAAP)	8.14	%		6.43	%
Adjusted return on average equity (non-GAAP)	7.84	%		7.20	%

All values are in US Dollars.

Performance Summary

Key to understanding the Company’s results of operations and financial position is the acquisition of FCB in 2024, the impact of the interest rate environment and the upcoming system conversion that will enhance efficiency and product offerings.

The acquisition of FCB on June 1, 2024 expanded the Company's footprint into desirable markets and increased its growth potential. The acquisition added to the balance sheet $118,743 in loans, $129,717 in deposits and $14,299 in equity.The Company also recorded merger expenses detailed under Non-GAAP above.

Between March 2022 and July 2023, the Federal Reserve increased interest rates 525 basis points. The rapidity and magnitude of the change was unprecedented and spurred intense competitive pressure for deposits, affected the fair value of the Company’s securities, and dampened loan demand. The effects of the interest rate environment continued into 2024, however, the Federal Reserve's 100 basis point interest rate cut between September and December eased deposit pricing pressure beginning in the fourth quarter of 2024 and continued to positively influence results in 2025. The following table presents the Company’s key performance indicators for the periods indicated.

	Three Months Ended March 31,
Summary Key Performance Indicators	2025			2024
Net Income	$	3,236		$	2,174
Return on average assets		0.72	%		0.53	%
Adjusted return on average assets (1)		0.69	%		0.59	%
Return on average equity		8.14	%		6.43	%
Adjusted return on average equity (1)		7.84	%		7.20	%
Basic net income per common share	$	0.51		$	0.37
Diluted net income per common share(2)	$	0.51		$	0.37
Net interest margin (1)		2.41	%		2.08	%
Efficiency ratio (1)		65.81	%		68.10	%

See “Non-GAAP Financial Measures” above.
Average dilutive common shares were 1,982 and 1,964 for the three months ended March 31, 2025 and 2024, respectively. Dilutive common shares stem from unvested restricted stock.

Net income for the three months ended March 31, 2025 increased when compared with the comparable period of 2024, due to net interest margin expansion and merger related expenses in 2024. The net interest margin as well as key noninterest income and expense items are discussed below.

Net Interest Income

The following tables show interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net interest margin for the periods indicated.

	Three Months Ended March 31,
	2025							2024
	Average<br>Balance		Interest		Average<br>Yield/Rate			Average<br>Balance		Interest		Average<br>Yield/Rate
Interest-earning assets:
Loans (1)(2)(3)(4)(5)	$	995,049	$	13,060		5.32	%	$	858,291	$	10,400		4.87	%
Taxable securities (5)(6)		615,788		3,883		2.56	%		633,510		4,276		2.71	%
Nontaxable securities (1)(5)		62,964		456		2.94	%		64,179		460		2.88	%
Federal funds sold		261		3		4.66	%		-		-		-
Interest-bearing deposits		94,431		1,039		4.46	%		82,724		1,129		5.49	%
Total interest-earning assets	$	1,768,493	$	18,441		4.23	%	$	1,638,704	$	16,265		3.99	%
Interest-bearing liabilities:
Interest-bearing demand deposits	$	871,007	$	4,583		2.13	%	$	822,555	$	4,989		2.44	%
Savings deposits		177,981		219		0.50	%		175,949		235		0.54	%
Time deposits (7)		307,328		3,145		4.15	%		234,670		2,552		4.37	%
Total interest-bearing liabilities	$	1,356,316	$	7,947		2.38	%	$	1,233,174	$	7,776		2.54	%
Net interest income and interest<br> rate spread			$	10,494		1.85	%			$	8,489		1.45	%
Net interest margin						2.41	%						2.08	%

Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.
Included in interest income are loan fees of $68 and $48 for the three months ended March 31, 2025 and 2024, respectively. Also included in interest income is accretion of discounts on acquired loans of $251 for the three months ended March 31, 2025.
Nonaccrual loans are included in average balances for yield computations.
Includes loans held for sale.
Daily averages are shown at amortized cost.
Includes restricted stock.
Included in interest expense is amortization of premium on acquired time deposits of $58 for the three months ended March 31, 2025.

When the three month periods ended March 31, 2025 and 2024 are compared, the yield on earning assets increased and the cost of interest bearing liabilities decreased, improving the net interest margin. The Federal Reserve's interest rate cuts between September and December 2024 immediately reduced expense for deposits with pricing based on the prime interest rate. Current interest rates are still at a level that will allow improved interest income as loans continue to reach repricing dates.

Noninterest Income

	Three Months Ended March 31,				Change
	2025		2024		Dollars		Percent
Service charges on deposits	$	736	$	675	$	61		9.04	%
Other service charges and fees		63		46		17		36.96	%
Credit and debit card fees, net		417		374		43		11.50	%
Trust income		579		503		76		15.11	%
BOLI income		292		258		34		13.18	%
Gain on sale of mortgage loans		25		24		1		4.17	%
Other income		443		319		124		38.87	%
Total noninterest income	$	2,555	$	2,199	$	356		16.19	%

Service charges on deposit accounts increased when the three months ended March 31, 2025 are compared with the comparable period of 2024, due to higher levels of deposits.

Credit and debit card fees, net, increased when the three months ended March 31, 2025 are compared with the comparable period of 2024, due to transaction volume.

Trust income increased due to higher assets under management, when the three months ended March 31, 2025 are compared with the comparable period of 2024.

BOLI income increased when the three months ended March 31, 2025 is compared with the comparable period of 2024 due to income from policies acquired from FCB.

Other income includes revenue from investment and insurance sales, adjustments to partnership basis and other miscellaneous components. Insurance income and a vendor incentive payment account for the increase when the three months ended March 31, 2025 is compared with the comparable period of 2024.

Noninterest Expense

	Three Months Ended March 31,				Change
	2025		2024		Dollars			Percent
Salaries and employee benefits	$	5,188	$	4,466	$	722			16.17	%
Occupancy, furniture and fixtures		656		539		117			21.71	%
Data processing and ATM		1,078		867		211			24.34	%
FDIC assessment		207		187		20			10.70	%
Intangible asset amortization		97		-		97		NM
Franchise taxes		373		350		23			6.57	%
Professional services		299		240		59			24.58	%
Merger-related expenses		-		484		(484	)	NM
Conversion expenses		46		-		46		NM
Other operating expenses		689		629		60			9.54	%
Total noninterest expense	$	8,633	$	7,762	$	871			11.22	%

Noninterest expense increased when the three months ended March 31, 2025 are compared with the comparable period of 2024. Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when the three months ended March 31, 2025 is compared with the comparable period of 2024, reflecting the addition of FCB employees.

Occupancy, furniture and fixtures expense increased when the three months ended March 31, 2025 are compared with the comparable period of 2024 due to additional assets acquired from FCB and higher maintenance costs.

Data processing and ATM and FDIC assessment expenses increased when the three months ended March 31, 2025 are compared with the comparable period of 2024 due to expenses associated with the branches acquired from FCB and a larger assessment base.

Professional services include legal, audit and consulting expenses, which increased when the three months ended March 31, 2025 are compared with the comparable period of 2024 due to higher fees for the expanded asset base and system considerations associated with the FCB acquisition.

During 2024, the Company recorded expenses associated with its acquisition of FCB, including legal and consulting fees.

Conversion expense includes payments made to vendors in advance of the system upgrade planned for the second quarter of 2025.

Other operating expenses increased when the three months ended March 31, 2025 are compared with the comparable period of 2024. The category of other operating expenses includes expense for marketing and business development, supplies, non-service pension cost and charitable donations, among others. Included in various categories of noninterest expense are expenses to manage cybersecurity risk. The cost of these measures was $81 for the three months ended March 31, 2025 and $89 for the three months ended March 31, 2024. The Company places high priority on cybersecurity. The decrease in expense reflects renegotiation of contracts and licensing.

Income Tax

The Company’s income tax expense for the three months ended March 31, 2025 was $666 and effective tax rate was 17.07%. For the three months ended March 31, 2024, the Company’s income tax expense was $518 and effective tax rate was 19.24%. The merger related expense was not tax deductible, resulting in an increase to the Company’s effective tax rate for 2024.

Asset Quality

Key indicators of the Company’s asset quality are presented in the following table.

	March 31,						December 31,
	2025			2024			2024
Nonaccrual loans	$	2,173		$	2,591		$	2,222
Loans past due 90 days or more, and still accruing		166			162			548
ACLL to loans net of deferred fees and costs		1.05	%		1.05	%		1.04	%
Net charge-off ratio		0.02	%		0.02	%		0.03	%
Ratio of nonperforming loans to loans, net of <br> deferred fees and costs		0.22	%		0.30	%		0.22	%
Ratio of ACLL to nonperforming loans		482.74	%		349.48	%		461.84	%

For information on the Company’s policies on the ACLL, please refer to the Company’s 2024 Form 10-K, Note 1: Summary of Significant Accounting Policies.

The Company’s risk analysis as of March 31, 2025 determined an ACLL of $10,490, or 1.05% of loans net of deferred fees and costs. This compares with an allowance of $10,262 as of December 31, 2024, or 1.04% of loans. To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of loans evaluated collectively.

Individually Evaluated Loans

As of March 31, 2025, individually evaluated loans were $10,414. Three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $76.

As of December 31, 2024, individually evaluated loans were $10,521. Three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $80.

Collectively Evaluated Loans

Collectively evaluated loans totaled $993,491, with an ACLL of $10,414 as of March 31, 2025. As of December 31, 2024, collectively evaluated loans totaled $978,092, with an allowance of $10,182.

Collectively evaluated loans are divided into classes based upon risk characteristics. Utilizing historical loss information and peer data, the Company calculates probability of default ("PD") and loss given default ("LGD") for each class, which is adjusted for a reasonable and supportable forecast. Cash flow projections based on each loan’s contractual terms are modified by the adjusted PD and LGD for its class. Loan classes are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.

Reasonable and Supportable Forecast

The Company applies national unemployment forecasts to project cash flows. The Company determined that 12 months represents a reasonable and supportable forecast period as of March 31, 2025, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied as of March 31, 2025 projects that unemployment will be stable over the next 12 months at a lower level than the forecast applied as of December 31, 2024. The lower unemployment forecast decreased the required level of the ACLL when March 31, 2025 is compared with December 31, 2024.

Qualitative Factors: Economic

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

Higher bankruptcy filings indicate heightened credit risk and increase the ACLL, while lower bankruptcy filings have a beneficial impact on credit risk. Compared with data available as of December 31, 2024, business bankruptcy filings increased while personal bankruptcies filings decreased.

Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market. Higher levels increase credit risk. The residential vacancy rate available as of March 31, 2025 was the same as the data incorporated into the December 31, 2024 calculation. Housing data available as of March 31, 2025 showed higher inventory than as of December 31, 2024, resulting in a higher allocation.

Qualitative Factors: Asset Quality Indicators

Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. Accruing loans past due 30-89 days were 0.19% of total loans as of March 31, 2025, a decrease from 0.30% as of December 31, 2024.

Qualitative Factors: Other Considerations

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

The interest rate environment impacts variable rate loans. The Federal Reserve’s substantial interest rate increases between March 2022 and July 2023 have increased and are expected to continue to increase payments on the Company’s variable rate loans as they reach contractual repricing dates, despite the Federal Reserve's recent reduction in their target rate. The Company allocates additional reserve each time the Federal Reserve increases rates, under the expectation that higher payments may increase credit risk. After the rate increase has been in effect for one year, the allocation may be removed if management deems that the impact of the change has become integrated to the portfolio. As of March 31, 2025, the Company maintained its allocation from December 31, 2024.

The competitive, legal and regulatory environments were evaluated for changes that would affect credit risk. Higher competition for loans increases credit risk, while lower competition decreases credit risk. Competition remained at similar levels to those at December 31, 2024. The legal and regulatory environments also remain in a similar posture to December 31, 2024.

Lending policies, loan review procedures and management’s experience influence credit risk. Policies and procedures remain similar to those at December 31, 2024. The Company maintained an allocation to account for integration of FCB lenders.

Levels of high risk loans are considered in the determination of the level of the ACLL. A decrease in the level of high risk loans within a class decreases the required allocation for the loan class, and an increase in the level of high risk loans within a class increases the required allocation for the loan class. Total high risk loans increased from the level at December 31, 2024.

Unallocated Surplus

The unallocated surplus as of March 31, 2025 was $35, or 0.33% in excess of the calculated requirement. The unallocated surplus at December 31, 2024 was $50, or 0.49% in excess of the calculated requirement. The surplus provides some mitigation of current economic uncertainty that may impact credit risk.

Conclusion

The calculation of the appropriate level for the ACLL incorporates analysis of multiple factors and requires management’s prudent and informed judgment. The Company augmented the calculated requirement with an unallocated surplus. Based on analysis of historical indicators, asset quality and economic factors, management believes the level of ACLL is reasonable for the credit risk in the loan portfolio as of March 31, 2025.

ACL on Unfunded Commitments

The ACL on unfunded commitments was $250, or 0.15% of unfunded commitments as of March 31, 2025. The ACL on unfunded commitments was $251, or 0.14% as of December 31, 2024.

Provision for (Recovery of) Credit Losses

The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance. The adequacy of the ACLL is reviewed quarterly and adjustments are made as determined necessary. The Company recorded a provision for credit losses on loans of $277 and a recovery of credit losses on unfunded commitments of $1 for the three months ended March 31, 2025, compared with a provision for credit losses on loans of $5 and a recovery of $15 for unfunded commitments for the three months ended March 31, 2024. The increase in the provision for credit losses on loans was due to growth in the loan portfolio and softening economic factors.

Loan Modifications

In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons. Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements. Modifications to consumer loans generally involve short-term payment extensions to accommodate specific, temporary circumstances. Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants.

The Company reviews each modification to determine whether the borrower is experiencing financial difficulty, including indicators of default, bankruptcy, going concern, insufficient projected cash flows and inability to obtain financing from other sources. Please refer to Note 3: Loans and Allowance for Credit Losses in Part I, Item 1 of this report for more information on loans modified for borrowers experiencing financial difficulty.

During the three months ended March 31, 2025 and 2024, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty. During the three months ended March 31, 2025, the Company modified 195 loans totaling $24,105. During the three months ended March 31, 2024, the Company provided 216 modifications to loans totaling $22,322.

Key Assets and Liabilities

NBI’s key assets and liabilities and their change from December 31, 2024 are shown in the following table.

	March 31,		December 31,		Change
	2025		2024		Dollars			Percent
Interest-bearing deposits	$	107,385	$	94,254	$	13,131			13.93	%
Securities available for sale, at fair value and restricted stock		598,101		603,746		(5,645	)		(0.93	)%
Loans, net		992,774		977,688		15,086			1.54	%
Total assets		1,835,717		1,811,636		24,081			1.33	%
Deposits		1,657,760		1,644,752		13,008			0.79	%

Average Balances

Year-to-date daily averages for the major balance sheet categories are as follows:

	March 31,		December 31,		Change
	2025		2024		Dollars			Percent
Assets
Interest-bearing deposits	$	94,431	$	76,211	$	18,220			23.91	%
Securities available for sale, at fair value and restricted stock		604,642		611,914		(7,272	)		(1.19	)%
Loans, net		984,665		928,293		56,372			6.07	%
Total assets		1,819,747		1,744,440		75,307			4.32	%
Liabilities and stockholders’ equity
Noninterest-bearing demand deposits	$	291,234	$	290,038	$	1,196			0.41	%
Interest-bearing demand deposits		871,007		838,526		32,481			3.87	%
Savings deposits		177,981		176,014		1,967			1.12	%
Time deposits		307,328		278,535		28,793			10.34	%
Stockholders’ equity		161,133		147,474		13,659			9.26	%

Increased customer deposits resulted in increased investment in interest bearing deposit assets. Changes in securities, loans, deposits and stockholders’ equity are discussed below.

Securities

The Company's securities are designated as available for sale and as such, are reported at fair value. The following table presents information on securities available for sale as of the dates indicated:

	March 31,			December 31,			Change
	2025			2024			Dollars			Percent
Amortized cost	$	665,244		$	680,496		$	(15,252	)		(2.24	)%
Unrealized loss, net		(68,991	)		(78,598	)		9,607			12.22	%
Securities available for sale, at fair value	$	596,253		$	601,898		$	(5,645	)		(0.94	)%

The unrealized loss in the Company’s investment portfolio is due to interest rate risk. The fair value of bonds moves inversely to interest rate changes and expectations of interest rate changes. Most of the Company’s securities were purchased during periods prior to the Federal Reserve’s interest rate increases that began in March of 2022. The Company’s analysis of the securities portfolio determined no identifiable credit risk as of March 31, 2025 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies of the Company's 2024 Form 10-K and Note 4: Securities in Part I, Item 1 of this report for additional information on the securities portfolio.

Loans

	March 31,			December 31,			Change
	2025			2024			Dollars			Percent
Real estate construction	$	42,942		$	50,798		$	(7,856	)		(15.47	)%
Consumer real estate		311,549			307,855			3,694			1.20	%
Commercial real estate		497,072			478,078			18,994			3.97	%
Commercial non real estate		53,156			51,844			1,312			2.53	%
Public sector and IDA		56,981			57,171			(190	)		(0.33	)%
Consumer non real estate		42,205			42,867			(662	)		(1.54	)%
Less: deferred fees and costs		(641	)		(663	)		22			(3.32	)%
Loans, net of deferred fees and costs	$	1,003,264		$	987,950		$	15,314			1.55	%

The increase from December 31, 2024 is the result of organic growth. The Company is positioned to make every loan that meets its underwriting standards.

Deposits

	March 31,		December 31,		Change
	2025		2024		Dollars			Percent
Noninterest-bearing demand deposits	$	301,149	$	290,088	$	11,061			3.81	%
Interest-bearing demand deposits		879,215		864,753		14,462			1.67	%
Savings deposits		178,737		177,297		1,440			0.81	%
Time deposits		298,659		312,614		(13,955	)		(4.46	)%
Total deposits	$	1,657,760	$	1,644,752	$	13,008			0.79	%

The Company’s depositors within its market area are diverse, including individuals, businesses and municipalities. The Company does not have any brokered deposits. Depositors are insured up to the FDIC maximum of $250 thousand. Municipal deposits, which account for approximately 24% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 23% are uninsured.

Capital Resources

	March 31,			December 31,			Change
	2025			2024			Dollars		Percent
Common stock and additional paid in capital	$	21,874		$	21,831		$	43		0.20	%
Retained earnings		199,579			196,343			3,236		1.65	%
Accumulated other comprehensive loss		(54,175	)		(61,765	)		7,590		(12.29	)%
Total stockholders’ equity	$	167,278		$	156,409		$	10,869		6.95	%

The increase in stockholders’ equity reflects a decrease in the unrealized losses on securities available for sale and net income during the three months ended March 31, 2025

The Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $3 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements. NBB is subject to various capital requirements administered by banking agencies, including an additional capital conservation buffer in order to make capital distributions or discretionary bonus payments. Risk-based capital ratios are calculated in compliance with OCC rules based on the Basel III Capital Rules. Capital ratios for NBB are shown in the following tables.


Common Equity Tier I Capital Ratio	15.62	%	15.28	%	4.50	%	7.00	%
Tier I Capital Ratio	15.62	%	15.28	%	6.00	%	8.50	%
Total Capital Ratio	16.50	%	16.14	%	8.00	%	10.50	%
Leverage Ratio	10.29	%	10.25	%	4.00	%	4.00	%

Liquidity

Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost. Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits. The Company has diverse liquidity sources, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing, short-term borrowing, and FHLB advances.

As of March 31, 2025, the Company had $295,790 of borrowing capacity from the FHLB and the Company had $176,162 of unused capacity at the Federal Reserve Bank discount window. As of March 31, 2025, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.

The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters. Portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased/decreased liquidity from public funds deposits or discount window borrowings results in increased/decreased liquidity from pledging requirements. The Company monitors public funds pledging requirements and unpledged available for sale securities accessible for liquidity needs.

Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve Bank discount window. As of March 31, 2025, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve Bank discount window.

The Company monitors factors that may increase its liquidity needs. Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments and loan growth. As of March 31, 2025, the Company’s liquidity is sufficient to meet projected trends.

To monitor and estimate liquidity levels, the Company performs stress testing under varying assumptions on credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows. The Company’s Contingency Funding Plan sets forth avenues for rectifying liquidity shortfalls. As of March 31, 2025, the analysis indicated adequate liquidity under the tested scenarios.

The Company utilizes several other strategies to maintain sufficient liquidity. Loan and deposit growth are managed to keep the loan to deposit ratio within the Company’s internally-set target range. As of March 31, 2025, the loan to deposit ratio was 60.52%. The investment strategy takes into consideration the term of the investment, and securities in the available for sale portfolio are laddered based upon projected funding needs.

Off-Balance Sheet Arrangements

In the normal course of business, NBB extends lines of credit and letters of credit to its customers. Depending on their needs, customers may draw upon lines of credit at any time in any amount up to a pre-approved limit. Financial letters of credit guarantee payments to facilitate customer purchases. Performance letters of credit guarantee payment if the customer fails to complete a specific obligation.

While it would be possible for customers to fully draw on approved lines of credit and for beneficiaries to call all letters of credit, historically this has not occurred. In the event of a sudden and substantial draw on these lines, the Company would be able to access multiple options, including its lines of credit with correspondents, raising additional deposits, or selling securities available for sale or loans. The Company estimates an ACL on unfunded loan commitments under the current expected credit losses model.

The Company sells mortgages on the secondary market. Our agreement with the purchaser provides for strict underwriting and documentation requirements. Violation of the representations and warranties of the agreement would entitle the purchaser to recourse provisions. The Company has determined that its risk in this area is not significant because of the low volume of secondary market mortgage loans and high underwriting standards. The Company estimates a potential loss reserve for recourse provisions that is not material as of March 31, 2025. To date, no recourse provisions have been invoked. If funds were needed, the Company would access the same sources as noted above for funding lines and letters of credit. There were no material changes in off-balance sheet arrangements during the three months ended March 31, 2025.

Contractual Obligations

The Company had no finance lease or purchase obligations and no long-term debt at March 31, 2025.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2025 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the three months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.

Part II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending or threatened legal proceedings to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject that, in the opinion of management, may materially impact the financial condition of the Company.

Item 1A. Risk Factors

Please refer to the “Risk Factors” previously disclosed in Item 1A of the Company's 2024 Form 10-K and the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” in Part I. Item 2 of this Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.
None.
During the fiscal quarter ended March 31, 2025, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).

Item 6. Exhibits

Index of Exhibits

Exhibit No.	Description
2(i)	Agreement and Plan of Merger, dated as of January 23, 2024, by and among National Bankshares, Inc., The National Bank of Blacksburg and Frontier Community Bank	(incorporated herein by reference to Exhibit 2.1 of the Form 8-K filed on January 24, 2024)
3(i)	Amended and Restated Articles of Incorporation of National Bankshares, Inc.	(incorporated herein by reference to Exhibit 3.1 of the Form 8-K filed on March 16, 2006)
3(ii)	Amended and Restated Bylaws of National Bankshares, Inc.	(incorporated herein by reference to Exhibit 3.2 of the Form 8-K filed on July 10, 2024)
4	Specimen copy of certificate for National Bankshares, Inc. common stock	(incorporated herein by reference to Exhibit 4(a) of the Annual Report on Form 10-K for fiscal year ended December 31, 1993)
+31(i)	Section 302 Certification of Chief Executive Officer	Filed herewith
+31(ii)	Section 302 Certification of Chief Financial Officer	Filed herewith
+32(i)	18 U.S.C. Section 1350 Certification of Chief Executive Officer	Filed herewith
+32(ii)	18 U.S.C. Section 1350 Certification of Chief Financial Officer	Filed herewith
+101	The following materials from National Bankshares, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2025 are formatted in iXBRL (Inline Extensible Business Reporting Language), furnished herewith: (i) Consolidated Balance Sheets at March 31, 2025 and December 31, 2024; (ii) Consolidated Statements of Income for the three months ended March 31, 2025 and 2024; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2025 and 2024; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2025 and 2024; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024; and (vi) Notes to Consolidated Financial Statements.	Filed herewith
104	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)	Filed herewith

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NATIONAL BANKSHARES, INC.
Date: May 14, 2025		/s/ F. Brad Denardo
		By: F. Brad Denardo
		Chairman and Chief Executive Officer
		(Principal Executive Officer)
Date: May 14, 2025		/s/ Lora M. Jones
		By: Lora M. Jones
		Treasurer and
		Chief Financial Officer
		(Principal Financial Officer)
		(Principal Accounting Officer)

EX-31.i

Exhibit 31(i)

CERTIFICATIONS

I, F. Brad Denardo, certify that:

I have reviewed this quarterly report on Form 10-Q of National Bankshares, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2025

/s/ F. Brad Denardo
F. Brad Denardo<br>Chairman and Chief Executive Officer<br>(Principal Executive Officer)

EX-31.ii

Exhibit 31(ii)

CERTIFICATIONS

I, Lora M. Jones, certify that:

I have reviewed this quarterly report on Form 10-Q of National Bankshares, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2025

/s/ Lora M. Jones
Lora M. Jones<br><br>Treasurer and<br><br>Chief Financial Officer<br><br>(Principal Financial Officer)

EX-32.i

Exhibit 32 (i)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Form 10-Q of National Bankshares, Inc. for the quarter ended March 31, 2025, I, F. Brad Denardo, Chairman and Chief Executive Officer (Principal Executive Officer) of National Bankshares, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

such Form 10-Q for the quarter ended March 31, 2025, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in such Form 10-Q for the quarter ended March 31, 2025, fairly presents, in all material respects, the financial condition and results of operations of National Bankshares, Inc.

/s/ F. Brad Denardo
F. Brad Denardo
Chairman and Chief Executive Officer<br><br>(Principal Executive Officer)
May 14, 2025

EX-32.ii

Exhibit 32 (ii)

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Form 10-Q of National Bankshares, Inc. for the quarter ended March 31, 2025, I, Lora M. Jones, Treasurer and Chief Financial Officer (Principal Financial Officer) of National Bankshares, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

such Form 10-Q for the quarter ended March 31, 2025, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in such Form 10-Q for the quarter ended March 31, 2025, fairly presents, in all material respects, the financial condition and results of operations of National Bankshares, Inc.

/s/ Lora M. Jones
Lora M. Jones<br>Treasurer and<br><br>Chief Financial Officer<br><br>(Principal Financial Officer)<br><br>May 14, 2025

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number: 0-15204

NATIONAL BANKSHARES, INC.

24062-9002

(540) 951-6300

Securities registered pursuant to Section 12(b) of the Act:

Table of Contents

NATIONAL BANKSHARES, INC.

Form 10-Q

Index

Table of Contents

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

National Bankshares, Inc.

Consolidated Balance Sheets

Table of Contents

National Bankshares, Inc.

Consolidated Statements of Income

Table of Contents

National Bankshares, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31, 2025 and 2024

Table of Contents

National Bankshares, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2025 and 2024

Table of Contents

National Bankshares, Inc.

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2025 and 2024

Table of Contents

Table of Contents

National Bankshares, Inc.

Notes to Consolidated Financial Statements

March 31, 2025

$ in thousands, except per share data

Note 1: General and Summary of Significant Accounting Policies

ASU 2023-09

ASU 2024-03

Table of Contents

Note 2: Business Combination

Table of Contents

Note 3: Loans and Allowance for Credit Losses

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Note 4: Securities

Table of Contents

Note 5: Defined Benefit Plan

Note 6: Fair Value Measurements

Table of Contents

Securities Available for Sale

Table of Contents

Loans Held for Sale

Collateral Dependent Loans

Fair Value Summary

Table of Contents

Note 7: Components of Accumulated Other Comprehensive Loss

Note 8: Revenue Recognition

Table of Contents

Table of Contents

Note 9: Leases

Lease payments

Options to Extend, Residual Value Guarantees, Restrictions and Covenants

Table of Contents

Note 10: Stock Based Compensation

Restricted Stock Awards

Note 11: Net Income Per Common Share

Table of Contents

Note 12 – Goodwill and Other Intangibles

Table of Contents