Equibles

10-Q

Skyline Bankshares, Inc. (SLBK)

10-Q 2025-05-15 For: 2025-03-31
View Original
Added on April 06, 2026

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

Or

☐ 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: 333-209052

SKYLINE BANKSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Virginia 47-5486027
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identification Number)
101 Jacksonville Circle
Floyd, Virginia 24091
(Address of Principal Executive Offices) (Zip Code)

(540) 745-4191

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class Trading<br><br> <br>Symbol(s) Name of each exchange<br><br> <br>on which registered
None

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 checkmark whether the Registrant has submitted electronically any Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 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, 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 ☑

The registrant had 5,651,704 shares of Common Stock, no par value per share, outstanding as of May 14, 2025.

PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets—March 31, 2025 (Unaudited) and December 31, 2024 (Audited) 3
Unaudited Consolidated Statements of Income—Three Months Ended March 31, 2025 and March 31, 2024 4
Unaudited Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2025 and March 31, 2024 5
Unaudited Consolidated Statements of Changes in Stockholders’ Equity—Three Months Ended March 31, 2025 and March 31, 2024 6
Unaudited Consolidated Statements of Cash Flows—Three Months Ended March 31, 2025 and March 31, 2024 7
Notes to Consolidated Financial Statements 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures about Market Risk 46
Item 4. Controls and Procedures 47
PART II OTHER INFORMATION
Item 1. Legal Proceedings 48
Item 1A. Risk Factors 48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 48
Item 3. Defaults Upon Senior Securities 48
Item 4. Mine Safety Disclosures 48
Item 5. Other Information 48
Item 6. Exhibits 49
Signatures 50

Part I. Financial Information

Item 1.  Financial Statements

Skyline Bankshares, Inc. and Subsidiary

Consolidated Balance Sheets

March 31, 2025 and December 31, 2024

March 31, December 31,
(dollars in thousands) 2025 2024
(Unaudited) (Audited)
Assets **** **** **** **** **** ****
Cash and due from banks $ 21,298 $ 17,889
Interest-bearing deposits with banks 16,130 1,562
Federal funds sold 456 -
Total cash and cash equivalents 37,884 19,451
Investment securities available for sale 118,483 118,287
Restricted equity securities 4,993 4,034
Loans 1,000,332 984,459
Allowance for credit losses (8,160 ) (8,027 )
Net loans 992,172 976,432
Cash value of life insurance 26,649 26,743
Other real estate owned 140 140
Properties and equipment, net 35,342 34,663
Accrued interest receivable 4,009 4,013
Core deposit intangible 3,603 3,815
Goodwill 7,900 7,900
Deferred tax assets, net 5,060 5,593
Other assets 15,263 16,528
$ 1,251,498 $ 1,217,599
Liabilities and Stockholders’ Equity **** **** **** **** **** ****
Liabilities ****** ****** ****** ****** ****** ******
Deposits
Noninterest-bearing $ 350,451 $ 337,918
Interest-bearing 763,936 754,285
Total deposits 1,114,387 1,092,203
Borrowings 37,000 25,000
Fed funds purchased 26 4,254
Accrued interest payable 699 950
Other liabilities 6,465 6,524
1,158,577 1,128,931
Commitments and contingencies (Note 10)
Stockholders’ Equity ****** ****** ****** ****** ****** ******
Preferred stock, no par value; 5,000,000 shares authorized, none issued - -
Common stock, no par value; 25,000,000 shares authorized, 5,651,704 and 5,651,704 issued and outstanding at March 31, 2025 and December 31, 2024, respectively - -
Surplus 33,556 33,507
Retained earnings 75,874 73,714
Accumulated other comprehensive loss (16,509 ) (18,553 )
92,921 88,668
$ 1,251,498 $ 1,217,599

See Notes to Consolidated Financial Statements

Skyline Bankshares, Inc. and Subsidiary

Consolidated Statements of Income

For the Three Months ended March 31, 2025 and 2024

Three Months Ended
March 31,
(dollars in thousands except share amounts) 2025 2024
(Unaudited) (Unaudited)
Interest income ****** ****** ****** ****** ******
Loans and fees on loans $ 14,721 $ 11,147
Interest-bearing deposits in banks 47 64
Federal funds sold 2 4
Interest on taxable securities 633 685
Interest on nontaxable securities 49 49
Dividends 32 37
15,484 11,986
Interest expense ****** ****** ****** ****** ******
Deposits 3,335 2,682
Interest on borrowings 426 437
3,761 3,119
Net interest income 11,723 8,867
Provision for credit losses 178 93
Net interest income after provision for credit losses 11,545 8,774
Noninterest income ****** ****** ****** ****** ******
Service charges on deposit accounts 584 551
Other service charges and fees 916 849
Net realized losses on securities - (141 )
Mortgage origination fees 35 55
Increase in cash value of life insurance 174 146
Life insurance income 60 218
Other income 17 21
1,786 1,699
Noninterest expenses ****** ****** ****** ****** ******
Salaries and employee benefits 4,500 4,321
Occupancy and equipment 1,479 1,411
Data processing expense 848 649
FDIC Assessments 246 144
Advertising 244 217
Bank franchise tax 132 99
Director fees 93 58
Professional fees 302 221
Telephone expense 124 107
Core deposit intangible amortization 212 80
Other expense 683 669
8,863 7,976
Net income before income taxes 4,468 2,497
Income tax expense 895 446
Net income $ 3,573 $ 2,051
Net income per share $ 0.64 $ 0.37
Weighted average shares outstanding 5,584,704 5,564,568
Dividends declared per share $ 0.25 $ 0.23

See Notes to Consolidated Financial Statements

Skyline Bankshares, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

For the Three Months ended March 31, 2025 and 2024

Three Months Ended
March 31,
(dollars in thousands) 2025 2024
(Unaudited) (Unaudited)
Net income $ 3,573 $ 2,051
Other comprehensive income (loss) **** **** **** **** **** ****
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period 2,587 (859 )
Tax related to unrealized (gains) losses (543 ) 180
Reclassification of net realized losses during the period - 141
Tax related to net realized losses - (30 )
Total other comprehensive income (loss) 2,044 (568 )
Total comprehensive income $ 5,617 $ 1,483

See Notes to Consolidated Financial Statements

Skyline Bankshares, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months ended March 31, 2025 and 2024

(dollars in thousands except share amounts) **** **** **** **** **** ****
**** **** **** **** **** **** **** **** **** **** Accumulated **** **** ****
**** **** **** **** **** **** **** **** **** **** Other **** **** ****
**** **** **** Retained Comprehensive **** **** ****
Amount Surplus Earnings Loss Total
Balance, December 31, 2023 5,584,204 $ - $ 33,356 $ 68,866 $ (19,340 ) $ 82,882
Net income - - - 2,051 - 2,051
Other comprehensive loss - - - - (568 ) (568 )
Dividends paid (0.23 per share) - - - (1,279 ) - (1,279 )
Stock awards issued 65,000 - - - - -
Share-based compensation - - 19 - - 19
Common stock repurchased (20,000 ) - (230 ) - - (230 )
Balance, March 31, 2024 5,629,204 $ - $ 33,145 $ 69,638 $ (19,908 ) $ 82,875
Balance, December 31, 2024 5,651,704 $ - $ 33,507 $ 73,714 $ (18,553 ) $ 88,668
Net income - - - 3,573 - 3,573
Other comprehensive income - - - - 2,044 2,044
Dividends paid (0.25 per share) - - - (1,413 ) - (1,413 )
Share-based compensation - - 49 - - 49
Balance, March 31, 2025 5,651,704 $ - $ 33,556 $ 75,874 $ (16,509 ) $ 92,921

All values are in US Dollars.

See Notes to Consolidated Financial Statements

Skyline Bankshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows, continued

For the Three Months ended March 31, 2025 and 2024

Three Months Ended
March 31,
(dollars in thousands) 2025 2024
(Unaudited) (Unaudited)
Cash flows from operating activities ****** ****** ****** ****** ****** ******
Net income $ 3,573 $ 2,051
Adjustments to reconcile net income to net cash provided by operations:
Depreciation 508 511
Amortization of core deposit intangible 212 80
Accretion of loan discount and deposit premium, net (312 ) (40 )
Provision for credit losses 178 93
Deferred income taxes (10 ) (56 )
Net realized losses on securities - 141
Accretion of discount on securities, net of amortization of premiums 11 27
Deferred compensation 29 44
Share-based compensation 49 19
Life insurance income (60 ) (218 )
Changes in assets and liabilities:
Cash value of life insurance (174 ) (146 )
Accrued interest receivable 4 13
Other assets 1,265 233
Accrued interest payable (251 ) 152
Other liabilities (105 ) (136 )
Net cash provided by operating activities 4,917 2,768
Cash flows from investing activities ****** ****** ****** ****** ****** ******
Activity in available for sale securities:
Maturities/calls/paydowns 2,380 4,135
Purchases of restricted equity securities (959 ) (271 )
Net increase in loans (15,560 ) (8,964 )
Proceeds from life insurance contracts 328 -
Purchases of property and equipment (1,187 ) (722 )
Net cash used in investing activities (14,998 ) (5,822 )
Cash flows from financing activities ****** ****** ****** ****** ****** ******
Net increase in deposits 22,155 1,702
Net change in FHLB advances 14,500 5,000
Net change in fed funds purchased (4,228 ) -
Advances on short-term line of credit 2,500 -
Payment on short-term line of credit (5,000 ) -
Repayment of bank term funding program advances - (2,500 )
Common stock repurchased - (230 )
Dividends paid (1,413 ) (1,279 )
Net cash provided by financing activities 28,514 2,693
Net increase (decrease) in cash and cash equivalents 18,433 (361 )
Cash and cash equivalents, beginning 19,451 22,093
Cash and cash equivalents, ending $ 37,884 $ 21,732

See Notes to Consolidated Financial Statements

Skyline Bankshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows, continued

For the Three Months ended March 31, 2025 and 2024

Three Months Ended
March 31,
(dollars in thousands) 2025 2024
(Unaudited) (Unaudited)
Supplemental disclosure of cash flow information ****** ****** ****** ****** ******
Interest paid $ 4,012 $ 2,967
Taxes paid $ - $ -
Supplemental disclosure of noncash investing activities ****** ****** ****** ****** ******
Effect on equity of change in net unrealized gain (loss) on available for sale securities $ 2,044 $ (568 )
Right-of-use assets obtained in exchange for new operating lease liabilities $ - $ 17

See Notes to Consolidated Financial Statements

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 1. Organization and Summary of Significant Accounting Policies

Organization

Skyline Bankshares, Inc. (the “Company”) is a bank holding company headquartered in Floyd, Virginia. The Company offers a wide range of retail and commercial banking services through its wholly-owned bank subsidiary, Skyline National Bank (the “Bank”). On January 1, 2023, the Company changed its name from Parkway Acquisition Corp. to Skyline Bankshares, Inc. to align its brand across the entire organization.

The Company was incorporated as a Virginia corporation on November 2, 2015. The Company was formed as a business combination shell company for the purpose of completing a business combination transaction between Grayson Bankshares, Inc. (“Grayson”) and Cardinal Bankshares Corporation (“Cardinal”) in which which Grayson and Cardinal merged with and into the Company, with the Company as the surviving corporation (the “Cardinal merger”), on July 1, 2016. Upon completion of the Cardinal merger, the Bank of Floyd (“Floyd”), a wholly-owned subsidiary of Cardinal, was merged with and into the Bank (formerly Grayson National Bank), a wholly-owned subsidiary of Grayson. Effective March 13, 2017, the Bank changed its name to Skyline National Bank.

On July 1, 2018, the Company acquired Great State Bank (“Great State”), based in Wilkesboro, North Carolina, through the merger of Great State with and into the Bank, with the Bank as the surviving bank.

On April 16, 2024, the Company entered into a definitive agreement to acquire Johnson County Bank (“JCB”), based in Mountain City, Tennessee, in an all-cash transaction valued at $25.0 million, with the Bank as the surviving bank. The purpose of this acquisition was to facilitate the Bank’s entry into Eastern Tennessee. The transaction closed and the merger of JCB with and into the Bank became effective on September 1, 2024. The Company was considered the acquiror and JCB was considered the acquiree in the transaction for accounting purposes. Pursuant to the JCB merger, the Company acquired $154.1 million of assets, including $87.2 million in loans and assumed $133.8 million in liabilities, including $125.3 million of deposits, on September 1, 2024. Such amounts include preliminary estimated fair value adjustments, which are subject to change.

For purposes of this quarterly report on Form 10-Q, all information contained herein as of and for periods prior to September 1, 2024 reflects the operations of the Company prior to the JCB merger. Unless this report otherwise indicates or the context otherwise requires, all references to the “Company” as of and for periods subsequent to September 1, 2024 refer to the combined company and its subsidiary as a combined entity after the merger, and all references to the “Company” as of and for periods prior to September 1, 2024 are references to the Company and its subsidiary as a combined entity prior to the merger.

The Bank was organized under the laws of the United States in 1900 and now serves the Virginia counties of Grayson, Floyd, Carroll, Wythe, Pulaski, Montgomery, Roanoke, Patrick and Washington, the North Carolina counties of Alleghany, Ashe, Burke, Caldwell, Catawba, Cleveland, Davie, Iredell, Watauga, Wilkes, and Yadkin, and the Tennessee county of Johnson, and the surrounding areas, through twenty-eight full-service banking offices and two loan production offices. As a Federal Deposit Insurance Corporation (“FDIC”) insured national banking association, the Bank is subject to regulation by the Comptroller of the Currency and the FDIC. The Company is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

The consolidated financial statements as of March 31, 2025 and for the three-month periods ended March 31, 2025 and 2024 included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary to present fairly the Company’s consolidated financial position, results of operations, changes in stockholders’ equity and cash flows for such interim periods. Management believes that all interim period adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto as of December 31, 2024, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024. The results of operations for the three-months ended March 31, 2025 are not necessarily indicative of the results to be expected for the full year.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 1. Organization and Summary of Significant Accounting Policies, continued

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for credit and foreclosed real estate losses, management obtains independent appraisals for significant properties.

Substantially all of the Bank’s loan portfolio consists of loans in its market area. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions. The regional economy is diverse, but influenced to an extent by the manufacturing and agricultural segments.

While management uses available information to recognize loan and foreclosed real estate losses, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as a part of their routine examination process, periodically review the Bank’s allowances for credit and foreclosed real estate losses. Such agencies may require the Bank to recognize additions to the allowances based on their judgments about information available to them at the time of their examinations. Because of these factors, it is reasonably possible that the allowances for credit and foreclosed real estate losses may change materially in the near term.

The Company seeks strategies that minimize the tax effect of implementing their business strategies. As such, judgments are made regarding the ultimate consequence of long-term tax planning strategies, including the likelihood of future recognition of deferred tax benefits. The Company’s tax returns are subject to examination by both Federal and State authorities. Such examinations may result in the assessment of additional taxes, interest and penalties. As a result, the ultimate outcome, and the corresponding financial statement impact, can be difficult to predict with accuracy.

Accounting for pension benefits, costs and related liabilities are developed using actuarial valuations. These valuations include key assumptions determined by management, including the discount rate and expected long-term rate of return on plan assets. Material changes in pension costs may occur in the future due to changes in these assumptions.

Segment Reporting

The Company adopted Accounting Standards Update (“ASU”) 2023-07 “Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures” on January 1, 2024. The Company has determined that its banking subsidiary meets the aggregation criteria of Accounting Standards Codification (“ASC”) 280, Segment Reporting, as its current operating model is structured whereby its banking subsidiary serves a similar base of retail and commercial clients utilizing a company-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the Company’s Chief Executive Officer, who has been identified as the chief operating decision maker (“CODM”).

The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company’s consolidated statements of income and other comprehensive income. The measure of segment assets is reported on the balance sheet as total consolidated assets. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of income and other comprehensive income.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 1. Organization and Summary of Significant Accounting Policies, continued

Critical Accounting Policies

Management believes the policies with respect to the methodology for the determination of the allowance for credit losses, and asset impairment judgments, such as the recoverability of intangible assets and credit losses on investment securities, involve a higher degree of complexity and require management to make difficult and subjective judgments that often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are periodically reviewed with the Audit Committee and the Board of Directors.

Reclassification

No reclassifications have been made to the prior years’ financial statements to place them on a comparable basis with the current presentation.

Recent Accounting Pronouncements

The following accounting standards may affect the future financial reporting by the Company:

In December 2023, the FASB amended the Income Taxes topic in the Accounting Standards Codification to improve the transparency of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2024, the FASB issued amendments to the Codification that remove references to various FASB Concepts Statements. The amendments are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company will apply the amendments prospectively to all new transactions recognized on or after the date that the Company first applies the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2024, the FASB issued Accounting Standards Update 2024-03 (“ASU 2024-03”) which amended the Income Statement—Reporting Comprehensive Income topic in the Accounting Standards Codification to require public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to financial statements.  The amendments are effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.  Early adoption is permitted.  The Company will apply the amendments prospectively to financial statements issued for reporting periods after the effective date.  The Company does not expect these amendments to have a material effect on its financial statements.

In January 2025, the FASB amended the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2025, the FASB amended an SEC paragraph in the Accounting Standards Codification pursuant to the issuance of SEC Staff Accounting Bulletin No. 122. The amendment was effective upon issuance. The Company does not expect this amendment to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2. Business Combinations

On September 1, 2024, the Company completed its merger with JCB as discussed above in Note 1. The merger was accounted for under the acquisition method of accounting. The Company is considered the acquiring entity in this business combination for accounting purposes. Under the terms of the merger agreement, JCB was acquired by the Company in an all-cash transaction valued at $25.0 million. The Company calculated fair values of all assets and liabilities acquired in the transaction. The assets and liabilities of JCB have been recorded at their estimated fair values and added to those of the Company for periods following the merger date. Valuations of acquired JCB assets and liabilities may be refined for up to one year following the merger date. The Company does not expect that any portion of goodwill will be deductible for tax purposes.

The following table presents the JCB assets acquired and liabilities assumed as of September 1, 2024 as well as the related fair value adjustments and determination of goodwill.

(dollars in thousands) As Reported by Fair Value As Reported by
JCB Adjustments the Company
Assets **** **** **** **** **** **** **** **** ****
Cash and cash equivalents $ 7,267 $ - $ 7,267
Investment securities available for sale 48,293 (1,790 ) 46,503
Restricted equity securities 482 - 482
Loans 91,411 (4,235 ) 87,176
Allowance for credit losses (823 ) 627 (196 )
Cash value of life insurance 3,700 - 3,700
Other real estate owned 140 - 140
Property and equipment 511 1,307 1,818
Accrued interest receivable 413 - 413
Core deposit intangible - 3,380 3,380
Deferred tax assets, net 1,934 231 2,165
Other assets 1,346 (66 ) 1,280
Total assets acquired $ 154,674 $ (546 ) $ 154,128
Liabilities **** **** **** **** **** **** **** **** ****
Deposits $ 125,437 $ (146 ) $ 125,291
Borrowings 8,000 88 8,088
Accrued interest payable 275 - 275
Other liabilities 112 5 117
Total liabilities acquired $ 133,824 $ (53 ) $ 133,771
Net assets acquired 20,357
Cash consideration 25,000
Goodwill $ 4,643

Management made significant estimates and exercised significant judgement in accounting for the acquisition of JCB. The following is a brief description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed.

Investment Securities Available for Sale

The estimated fair value of the acquired portfolio of debt securities was based on quoted market prices. All of the acquired portfolio was sold upon completion of the acquisition.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2. Business Combinations, continued

Loans and Allowance for Credit Losses

The fair valuation process identified loans with credit risk indicators that qualified for “purchase credit deteriorated” (“PCD”) status. PCD and non-PCD loans were then evaluated for credit risk and other fair value indicators. Consistent with GAAP, JCB’s related allowance for credit losses on loans was not recorded. Upon the acquisition of JCB, the PCD loans received an initial allowance for credit losses of $196 thousand that represents an adjustment to the amortized cost basis of the loans, with no impact to earnings.

Credit risk was quantified using a probability of default (“PD”)/loss given default (“LGD”) methodology from a market participant perspective and applied to each loan’s outstanding principal balance. PD rates were applied based on FDIC call report code and risk rating category. LGD rates were applied based on FDIC call report code. Other fair value indicators were quantified using a discounted cash flow methodology, utilizing a built-up discount rate that contemplates current index rates adjusted for market assumed premiums. Cash flows were generated based upon the loans’ underlying characteristics and estimated prepayment speeds.

The following table provides information on PCD and non-PCD loans as of the Acquisition Date:

(dollars in thousands) PCD<br><br> <br>Loans Non-PCD<br><br> <br>Loans Total<br><br> <br>Loans
September 1, 2024 **** **** **** **** **** **** **** **** ****
Number of Loans 128 1,136 1,264
JCB recorded value $ 6,127 $ 85,284 $ 91,411
Discount for credit risk (256 ) (370 ) (626 )
Discount for non-credit factors (396 ) (3,409 ) (3,805 )
Reclass of PCD discount to ACL 196 - 196
Fair value $ 5,671 $ 81,505 $ 87,176

Property and Equipment

The fair value of premises acquired was based on recent third-party appraisals. Acquired equipment was based on the remaining net book value of JCB, which approximated fair value.

Intangible Assets

Core deposit relationships provide a stable source of funds for lending and contribute to profitability. The core deposit intangible was valued using an income approach focused on cost savings, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates.

Deferred Tax Asset

Application of the fair value measurements resulted in an increase to the deferred tax asset. The deferred tax assets were calculated using a blended tax rate of 22.20%.

Other Assets

The fair value adjustment of other assets was based on the Company’s evaluation of acquired other assets.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2. Business Combinations, continued

Deposits

Deposits were valued using methods appropriate to their characteristics. The fair value of noninterest bearing demand deposits, interest bearing demand deposits, money market and savings deposit accounts were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Time deposits were valued at the present value of the expected contractual payments discounted at market rates for instruments with similar terms.

Borrowings

The estimated fair value of borrowings was determined by obtaining payoff quotes from the Federal Home Loan Bank. The borrowings were paid off upon completion of the acquisition.

Other Liabilities

The fair value adjustment of other liabilities was based on the Company’s evaluation of acquired other liabilities.

Supplemental Pro Forma Information (dollars in thousands except per share data)

The table below presents supplemental pro forma information as if the JCB acquisition had occurred at the beginning of the earliest period presented, which was January 1, 2024. Pro forma results include adjustments for amortization and accretion of fair value adjustments and do not include any projected cost savings or other anticipated benefits of the merger. Therefore, the pro forma financial information is not indicative of the results of operations that would have occurred had the transactions been effected on the assumed date.

Three Months ended<br><br> <br>March 31,
2025 2024
(Unaudited) (Unaudited)
Net interest income $ 11,532 $ 10,145
Net income (a) $ 3,432 $ 2,337
Weighted average shares outstanding (b) 5,584,704 5,564,568
Earnings per common share $ 0.61 $ 0.42
(a) Supplemental pro forma net income includes the impact of certain fair value adjustments. Supplemental pro forma net income does not include assumptions on cost savings or the impact of merger-related expenses.
--- ---
(b) Weighted average shares outstanding are not affected by the merger because no common stock was issued in connection with the JCB acquisition. The acquisition was an all-cash transaction valued at $25.0 million.
--- ---

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 3. Investment Securities

Investment securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost of securities and their approximate fair values at March 31, 2025 and December 31, 2024 is summarized in the following table. There was no allowance for credit losses on available for sale securities as of March 31, 2025 and December 31, 2024.

(dollars in thousands) Amortized<br><br> <br>Cost Unrealized<br><br> <br>Gains Unrealized<br><br> <br>Losses Fair<br><br> <br>Value
March 31, 2025 **** **** **** **** **** **** **** **** ****
Available for sale: ****** ****** ****** ****** ****** ****** ****** ****** ******
U.S. Treasury securities $ 2,501 $ - $ (4 ) $ 2,497
U.S. Government agencies 25,345 - (3,244 ) 22,101
Mortgage-backed securities 62,664 - (8,285 ) 54,379
Corporate securities 1,500 - (2 ) 1,498
State and municipal securities 46,321 3 (8,316 ) 38,008
$ 138,331 $ 3 $ (19,851 ) $ 118,483
December 31, 2024 **** **** **** **** **** **** **** **** ****
Available for sale: ****** ****** ****** ****** ****** ****** ****** ****** ******
U.S. Treasury securities $ 2,502 $ - $ (14 ) $ 2,488
U.S. Government agencies 25,309 - (3,804 ) 21,505
Mortgage-backed securities 65,080 - (9,542 ) 55,538
Corporate securities 1,500 - (9 ) 1,491
State and municipal securities 46,331 5 (9,071 ) 37,265
$ 140,722 $ 5 $ (22,440 ) $ 118,287

Restricted equity securities totaled $5.0 million at March 31, 2025 and $4.0 million at December 31, 2024. Restricted equity securities consist of investments in stock of the Federal Home Loan Bank of Atlanta (“FHLB”), CBB Financial Corp., Pacific Coast Bankers Bank, and the Federal Reserve Bank of Richmond, all of which are carried at cost. All of these entities are upstream correspondents of the Bank. The FHLB requires financial institutions to make equity investments in the FHLB in order to borrow money. The Federal Reserve requires banks to purchase stock as a condition for membership in the Federal Reserve System. The Bank’s stock in CBB Financial Corp. and Pacific Coast Bankers Bank is restricted only in the fact that the stock may only be repurchased by the respective banks.

The following tables details unrealized losses and related fair values in the Company’s available for sale investment securities portfolios for which an allowance for credit losses has not been recorded as of March 31, 2025 and December 31, 2024. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2025 and December 31, 2024.

Less Than 12 Months 12 Months or More Total
(dollars in thousands) Fair<br><br> <br>Value Unrealized<br><br> <br>Losses Fair<br><br> <br>Value Unrealized<br><br> <br>Losses Fair<br><br> <br>Value Unrealized<br><br> <br>Losses
March 31, 2025 **** **** **** **** **** **** **** **** **** **** **** **** **** **** ****
Available for sale: ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ******
U.S. Treasury securities $ - $ - $ 2,497 $ (4 ) $ 2,497 $ (4 )
U.S. Government agencies - - 22,101 (3,244 ) 22,101 (3,244 )
Mortgage-backed securities - - 54,379 (8,285 ) 54,379 (8,285 )
Corporate securities - - 1,498 (2 ) 1,498 (2 )
State and municipal securities 594 (6 ) 36,701 (8,310 ) 37,295 (8,316 )
Total securities available for sale $ 594 $ (6 ) $ 117,176 $ (19,845 ) $ 117,770 $ (19,851 )
December 31, 2024 **** **** **** **** **** **** **** **** **** **** **** **** **** **** ****
Available for sale: ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ****** ******
U.S. Treasury securities $ - $ - $ 2,488 $ (14 ) 2,488 $ (14 )
U.S. Government agencies - - 21,505 (3,804 ) 21,505 (3,804 )
Mortgage-backed securities - - 55,538 (9,542 ) 55,538 (9,542 )
Corporate securities - - 1,491 (9 ) 1,491 (9 )
State and municipal securities 584 (16 ) 35,967 (9,055 ) 36,551 (9,071 )
Total securities available for sale $ 584 $ (16 ) $ 116,989 $ (22,424 ) $ 117,573 $ (22,440 )

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 3. Investment Securities, continued

At March 31, 2025, 79 investment securities with unrealized losses had depreciated 14.42 percent from their total amortized cost basis. Management evaluates all available for sale investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At March 31, 2025 and December 31, 2024, there was no allowance for credit losses related to the available for sale portfolio.

There were no sales of investment securities available for sale for the three-month periods ended March 31, 2025 and 2024, respectively. There were no called securities for the three-month period ended March 31, 2025. Gross proceeds from called securities totaled $2.7 million for three-month period ended March 31, 2024. Gains and losses on the sale of investment securities are recorded on the trade date and are determined using the specific identification method. The realized loss shown below for the three month period ended March 31, 2024 resulted from the recognition of unamortized premiums on a called bond that had no pre-set call date. Gross realized gains and losses for the three-month periods ended March 31, 2025 and 2024 are as follows:

Three Months Ended March 31, ****
(dollars in thousands) 2025 2024
Realized gains $ - $ -
Realized losses - (141 )
$ - $ (141 )-

There were no securities transferred between the available for sale and held to maturity portfolios or other sales of held to maturity securities during the periods presented. In the future management may elect to classify securities as held to maturity based upon such considerations as the nature of the security, the Bank’s ability to hold the security until maturity, and general economic conditions. The scheduled maturities of securities available for sale at March 31, 2025, were as follows:

(dollars in thousands) Amortized<br><br> <br>Cost Fair<br><br> <br>Value
Due in one year or less $ 9,200 $ 9,146
Due after one year through five years 10,823 9,937
Due after five years through ten years 68,372 59,373
Due after ten years 49,936 40,027
$ 138,331 $ 118,483

Maturities of mortgage-backed securities are based on contractual amounts. Actual maturity will vary as loans underlying the securities are prepaid.

Investment securities with amortized cost of approximately $52.5 million and $56.9 million at March 31, 2025 and December 31, 2024, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 4. Loans Receivable

The major components of loans in the consolidated balance sheets at March 31, 2025 and December 31, 2024 are as follows:

(dollars in thousands) 2025 2024
Real Estate Secured:
Construction & development $ 68,201 $ 68,650
Farmland 23,440 24,412
Residential 531,940 518,122
Commercial mortgage 296,813 293,151
Non-Real Estate Secured:
Commercial & agricultural 61,935 61,187
Consumer & other 18,003 18,937
Total loans 1,000,332 984,459
Allowance for credit losses (8,160 ) (8,027 )
Loans, net of allowance for credit losses $ 992,172 $ 976,432

Included in total loans above are deferred loan fees of $1.6 million and $1.5 million at March 31, 2025 and December 31, 2024, respectively.  Included in total loans above are deferred loan costs of $5.4 million and $5.2 million, at March 31, 2025 and December 31, 2024, respectively.  Income from net deferred fees and costs is recognized over the lives of the respective loans as a yield adjustment.  If loans repay prior to scheduled maturities any unamortized fee or cost is recognized at that time.

The Company elected to exclude accrued interest receivable from the amortized cost basis of loans. Accrued interest receivable related to loans totaled $3.5 million at March 31, 2025 and $3.4 million at December 31, 2024 and was reported in accrued interest receivable on the consolidated balance sheets.

As of March 31, 2025 and December 31, 2024, substantially all of the Bank’s residential 1-4 family loans were pledged as collateral for borrowing lines at the FHLB.

As of March 31, 2025 and December 31, 2024, the Bank had no residential real estate loans in the process of foreclosure.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses

Allowance for Credit Losses - Loans

The change in the allowance for credit losses for the three months ended March 31, 2025, was due to the increase in loan volume and changes in the Company’s forecast variables during the period ended March 31, 2025.

The change in the allowance for credit losses for the three months ended March 31, 2024, was due to the increase in loan volume during for the first three months of 2024 and changes in the Company’s forecast variables during the period ended March 31, 2024.

The following table summarizes the activity related to the allowance for credit losses for the three-month periods ended March 31, 2025 and 2024 under the CECL methodology.

(dollars in thousands) Construction<br><br> <br>&<br><br> <br>Development Farmland Residential Commercial<br><br> <br>Mortgage Commercial<br><br> <br>&<br><br> <br>Agricultural Consumer<br><br> <br>& Other Total
For the Three Months Ended March 31, 2025
Balance, December 31, 2024 $ 1,012 $ 174 $ 4,070 $ 1,941 $ 504 $ 326 $ 8,027
Charge-offs - - - - - (40 ) (40 )
Recoveries - - - 1 3 8 12
Provision for (recovery of provision) (7 ) (8 ) 152 26 12 (14 ) 161
Balance, March 31, 2025 $ 1,005 $ 166 $ 4,222 $ 1,968 $ 519 $ 280 $ 8,160
(dollars in thousands) Construction<br><br> <br>&<br><br> <br>Development Farmland Residential Commercial<br><br> <br>Mortgage Commercial<br><br> <br>&<br><br> <br>Agricultural Consumer<br><br> <br>& Other Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
For the Three Months Ended March 31, 2024
Balance, December 31, 2023 $ 910 $ 154 $ 3,167 $ 1,902 $ 424 $ 182 $ 6,739
Charge-offs - - - - (16 ) (22 ) (38 )
Recoveries - - 8 1 1 7 17
Provision for (recovery of provision) (148 ) 23 78 53 37 4 47
Balance, March 31, 2024 $ 762 $ 177 $ 3,253 $ 1,956 $ 446 $ 171 $ 6,765

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued

Credit Quality Indicators

Management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality of the Bank’s loan portfolio. The Bank’s loan ratings coincide with the “Substandard,” “Doubtful” and “Loss” classifications used by federal regulators in their examination of financial institutions. Generally, an asset is considered “Substandard” if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. “Substandard” assets include those characterized by the distinct possibility that the insured financial institution will sustain some loss if the deficiencies are not corrected. Assets classified as “Doubtful” have all the weaknesses inherent in assets classified “Substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Assets classified as "Loss” are those considered uncollectible, and of such little value that its continuance on the books is not warranted. As of March 31, 2025 and December 31, 2024, respectively, the Bank had no loans graded “Doubtful” or “Loss” included in the balance of total loans outstanding.

Assets that do not currently expose the insured financial institutions to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated “Special Mention.” Management also maintains a listing of loans designated “Watch”. These loans represent borrowers with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk. Loans that are currently performing and are of high quality are given a loan rating of “Pass”.

Loans are graded at origination and will be considered for potential downgrades as the borrower experiences financial difficulties. Loan officers meet periodically to discuss their past due credits and loan downgrades could occur at that time. Commercial loans of over $1.0 million are reviewed on an annual basis, and that review could result in downgrades or in some cases, upgrades. In addition, the Company engages a third-party loan review each quarter. The results of these loan reviews could result in upgrades or downgrades.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of March 31, 2025 and December 31, 2024:

Loan Grades **** ****
(dollars in thousands) Pass Watch Special<br><br> <br>Mention Substandard Total
March 31, 2025 **** **** **** **** **** **** **** **** **** ****
Real Estate Secured:
Construction & development $ 68,026 $ - $ 175 $ - $ 68,201
Farmland 22,290 109 271 770 23,440
Residential 525,629 542 2,036 3,733 531,940
Commercial mortgage 289,955 3,567 2,991 300 296,813
Non-Real Estate Secured:
Commercial & agricultural 61,759 - 46 130 61,935
Consumer & other 17,646 - - 357 18,003
Total $ 985,305 $ 4,218 $ 5,519 $ 5,290 $ 1,000,332
December 31, 2024 **** **** **** **** **** **** **** **** **** ****
Real Estate Secured:
Construction & development $ 68,459 $ - $ 175 $ 16 $ 68,650
Farmland 23,234 111 272 795 24,412
Residential 511,943 205 2,270 3,704 518,122
Commercial mortgage 286,140 3,548 3,017 446 293,151
Non-Real Estate Secured:
Commercial & agricultural 61,133 - 54 - 61,187
Consumer & other 18,550 - 22 365 18,937
Total $ 969,459 $ 3,864 $ 5,810 $ 5,326 $ 984,459

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued

Credit Quality Indicators, continued

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of March 31, 2025:

Term Loans by Year of Origination **** **** Revolving<br><br> <br>Loans<br><br> <br>Converted **** ****
(dollars in thousands) 2025 2024 2023 2022 2021 Prior Revolving To Term Total
Construction & development
Pass $ 4,186 $ 29,964 $ 8,391 $ 4,486 $ 5,698 $ 9,650 $ 5,651 $ - $ 68,026
Watch - - - - - - - - -
Special Mention - - 175 - - - - - 175
Substandard - - - - - - - - -
Total construction & development $ 4,186 $ 29,964 $ 8,566 $ 4,486 $ 5,698 $ 9,650 $ 5,651 $ - $ 68,201
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Farmland
Pass $ 913 $ 2,509 $ 3,488 $ 1,860 $ 1,377 $ 10,706 $ 1,437 $ - $ 22,290
Watch - - - - - 109 - - 109
Special Mention - - - - - 171 100 - 271
Substandard - - - - - 770 - - 770
Total farmland $ 913 $ 2,509 $ 3,488 $ 1,860 $ 1,377 $ 11,756 $ 1,537 $ - $ 23,440
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Residential
Pass $ 21,483 $ 61,966 $ 66,029 $ 105,099 $ 56,308 $ 130,431 $ 84,313 $ - $ 525,629
Watch 339 - - - - 203 - - 542
Special Mention - 219 - 1,055 234 528 - - 2,036
Substandard - - 867 2,356 - 510 - - 3,733
Total residential $ 21,822 $ 62,185 $ 66,896 $ 108,510 $ 56,542 $ 131,672 $ 84,313 $ - $ 531,940
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial mortgage
Pass $ 8,137 $ 35,106 $ 46,044 $ 48,826 $ 44,087 $ 100,480 $ 7,275 $ - $ 289,955
Watch - - - - 1,389 2,078 100 - 3,567
Special Mention - - - 2,595 - 396 - - 2,991
Substandard - - - - - 300 - - 300
Total residential $ 8,137 $ 35,106 $ 46,044 $ 51,421 $ 45,476 $ 103,254 $ 7,375 $ - $ 296,813
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial & agricultural
Pass $ 5,903 $ 13,527 $ 11,122 $ 5,371 $ 2,441 $ 2,362 $ 20,838 $ 195 $ 61,759
Watch - - - - - - - - -
Special Mention - - - 33 - 13 - - 46
Substandard - - - - - 130 - - 130
Total commercial & agricultural $ 5,903 $ 13,527 $ 11,122 $ 5,404 $ 2,441 $ 2,505 $ 20,838 $ 195 $ 61,935
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Consumer & other
Pass $ 1,599 $ 4,125 $ 2,802 $ 1,938 $ 1,450 $ 2,970 $ 2,762 $ - $ 17,646
Watch - - - - - - - - -
Special Mention - - - - - - - - -
Substandard - 14 - - 306 37 - - 357
Total consumer & other $ 1,599 $ 4,139 $ 2,802 $ 1,938 $ 1,756 $ 3,007 $ 2,762 $ - $ 18,003
Current period gross write-offs $ - $ 12 $ 16 $ 5 $ - $ 7 $ - $ - $ 40
Total loans
Pass $ 42,221 $ 147,197 $ 137,876 $ 167,580 $ 111,361 $ 256,599 $ 122,276 $ 195 $ 985,305
Watch 339 - - - 1,389 2,390 100 - 4,218
Special Mention - 219 175 3,683 234 1,108 100 - 5,519
Substandard - 14 867 2,356 306 1,747 - - 5,290
Total loans $ 42,560 $ 147,430 $ 138,918 $ 173,619 $ 113,290 $ 261,844 $ 122,476 $ 195 $ 1,000,332
Total Current period gross write-offs $ - $ 12 $ 16 $ 5 $ - $ 7 $ - $ - $ 40

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued

Credit Quality Indicators, continued

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2024:

Term Loans by Year of Origination **** **** Revolving<br><br> <br>Loans<br><br> <br>Converted **** ****
(dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving To Term Total
Construction & development
Pass $ 30,338 $ 14,211 $ 5,520 $ 5,753 $ 1,532 $ 7,477 $ 3,628 $ - $ 68,459
Watch - - - - - - - - -
Special Mention - 175 - - - - - - 175
Substandard - - - - - - 16 - 16
Total construction & development $ 30,338 $ 14,386 $ 5,520 $ 5,753 $ 1,532 $ 7,477 $ 3,644 $ - $ 68,650
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Farmland
Pass $ 2,552 $ 3,731 $ 1,900 $ 1,387 $ 2,447 $ 9,452 $ 1,765 $ - $ 23,234
Watch - - - - - 111 - - 111
Special Mention - - - - - 172 100 - 272
Substandard - - - - - 795 - - 795
Total farmland $ 2,552 $ 3,731 $ 1,900 $ 1,387 $ 2,447 $ 10,530 $ 1,865 $ - $ 24,412
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Residential
Pass $ 61,276 $ 71,168 $ 106,237 $ 57,887 $ 49,039 $ 85,197 $ 80,211 $ 928 $ 511,943
Watch - - - - 205 - - - 205
Special Mention 219 - 1,148 239 230 434 - - 2,270
Substandard - 840 2,270 - - 594 - - 3,704
Total residential $ 61,495 $ 72,008 $ 109,655 $ 58,126 $ 49,474 $ 86,225 $ 80,211 $ 928 $ 518,122
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial mortgage
Pass $ 36,499 $ 42,952 $ 48,518 $ 47,717 $ 36,479 $ 68,699 $ 5,276 $ - $ 286,140
Watch - - - 1,413 2,024 67 44 - 3,548
Special Mention - - 2,615 - - 402 - - 3,017
Substandard - - - - - 446 - - 446
Total residential $ 36,499 $ 42,952 $ 51,133 $ 49,130 $ 38,503 $ 69,614 $ 5,320 $ - $ 293,151
Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial & agricultural
Pass $ 15,252 $ 11,704 $ 5,920 $ 3,185 $ 926 $ 1,853 $ 22,261 $ 32 $ 61,133
Watch - - - - - - - - -
Special Mention - - 36 - - 18 - - 54
Substandard - - - - - - - - -
Total commercial & agricultural $ 15,252 $ 11,704 $ 5,956 $ 3,185 $ 926 $ 1,871 $ 22,261 $ 32 $ 61,187
Current period gross write-offs $ - $ 16 $ - $ - $ - $ - $ - $ - $ 16
Consumer & other
Pass $ 7,446 $ 3,365 $ 2,200 $ 1,726 $ 103 $ 2,924 $ 786 $ - $ 18,550
Watch - - - - - - - - -
Special Mention - 16 - - - - 6 - 22
Substandard 16 2 2 308 - 37 - - 365
Total consumer & other $ 7,462 $ 3,383 $ 2,202 $ 2,034 $ 103 $ 2,961 $ 792 $ - $ 18,937
Current period gross write-offs $ 18 $ 46 $ 12 $ 8 $ 4 $ 26 $ - $ - $ 114
Total loans
Pass $ 153,363 $ 147,131 $ 170,295 $ 117,655 $ 90,526 $ 175,602 $ 113,927 $ 960 $ 969,459
Watch - - - 1,413 2,229 178 44 - 3,864
Special Mention 219 191 3,799 239 230 1,026 106 - 5,810
Substandard 16 842 2,272 308 - 1,872 16 - 5,326
Total loans $ 153,598 $ 148,164 $ 176,366 $ 119,615 $ 92,985 $ 178,678 $ 114,093 $ 960 $ 984,459
Total Current period gross write-offs $ 18 $ 62 $ 12 $ 8 $ 4 $ 26 $ - $ - $ 130

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued

Nonaccrual Loans

The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated:

March 31, 2025
(dollars in thousands) Nonaccrual<br><br> <br>Loans with no<br><br> <br>Allowance Nonaccrual<br><br> <br>Loans with an<br><br> <br>Allowance Total<br><br> <br>Nonaccrual<br><br> <br>Loans
Construction & development $ - $ - $ -
Farmland - 64 64
Residential 840 527 1,367
Commercial mortgage 277 23 300
Commercial & agricultural - 130 130
Consumer & other - 357 357
Total $ 1,117 $ 1,101 $ 2,218
December 31, 2024
--- --- --- --- --- --- ---
(dollars in thousands) Nonaccrual<br><br> <br>Loans with no<br><br> <br>Allowance Nonaccrual<br><br> <br>Loans with an<br><br> <br>Allowance Total<br><br> <br>Nonaccrual<br><br> <br>Loans
Construction & development $ - $ - $ -
Farmland - 70 70
Residential 840 848 1,688
Commercial mortgage 293 153 446
Commercial & agricultural - - -
Consumer & other - 359 359
Total $ 1,133 $ 1,430 $ 2,563

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued

Nonaccrual Loans, continued

The following table represents the accrued interest receivables written off on nonaccrual loans by reversing interest income during the three months ended March 31, 2025 and March 31, 2024:

(dollars in thousands) For the Three<br><br> <br>Months Ended<br><br> <br>March 31, 2025 For the Three<br><br> <br>Months Ended<br><br> <br>March 31, 2024
Construction & development $ - $ -
Farmland - -
Residential - 3
Commercial mortgage - -
Commercial & agricultural - -
Consumer & other 1 -
Total $ 1 $ 3

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued

Aging Analysis

The following table presents an aging analysis of past due loans by category as of March 31, 2025:

Accruing **** **** **** **** **** ****
(dollars in thousands) 30-59 Days<br><br> <br>Past Due 60-89 Days<br><br> <br>Past Due 90+ Days<br><br> <br>Past Due Nonaccrual<br><br> <br>Loans Current Total<br><br> <br>Loans
March 31, 2025 **** **** **** **** **** **** **** **** **** **** **** ****
Real Estate Secured:
Construction & development $ - $ - $ - $ - $ 68,201 $ 68,201
Farmland - - - 64 23,376 23,440
Residential 128 - - 1,367 530,445 531,940
Commercial mortgage - - - 300 296,513 296,813
Non-Real Estate Secured:
Commercial & agricultural - - - 130 61,805 61,935
Consumer & other 13 15 - 357 17,618 18,003
Total $ 141 $ 15 $ - $ 2,218 $ 997,958 $ 1,000,332

The following table presents an aging analysis of past due loans by category as of December 31, 2024:

Accruing **** **** **** **** **** ****
(dollars in thousands) 30-59 Days<br><br> <br>Past Due 60-89 Days<br><br> <br>Past Due 90+ Days<br><br> <br>Past Due Nonaccrual<br><br> <br>Loans Current Total<br><br> <br>Loans
December 31, 2024 **** **** **** **** **** **** **** **** **** **** **** ****
Real Estate Secured:
Construction & development $ 134 $ - $ - $ - $ 68,516 $ 68,650
Farmland - - - 70 24,342 24,412
Residential 97 116 - 1,688 516,221 518,122
Commercial mortgage - - - 446 292,705 293,151
Non-Real Estate Secured:
Commercial & agricultural - - - - 61,187 61,187
Consumer & other 46 23 - 359 18,509 18,937
Total $ 277 $ 139 $ - $ 2,563 $ 981,480 $ 984,459

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued

Collateral Dependent Loans

Loans that do not share risk characteristics within their respective loan pools are individually evaluated. The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

● Construction and development loans include both commercial and consumer loans. Commercial loans are typically secured by first liens on raw land acquired for the construction of owner occupied commercial real estate or non-owner occupied commercial real estate. Consumer loans are typically secured by a first lien on raw land acquired for the construction of residential homes for which a binding sales contract exists.
● Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.
--- ---
● Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.
--- ---
● Home equity lines of credit are generally secured by second mortgages on residential real estate property.
--- ---
● Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.
--- ---

The following table details the amortized cost of collateral dependent loans as of March 31, 2025 and December 31, 2024:

(dollars in thousands) 2025 2024
Construction & development $ - $ -
Farmland - -
Residential 3,192 3,105
Commercial mortgage 277 292
Commercial & agricultural - -
Consumer & other - -
Total Loans $ 3,469 $ 3,397

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued

Modifications Made to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a lifetime probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. There are no commitments to lend additional funds to borrowers experiencing financial difficulty as of March 31, 2025 and December 31, 2024.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness or interest rate reduction, may be granted.

There were no loans modified to borrowers experiencing financial difficulty during the three months ended March 31, 2025. The following table shows the amortized cost basis of loans modified to borrowers experiencing financial difficulty for the three months ended March 31, 2024, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

Term Extension
Three Months Ended<br><br> <br>March 31, 2024 Amortized<br><br> <br>Cost % of Total<br><br> <br>Loan Financial
(dollars in thousands) Basis Type Effect
Residential $ 24 0.01 % Added an average of 11.92 years to the life of the loan, which resulted in reduced payment.
Total $ 24

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. There were no loans that had a payment default during the period and were modified in the 12 months before default to borrowers experiencing financial difficulty.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued ****

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months as of March 31, 2025 and March 31, 2024:

Payment Status (Amortized Cost Basis)
(dollars in thousands) Current 30-89 Days<br><br> <br>Past Due 90+ Days<br><br> <br>Past Due
March 31, 2025 **** **** **** **** **** ****
Construction & development $ - $ - $ -
Farmland - - -
Residential - - -
Commercial mortgage - - -
Commercial & agricultural - - -
Consumer & other - - -
Total $ - $ - $ -
March 31, 2024 **** **** **** **** **** ****
Construction & development $ - $ - $ -
Farmland 582 - -
Residential 24 - -
Commercial mortgage - - -
Commercial & agricultural - - -
Consumer & other 393 - -
Total $ 999 $ - $ -

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Credit Losses, continued ****

Unfunded Commitments

The Company maintains a separate reserve for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheets. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described above, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2025 and March 31, 2024:

(dollars in thousands) Total Allowance<br><br> <br>for Credit Losses –<br><br> <br>Unfunded<br><br> <br>Commitments
For the Three Months Ended March 31, 2025 **** ****
Balance, December 31, 2024 $ 371
Provision for credit losses - unfunded commitments 17
Balance, March 31, 2025 $ 388
For the Three Months Ended March 31, 2024 **** ****
Balance, December 31, 2023 $ 402
Provision for credit losses - unfunded commitments 46
Balance, March 31, 2024 $ 448

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 6. Deposits

The following table presents the composition of deposits at March 31, 2025 and December 31, 2024:

March 31, December 31,
(dollars in thousands) 2025 2024
Interest-bearing deposits:
Interest-bearing demand deposit accounts $ 155,044 $ 148,795
Money market 91,432 85,409
Savings 172,302 176,310
Time deposits 345,158 343,771
Total interest-bearing deposits 763,936 754,285
Noninterest-bearing deposits 350,451 337,918
Total deposits $ 1,114,387 $ 1,092,203

The aggregate amount of time deposits in denominations of more than $250 thousand at March 31, 2025 and December 31, 2024 was $107.0 million, and $103.7 million, respectively.

Note 7. Goodwill and Intangible Assets

Goodwill

An analysis of goodwill during the three-month period ended March 31, 2025 and for the year ended December 31, 2024 is as follows:

March 31, December 31,
(dollars in thousands) 2025 2024
Beginning of year $ 7,900 $ 3,257
Acquired goodwill as a result of JCB merger - 4,643
Impairment - -
End of the period $ 7,900 $ 7,900

Intangible Assets

The following table presents the activity for the Company’s core deposit intangible assets, which are the only identifiable intangible assets subject to amortization. Core deposit intangibles at March 31, 2025 and December 31, 2024 are as follows:

(dollars in thousands) March 31, December 31,
2025 2024
Balance at beginning of year, net of accumulated amortization $ 3,815 $ 917
Core deposit intangible as result of JCB merger - 3,380
Amortization expense (212 ) (482 )
Net book value $ 3,603 $ 3,815

Aggregate amortization expense was $212 thousand and $80 thousand for the three-month periods ended March 31, 2025 and 2024, respectively.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 7. Goodwill and Intangible Assets, continued

Intangible Assets, continued

The following table presents the estimated amortization expense of the core deposit intangible over the remaining useful life:

(dollars in thousands) **** ****
Nine months ending December 31, 2025 $ 559
For the year ending December 31, 2026 647
For the year ending December 31, 2027 565
For the year ending December 31, 2028 484
For the year ending December 31, 2029 406
Thereafter 942
Total $ 3,603

Note 8. Short-Term Borrowings

At March 31, 2025, the Bank had a $23.5 million FHLB advance outstanding at a rate of 4.42%, with a maturity date of April 10, 2025, that was classified as short-term. Also at March 31, 2025, the Bank had a $11.0 million FHLB advance outstanding at a rate of 4.43%, with a maturity date of May 27, 2025, that was classified as short-term.

At December 31, 2024, the Bank had a $15.0 million FHLB advance outstanding at a rate of 5.00%, with a maturity date of January 9, 2025, that was classified as short-term. Also at December 31, 2024, the Bank had a $5.0 million FHLB advance outstanding at a rate of 4.68%, with a maturity date of January 9, 2025, that was classified as short-term.

On September 9, 2024, the Company entered into a $5.0 million unsecured revolving line of credit, with a maturity date of September 9, 2025. Interest on the line of credit is variable and is set at the prime rate. At March 31, 2025, $2.5 million was outstanding under this revolving line of credit at a rate of 7.50% and was classified as short-term debt. At December 31, 2024, $5.0 million was outstanding under this revolving line of credit at a rate of 7.50% and was classified as short-term debt.

At March 31, 2025, the Bank had established unsecured lines of credit of approximately $73.0 million with correspondent banks to provide additional liquidity if, and as needed. At March 31, 2025 and December 31, 2024, the Bank had $26 thousand and $4.3 million outstanding under these lines of credit. In addition, the Bank has the ability to borrow up to approximately $269.9 million from the FHLB, subject to the pledging of collateral.

Note 9. Long-Term Borrowings

At March 31, 2025 and December 31, 2024, neither the Company nor the Bank had no borrowings outstanding classified as long-term.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 10. Commitments and Contingencies

Litigation

In the normal course of business, the Bank is involved in various legal proceedings. After consultation with legal counsel, management believes that any liability resulting from such proceedings will not be material to the consolidated financial statements.

Financial Instruments with Off-Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the consolidated balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments. A summary of the Bank’s commitments at March 31, 2025 and December 31, 2024 is as follows:

March 31, December 31,
(dollars in thousands) 2025 2024
Commitments to extend credit $ 220,416 $ 210,610
Standby letters of credit 618 1,398
$ 221,034 $ 212,008

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Bank deems necessary.

Concentrations of Credit Risk

Substantially all of the Bank’s loans, commitments to extend credit, and standby letters of credit have been granted to customers in the Bank’s market area and such customers are generally depositors of the Bank. Investments in state and municipal securities involve governmental entities within and outside the Bank’s market area. The concentrations of credit by type of loan are set forth in Note 4. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit are granted primarily to commercial borrowers. The Bank’s primary focus is toward small business and consumer transactions, and accordingly, it does not have a significant number of credits to any single borrower or group of related borrowers. The Bank has cash and cash equivalents on deposit with financial institutions which exceed federally insured limits.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 11. Financial Instruments

FASB ASC 825, “Financial Instruments”, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value of future cash flows or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. FASB ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of March 31, 2025 and December 31, 2024. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For non-marketable equity securities such as FHLB and Federal Reserve Bank stock, the carrying amount is a reasonable estimate of the fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government supported institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

For loans, the carrying amount is net of unearned income and the allowance for credit losses. In accordance with ASU No. 2016-01, the fair value of loans as of March 31, 2025 and December 31, 2024, was measured using an exit price notion.

**** **** **** **** Fair Value Measurements
Quoted Prices in
Active Markets Significant
for Identical Other Significant
Assets or Observable Unobservable
(dollars in thousands) Carrying Fair Liabilities Inputs Inputs
Amount Value (Level 1) (Level 2) (Level 3)
March 31, 2025 **** **** **** **** **** **** **** **** **** ****
Financial Instruments – Assets
Net Loans $ 992,172 $ 962,459 $ - $ - $ 962,459
Financial Instruments – Liabilities
Time Deposits 345,158 342,482 - 342,482 -
FHLB Advances 34,500 34,497 - 34,497 -
December 31, 2024 **** **** **** **** **** **** **** **** **** ****
Financial Instruments – Assets
Net Loans $ 976,432 $ 944,633 $ - $ - $ 944,633
Financial Instruments – Liabilities
Time Deposits 343,771 342,239 - 342,239 -
FHLB Advances 20,000 19,998 - 19,998 -

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans or foreclosed assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 11. Financial Instruments, continued

Fair Value Hierarchy

Under FASB ASC 820, “Fair Value Measurements and Disclosures”, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include the use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Individually Evaluated Loans

Individually evaluated loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent. All loans individually evaluated are classified as Level 3 in the fair value hierarchy.

Fair value for individually evaluated loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 11. Financial Instruments, continued

Other Real Estate Owned

Other real estate owned is adjusted to fair value upon transfer of the loans, or former bank premises, to other real estate owned. Subsequently, other reals estate owned is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price the Company records the other real estate owned as nonrecurring Level 2. When the fair value of the collateral is based on either an external or internal appraisal and there is no observable market price, the Company records the other real estate owned as nonrecurring Level 3. As a result of the JCB merger, there was one property valued at $140 thousand in other real estate owned at March 31, 2025 and December 31, 2024.

Assets Recorded at Fair Value on a Recurring Basis

(dollars in thousands) Total Level 1 Level 2 Level 3
March 31, 2025 **** **** **** **** **** **** **** ****
Investment securities available for sale ****** ****** ****** ****** ****** ****** ****** ******
U.S. Treasury securities $ 2,497 $ - $ 2,497 $ -
U.S. Government agencies 22,101 - 22,101 -
Mortgage-backed securities 54,379 - 54,379 -
Corporate securities 1,498 - 1,498 -
State and municipal securities 38,008 - 38,008 -
Total assets at fair value $ 118,483 $ - $ 118,483 $ -
December 31, 2024 **** **** **** **** **** **** **** ****
Investment securities available for sale ****** ****** ****** ****** ****** ****** ****** ******
U.S. Treasury securities $ 2,488 $ - $ 2,488 $ -
U.S. Government agencies 21,505 - 21,505 -
Mortgage-backed securities 55,538 - 55,538 -
Corporate securities 1,491 - 1,491 -
State and municipal securities 37,265 - 37,265 -
Total assets at fair value $ 118,287 $ - $ 118,287 $ -

No liabilities were recorded at fair value on a recurring basis as of March 31, 2025 or December 31, 2024. There were no transfers between levels during the three-month period ended March 31, 2025 and the year ended December 31, 2024.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 11. Financial Instruments, continued

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets and liabilities that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2025 and December 31, 2024. Assets measured at fair value on a nonrecurring basis are included in the table below.

(dollars in thousands) Total Level 1 Level 2 Level 3
March 31, 2025 **** **** **** **** **** **** **** ****
Individually evaluated loans $ 4,704 $ - - $ 4,704
Other real estate owned 140 $ - - 140
Total assets at fair value $ 4,844 $ - $ - $ 4,844
(dollars in thousands) Total Level 1 Level 2 Level 3
--- --- --- --- --- --- --- --- ---
December 31, 2024 **** **** **** **** **** **** **** ****
Individually evaluated loans $ 4,626 $ - - $ 4,626
Other real estate owned 140 $ - - 140
Total assets at fair value $ 4,766 $ - $ - $ 4,766

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of March 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:

Fair Value at<br><br> <br>March 31,<br><br> <br>2025 Fair Value at<br><br> <br>December 31,<br><br> <br>2024 Valuation Technique Significant<br><br> <br>Unobservable Inputs General Range<br><br> <br>of Significant<br><br> <br>Unobservable<br><br> <br>Input Values
Individually Evaluated Loans $ 4,704 $ 4,626 Appraised Value/Discounted Cash Flows/Market Value of Note Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 - 10%
Other Real Estate Owned $ 140 $ 140 Appraised Value/Comparable Sales/Other<br><br> <br>Estimates from<br><br> <br>Independent Sources Discounts to reflect current market conditions and estimated costs to sell 0 - 10%

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 12. Capital Requirements

The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Small Bank Holding Company Policy Statement, and is not obligated to report consolidated regulatory capital. The Bank’s actual capital amounts and ratios are presented in the following table as of March 31, 2025 and December 31, 2024, respectively.  These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective January 1, 2015.

Actual For Capital<br><br> <br>Adequacy Purposes To Be Well-<br><br> <br>Capitalized
Amount Ratio Amount Ratio Amount Ratio
March 31, 2025 **** **** **** **** **** **** **** **** **** **** **** **** **** **** ****
Total Capital (to risk weighted assets) $ 108,130 11.09 % $ 77,997 8.00 % $ 97,496 10.00 %
Tier 1 Capital (to risk weighted assets) $ 99,713 10.23 % $ 58,498 6.00 % $ 77,997 8.00 %
Common Equity Tier 1 (to risk weighted assets) $ 99,713 10.23 % $ 43,873 4.50 % $ 63,373 6.50 %
Tier 1 Capital (to average total assets) $ 99,713 8.01 % $ 49,772 4.00 % $ 62,215 5.00 %
December 31, 2024 **** **** **** **** **** **** **** **** **** **** **** **** **** **** ****
Total Capital (to risk weighted assets) $ 107,941 11.19 % $ 77,199 8.00 % $ 96,499 10.00 %
Tier 1 Capital (to risk weighted assets) $ 99,740 10.34 % $ 57,900 6.00 % $ 77,199 8.00 %
Common Equity Tier 1 (to risk weighted assets) $ 99,740 10.34 % $ 43,425 4.50 % $ 62,725 6.50 %
Tier 1 Capital (to average total assets) $ 99,740 8.17 % $ 48,838 4.00 % $ 61,047 5.00 %

On September 17, 2019 the Federal Deposit Insurance Corporation finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”)) framework. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.

In order to qualify for the CBLR framework, a community banking organization must have a Tier 1 leverage ratio of greater than 9.00%, less than $10.0 billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the prompt corrective action regulations and will not be required to report or calculated risk-based capital.

The CBLR framework was available for banks to use in their March 31, 2025 Call Report. At this time the Company has elected not to opt into the CBLR framework for the Bank, but may opt into the CBLR framework in the future.

Skyline Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 13. Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.

Management has reviewed the events occurring through the date the consolidated financial statements were issued and no subsequent events occurred requiring accrual or disclosure.

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

General

The following discussion provides information about the major components of the results of operations and financial condition of the Company. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

As discussed in Note 1 in the Notes to Consolidated Financial Statements above, the Company and JCB merged on September 1, 2024, with the Company as the surviving corporation.  For accounting purposes, the Company is considered the acquiror and JCB is considered the acquiree in the transaction. As such, all information contained herein as of and for periods prior to September 1, 2024, reflects the operations of the Company prior to the merger.

Critical Accounting Policies

For a discussion of the Company’s critical accounting policies, including its allowance for credit losses and asset impairment judgments, see Note 1 in the Notes to Consolidated Financial Statements above, and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Executive Summary

● In connection with the acquisition of JCB, effective September 1, 2024, the Company acquired $154.1 million in assets at fair value, including $87.2 million in loans. The Company also assumed $133.8 million of liabilities at fair value, including $125.3 million of total deposits with a core deposit intangible asset recorded of $3.4 million, and goodwill of $4.6 million.
● Net income was $3.6 million, or $0.64 per share, for the first quarter of 2025, compared to $2.1 million, or $0.37 per share, for the first quarter of 2024.
--- ---
● Net interest margin (“NIM”) was 4.15% for the first quarter of 2025, compared to 4.10% in the fourth quarter of 2024, and 3.64% in the first quarter of 2024.
--- ---
● Total assets increased in the first quarter of 2025 by $33.9 million, or 2.78%, to $1.25 billion at March 31, 2025 from $1.22 billion at December 31, 2024.
--- ---
● Net loans were $992.2 million at March 31, 2025, an increase of $15.8 million, or 1.61%, when compared to $976.4 million at December 31, 2024. Core loan growth during the first quarter was at an annualized rate of 6.60%.
--- ---
● Total deposits were $1.11 billion at March 31, 2025, an increase of $22.2 million, or 2.03%, from $1.09 billion at December 31, 2024.
--- ---
● First quarter 2025 earnings represented an annualized return on average assets (“ROAA”) of 1.17% and an annualized return on average equity (“ROAE”) of 15.85%, compared to 0.79% and 9.94%, respectively, for the same period last year.
--- ---
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
--- ---

Results of Operations

Results of Operations for the Three Months ended March 31, 2025 and 2024

Net interest income after provision for credit losses in the first quarter of 2025 was $11.5 million, compared to $8.8 million in the first quarter of 2024, reflecting an increase in the provision for credit losses of $85 thousand in the quarterly comparison. Total interest income was $15.5 million in the first quarter of 2025, representing an increase of $3.5 million in comparison to the $12.0 million in the first quarter of 2024. Interest income on loans increased in the quarterly comparison by $3.6 million, primarily due to organic loan growth, and the addition of loan balances from the JCB acquisition. Management anticipates that this loan growth will continue to have a positive impact on both earning assets and loan yields. Interest expense on deposits increased by $653 thousand in the quarterly comparison, as a result of rate increases on deposit offerings, and the additional interest-bearing deposits from the JCB acquisition. Management anticipates that interest expense on deposits could increase in the near term as competitive pressures for deposits may result in continued increases in rates on deposit offerings, especially on time deposits. Interest on borrowings decreased by $11 thousand.

First quarter 2025 noninterest income was $1.8 million compared with $1.7 million in the first quarter of 2024. Included in noninterest income for the first quarter of 2025 was $60 thousand from life insurance contracts. Included in noninterest income for the first quarter of 2024 was $218 thousand from life insurance contracts and a net realized security loss of $141 thousand. The net security loss resulted from the recognition of unamortized premiums on a called bond. Excluding these items, noninterest income increased by $104 thousand in the quarter over quarter comparison, primarily as a result of an increase in service charges of $100 thousand.

Noninterest expense in the first quarter of 2025 was $8.9 million compared with $8.0 million in the first quarter of 2024, an increase of $887 thousand, or 11.12%. Salary and benefits increased by $179 thousand in the quarterly comparison due to personnel additions and routine salary adjustments, as well as increased benefit costs. Occupancy and equipment expenses increased by $68 thousand, and data processing increased by $199 thousand in the quarterly comparisons primarily due the JCB acquisition. FDIC assessments increased by $102 thousand due to increased deposit levels from the JCB acquisition and organic deposit growth. Core deposit intangible amortization increased by $132 thousand in the quarterly comparison as a result of the JCB acquisition.

Income tax expense increased by $449 thousand in the quarter-to-quarter comparison, primarily due to an increase in net income before taxes of $2.0 million in the quarterly comparison.

Financial Condition

Total assets increased in the first quarter of 2025 by $33.9 million, or 2.78%, to $1.25 billion at March 31, 2025, from $1.22 billion at December 31, 2024. The increase in total assets during the quarter can be primarily attributed to the loan growth of $15.9 million and deposit growth of $22.2 million during the quarter.

Total loans increased during the first quarter by $15.9 million, or 1.61%, to $1.0 billion at March 31, 2025 from $984.5 million at December 31, 2024. Core loan growth during the first quarter was at an annualized rate of 6.60%.

Asset quality has remained strong, with a ratio of nonperforming loans to total loans of 0.22% at March 31, 2025 compared to 0.26% at December 31, 2024. The allowance for credit losses remained comparable at approximately 0.82% of total loans as of March 31, 2025 and December 31, 2024, respectively.

Investment securities increased by $196 thousand during the first quarter to $118.5 million at March 31, 2025 from $118.3 million at December 31, 2024. The increase in the first quarter of 2025 was the result of a $2.6 million decrease in unrealized losses on investment securities and paydowns of $2.4 million.

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

Financial Condition, continued

Total deposits increased in the first quarter of 2025 by $22.2 million, or 2.03%, to $1.11 billion at March 31, 2025 from $1.09 billion at December 31, 2024. Noninterest-bearing deposits increased by $12.5 million and interest-bearing deposits increased by $9.7 million during the quarter. Lower cost interest-bearing deposits increased by $8.3 million during the quarter, and time deposits increased by $1.4 million.

Stockholders’ equity increased by $4.2 million, or 4.80%, to $92.9 million at March 31, 2025, from $88.7 million at December 31, 2024. The change during the quarter was due to earnings of $3.6 million, less dividends paid of $1.4 million, and $2.0 million in other comprehensive income. Book value increased from $15.69 per share at December 31, 2024 to $16.44 per share at March 31, 2025.

Commercial Real Estate Loans

Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate.  Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies.  Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.  As of March 31, 2025 approximately 40.73% of our commercial mortgage loans are owner occupied and 59.27% are non-owner occupied.

We generally originate adjustable-rate commercial real estate loans with maximum terms of up to 25 years. From time to time, we will also originate fixed-rate loans.  We generally limit loan-to-value ratios to 80% of the appraised value or purchase price, whichever is lower.  All of our commercial real estate loans are subject to our underwriting procedures and guidelines. Although our commercial real estate are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in our market area could have an adverse impact on this portfolio of loans and the Company’s income and financial position.

The management team has extensive experience in underwriting commercial real estate loans and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio.  The Board of Directors has established internal maximum limits on commercial real estate loans to better manage and control the exposure to property classes during periods of changing economic conditions.

Our risk management process begins with a robust underwriting program.  The underwriting and risk rating of all loans is completed by an underwriting team that is independent of the originating lender(s).  The underwriting analysis of commercial real estate loans includes pre-origination sensitivity analysis utilizing portfolio stress testing methods to fully understand the potential exposure before we originate the credit.  Once originated, each loan receives ongoing quarterly stress tests to evaluate the risk profile over the life of the credit.

We consider a number of factors in originating commercial real estate loans.  We evaluate the qualifications and financial condition of the borrower (including credit history), profitability and expertise, as well as the value and condition of the mortgaged property securing the loan.  When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions.  In evaluating the property securing the loan, among other factors, we consider the net operating income of the mortgaged property before debt service and depreciation, the debt service coverage ratio (the ratio of net operating income to debt service) to ensure that, subject to certain exceptions, it is at least 1.25x for commercial real estate loans, and the ratio of the loan amount to the appraised value of the mortgaged property.  Our commercial real estate loans are appraised by outside independent and qualified appraisers that are duly approved in accordance with Bank policy.  Per policy, personal guarantees are obtained from commercial real estate borrowers. Each borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates.

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

Commercial Real Estate Loans, continued

We believe that our commercial real estate composition is relatively diversified in terms of industry sectors, property types and various lending specialties. As of March 31, 2025, the amortized cost balances of concentrations in our commercial real estate loan portfolio, were as follows:

Owner Non-Owner **** **** **** **** ****
Occupied Occupied Total %
Office $ 36,158 $ 37,948 $ 74,106 24.97 %
Hotel - 54,675 54,675 18.42 %
Retail 15,857 21,858 37,715 12.71 %
Warehouse 25,647 10,299 35,946 12.11 %
Industrial 10,905 5,022 15,927 5.37 %
Restaurants 10,241 4,838 15,079 5.08 %
Mini-storage 926 12,455 13,381 4.51 %
Churches 8,228 744 8,972 3.02 %
Assisted living 1,192 7,246 8,438 2.84 %
Other 11,741 20,833 32,574 10.97 %
Total $ 120,895 $ 175,918 $ 296,813 100.00 %

Nonperforming and Problem Assets

Certain credit risks are inherent in making loans, particularly commercial and consumer loans. Management prudently assesses these risks and attempts to manage them effectively. The Bank attempts to use shorter-term loans and, although a portion of the loans have been made based upon the value of collateral, the underwriting decision is generally based on the cash flow of the borrower as the source of repayment rather than the value of the collateral. The Bank also attempts to reduce repayment risk by adhering to internal credit policies and procedures. These policies and procedures include officer and customer limits, periodic loan documentation review and follow up on exceptions to credit policies.

The following table provides information about the allowance for credit losses, nonperforming assets and loans past due 90 days or more and still accruing as of March 31, 2025 and December 31, 2024.

March 31, December 31,
2025 2024
Allowance for credit losses $ 8,160 $ 8,027
Total loans $ 1,000,332 $ 984,459
Allowance for credit losses to total loans 0.82 % 0.82 %
Nonperforming loans:
Nonaccrual loans $ 2,218 $ 2,563
Loans past due 90 days or more and still accruing - -
Total nonperforming loans 2,218 2,563
Other real estate owned 140 140
Total nonperforming assets $ 2,358 $ 2,703
Total nonperforming loans as a percentage to total loans 0.22 % 0.26 %
Total allowance for credit losses to nonperforming loans 367.90 % 313.19 %
Total nonperforming assets as a percentage to total assets 0.19 % 0.22 %
Total nonaccrual loans as a percentage to total loans 0.22 % 0.26 %
Total allowance for credit losses to nonaccrual loans 367.90 % 313.19 %
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
--- ---

Nonperforming and Problem Assets, continued

Total nonperforming loans were 0.22% and 0.26% of total outstanding loans as of March 31, 2025 and December 31, 2024, respectively. Loans are placed in nonaccrual status when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Loans are removed from nonaccrual status when they are deemed a loss and charged to the allowance, transferred to foreclosed assets, or returned to accrual status based upon performance consistent with the original terms of the loan or a subsequent restructuring thereof. Management’s ability to ultimately resolve these loans either with or without significant loss will be determined, to a great extent, by general economic and real estate market conditions.

Past due loans are often regarded as a precursor to further credit problems which would lead to future increases in nonaccrual loans or other real estate owned. As of March 31, 2025, loans past due 30-89 days and still accruing totaled $156 thousand compared to $416 thousand at December 31, 2024.

As a result of the JCB merger, there was one property valued at $140 thousand in other real estate owned at March 31, 2025 and December 31, 2024, respectively. More information on nonperforming assets and modifications to borrowers experiencing financial difficulty can be found in Note 5 of the “Notes to Consolidated Financial Statements” found in this Quarterly Report on Form 10-Q.

As of March 31, 2025 and December 31, 2024, respectively, we had loans with a current principal balance of $9.7 million rated “Watch” or “Special Mention”. The “Watch” classification is utilized by us when we have an initial concern about the financial health of a borrower that indicate above average risk. We then gather current financial information about the borrower and evaluate our current risk in the credit. After this review we will either move the loan to a higher risk rating category or move it back to its original risk rating. Loans may be left rated “Watch” for a longer period of time if, in management’s opinion, there are risks that cannot be fully evaluated without the passage of time, and we want to review it on a more regular basis. Assets that do not currently expose the Bank to sufficient risk to warrant a classification such as “Substandard” or “Doubtful” but otherwise possess weaknesses are designated “Special Mention”. Loans rated as “Watch” or “Special Mention” are not considered “potential problem loans” until they are determined by management to be classified as “Substandard”. As of March 31, 2025 and December 31, 2024, respectively, potential problem loans classified as “Substandard” totaled $5.3 million. As of March 31, 2025 and December 31, 2024, the Bank had no loans graded “Doubtful” included in the balance of total loans outstanding.

The allowance for credit losses is maintained at a level adequate to absorb potential losses. Some of the factors which management considers in determining the appropriate level of the allowance for credit losses are: past loss experience, an evaluation of the current loan portfolio, identified loan problems, the loan volume outstanding, the present and expected economic conditions in general, and in particular, how such conditions relate to the market area that the Bank serves. Bank regulators also periodically review the Bank’s loans and other assets to assess their quality. Loans deemed uncollectible are charged to the allowance. Provisions for credit losses and recoveries on loans previously charged off are added to the allowance. The reserve for credit losses was approximately 0.82% of total loans at March 31, 2025 and December 31, 2024, respectively. The allocation of the allowance for credit losses as of March 31, 2025 and December 31, 2024 is as follows:

(dollars in thousands) March 31, 2025 December 31, 2024
Balance at the end of the period<br><br> <br>applicable to: Amount % of<br><br> <br>ACL to<br><br> <br>Loans % of<br><br> <br>Loans to<br><br> <br>Total Loans Amount % of<br><br> <br>ALL to<br><br> <br>Loans % of<br><br> <br>Loans to<br><br> <br>Total Loans
Construction & development $ 1,005 1.47 % 6.82 % $ 1,012 1.47 % 6.97 %
Farmland 166 0.71 % 2.34 % 174 0.71 % 2.48 %
Residential 4,222 0.79 % 53.18 % 4,070 0.79 % 52.63 %
Commercial mortgage 1,968 0.66 % 29.67 % 1,941 0.66 % 29.78 %
Commercial & agriculture 519 0.84 % 6.19 % 504 0.82 % 6.22 %
Consumer and other 280 1.56 % 1.80 % 326 1.72 % 1.92 %
Total $ 8,160 0.82 % 100.00 % $ 8,027 0.82 % 100.00 %
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
--- ---

Analysis of Net Charge-Offs

The following table shows net charge-offs, average loan balances and the percentage of charge-offs to average loan balances for the three months ended March 31, 2025 and 2024, and the year ended December 31, 2024.

Three months ended March 31, 2025
**** **** **** **** **** Percentage of Net
**** **** **** **** **** (Charge-Offs)
Net **** **** Recoveries to
(Charge-Offs) Average Average
(dollars in thousands) Recoveries Loans Loans
Construction & development $ - $ 68,673 0.00 %
Farmland - 24,013 0.00 %
Residential - 526,933 0.00 %
Commercial mortgage 1 296,050 0.00 %
Commercial & agriculture 3 61,784 0.00 %
Consumer & other (32 ) 18,537 (0.17 %)
Total $ (28 ) $ 995,990 0.00 %
Three months ended March 31, 2024
--- --- --- --- --- --- --- --- ---
**** **** **** **** **** Percentage of Net
**** **** **** **** **** (Charge-Offs)
Net **** **** Recoveries to
(Charge-Offs) Average Average
(dollars in thousands) Recoveries Loans Loans
Construction & development $ - $ 52,093 0.00 %
Farmland - 24,927 0.00 %
Residential 8 405,037 0.00 %
Commercial mortgage 1 272,547 0.00 %
Commercial & agriculture (15 ) 48,900 (0.03 %)
Consumer & other (15 ) 17,217 (0.09 %)
Total $ (21 ) $ 820,721 0.00 %
Year ended December 31, 2024
--- --- --- --- --- --- --- --- ---
**** **** **** **** **** Percentage of Net
**** **** **** **** **** (Charge-Offs)
Net **** **** Recoveries to
(Charge-Offs) Average Average
(dollars in thousands) Recoveries Loans Loans
Construction & development $ - $ 57,397 0.00 %
Farmland - 24,468 0.00 %
Residential 14 446,612 0.00 %
Commercial mortgage 4 275,560 0.00 %
Commercial & agriculture 13 53,491 0.02 %
Consumer & other (87 ) 16,821 (0.52 %)
Total $ (56 ) $ 874,349 (0.01 %)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Liquidity

Liquidity is the ability to convert assets to cash to fund depositors’ withdrawals or borrowers’ loans without significant loss.  **** Unsecured federal fund lines available from correspondent banks totaled $73.0 million at March 31, 2025.  At March 31, 2025 and December 31, 2024, the Bank had $26 thousand and $4.3 million outstanding under these lines of credit.  In addition, the Bank has the ability to borrow up to approximately $269.9 million from the FHLB, subject to the pledging of collateral.

At March 31, 2025, the Bank had short-term FHLB advances of $34.5 million. At December 31, 2024, the Bank had short-term FHLB advances of $20.0 million.

The Bank uses cash and federal funds sold to meet its daily funding needs. If funding needs are met through holdings of excess cash and federal funds, then profits might be sacrificed as higher-yielding investments are foregone in the interest of liquidity. Therefore, management determines, based on such items as loan demand and deposit activity, an appropriate level of cash and federal funds and seeks to maintain that level.

The Bank’s investment security portfolio also serves as a source of liquidity. The primary goals of the investment portfolio are liquidity management and maturity gap management. As investment securities mature, the proceeds are reinvested in federal funds sold if the federal funds level needs to be increased; otherwise, the proceeds are reinvested in similar investment securities. The majority of investment security transactions consist of replacing securities that have been called or matured. The Bank keeps a portion of its investment portfolio in unpledged assets with average lives or repricing terms of less than 60 months. These investments are a preferred source of funds because their market value is not as sensitive to changes in interest rates as investments with longer durations.

On September 9, 2024, the Company entered into a $5.0 million unsecured revolving line of credit, with a maturity date of September 9, 2025. Interest on the line of credit is variable and is set at the prime rate. At March 31, 2025, $2.5 million was outstanding under this revolving line of credit at a rate of 7.50% and was classified as short-term debt. At December 31, 2024, $5.0 million was outstanding under this revolving line of credit at a rate of 7.50% and was classified as short-term debt.

As a result of the steps described above, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs. The liquidity ratio (the level of liquid assets divided by total deposits plus short-term liabilities) was 9.3% and 7.7% for the periods ended March 31, 2025 and December 31, 2024, respectively. These ratios are considered to be adequate by management.

Capital Resources

A significant measure of the strength of a financial institution is its capital base. Federal regulations have classified and defined capital into the following components: (1) Tier 1 capital, which includes common shareholders’ equity and qualifying preferred equity, and (2) Tier 2 capital, which includes a portion of the allowance for credit losses, certain qualifying long-term debt and preferred stock which does not qualify as Tier 1 capital. Financial institutions are also subject to the BASEL III requirements, which includes as part of the capital ratios profile the Common Equity Tier 1 risk-based ratio. Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require a financial institution to maintain capital as a percentage of its assets, and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets).

Regulatory guidelines relating to capital adequacy provide minimum risk-based ratios at the Bank level which assess capital adequacy while encompassing all credit risks, including those related to off-balance sheet activities. At March 31, 2025, the Bank exceeded minimum regulatory capital requirements and is considered to be “well capitalized.”

At March 31, 2025, the Company’s equity to asset ratio was 7.42% and the Bank’s capital was in excess of regulatory requirements as discussed above.  The Company will continue to monitor economic conditions in determining future cash dividends and any requirements for additional capital each quarter.  The Company declared and paid dividends of $1.4 million during the first three months of 2025.

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

Forward-Looking Statements

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934 as amended.  These include statements as to expectations regarding future financial performance and any other statements regarding future results or expectations.  We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of these safe harbor provisions.  Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by the use of words such as "believe," "expect," "intend," "anticipate," "estimate," or "project" or similar expressions.  Our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain.  Factors which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to:  changes in interest rates; general economic and financial market conditions; the effect of changes in banking, tax and other laws and regulations and interpretations or guidance thereunder;  monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; interest rates; inflation; the economic impact of duties, tariffs or other barriers or restrictions on trade, and any retaliatory counter measures, and the volatility and uncertainty arising therefrom; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; the ability to maintain secondary funding sources; liquidity; competition; demand for financial services in the Company’s market area; the implementation of new technologies; the ability to develop and maintain secure and reliable electronic systems; accounting principles, policies, and guidelines; disruptions to customer and employee relationships and business operations caused by the Johnson County Bank acquisition; the ability to achieve the cost savings and synergies contemplated by the acquisition within the expected timeframe, or at all; and other factors identified in Item 1A, “Risk Factors,” in the Company’s Annual Report on 10-K for the year ended December 31, 2024 and this Quarterly Report on Form 10-Q.  These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  We undertake no obligation to update or clarify these forward‐looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which Skyline is a party or of which any of its property is subject.
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Item 1A. Risk Factors
--- ---
In connection with the information set forth in this Form 10-Q, the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 should be considered. These risks could materially and adversely affect our business, financial condition and results of operations. There have been no material changes to the factors discussed in our Annual Report on Form 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
--- ---

The following table details the Company’s purchase of its common stock during the first quarter of 2025.

Total<br><br> <br>number of<br><br> <br>shares<br><br> <br>purchased Average<br><br> <br>price<br><br> <br>paid per<br><br> <br>Share Total number of<br><br> <br>shares purchased<br><br> <br>as part of<br><br> <br>publicly<br><br> <br>announced<br><br> <br>program Maximum<br><br> <br>number of<br><br> <br>shares that may<br><br> <br>yet be purchased<br><br> <br>under the plan ^(1)^
Purchased 1/1 through 1/31 - $ - - -
Purchased 2/1 through 2/28 - $ - - -
Purchased 3/1 through 3/31 - $ - - -
Total during first quarter 2025 - $ - -
^(1)^ The Board of Directors (“Board”) of the Company established a stock repurchase plan that was most recently authorized in January 2023 for the purchase of up to 91,325 shares then-remaining in the plan until January 2025, at which time the plan expired without extension.
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Item 3. Defaults Upon Senior Securities
--- ---
None
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Item 4. Mine Safety Disclosures
--- ---
None
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Item 5. Other Information
--- ---
During the fiscal quarter ended March 31, 2025, none of our 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).
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Item 6. Exhibits
--- ---
3.1 Amended and Restated Bylaws of Skyline Bankshares, Inc. (attached as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 24, 2025, and incorporated herein by reference).
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31.1 Rule 15(d)-14(a) Certification of Chief Executive Officer.
--- ---
31.2 Rule 15(d)-14(a) Certification of Chief Financial Officer.
--- ---
32.1 Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
--- ---
101 The following materials from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Unaudited Consolidated Financial Statements.
--- ---
104 Cover Page Interactive Date File (formatted in Inline XBRL and contained in Exhibit 101).
--- ---
*Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
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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.

Skyline Bankshares, Inc.
Date: May 15, 2025 By: /s/ Blake M. Edwards
Blake M. Edwards
President and Chief Executive Officer
By: /s/ Lori C. Vaught
Lori C. Vaught
Chief Financial Officer

50

ex_814767.htm

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 15d-14(a)

UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Blake M. Edwards, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Skyline Bankshares, Inc. for the period ended March 31, 2025;
2. 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;
--- ---
3. 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;
--- ---
4. The registrant’s other certifying officer 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:
--- ---
a. 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;
--- ---
b. 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;
--- ---
c. 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
--- ---
d. 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
--- ---
5. The registrant’s other certifying officer 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):
--- ---
a. 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
--- ---
b. 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.
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Date: May 15, 2025 By: /s/ Blake M. Edwards
--- --- ---
Blake M. Edwards
President and Chief Executive Officer

ex_814768.htm

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 15d-14(a)

UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Lori C. Vaught, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Skyline Bankshares, Inc. for the period ended March 31, 2025;
2. 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;
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3. 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;
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4. The registrant’s other certifying officer 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:
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a. 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;
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b. 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;
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c. 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
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d. 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
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5. The registrant’s other certifying officer 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):
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a. 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
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b. 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.
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Date: May 15, 2025 By: /s/ Lori C. Vaught
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Lori C. Vaught
Chief Financial Officer

ex_814769.htm

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350

In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2025 (the “Form 10-Q”) of Skyline Bankshares, Inc. (the “Company”), we, Blake M. Edwards, Chief Executive Officer of the Company, and Lori C. Vaught, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

(a) the Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(b) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Form 10-Q.
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By: /s/ Blake M. Edwards Date:         May 15, 2025
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Blake M. Edwards
President and Chief Executive Officer
By: /s/ Lori C. Vaught Date:         May 15, 2025
Lori C. Vaught
Chief Financial Officer

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