National Bankshares Inc.
11/13/2025 | Press release | Distributed by Public on 11/13/2025 10:02
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
$ in thousands, except per share data
The purpose of this discussion and analysis is to provide information about the financial condition and results of operations of the Company. Please refer to the financial statements and other information included in this report as well as the Company's 2024 Form 10-K for an understanding of the following discussion and analysis. References in the following discussion and analysis to "we" or "us" refer to the Company unless the context indicates that the reference is to the Bank.
Cautionary Statement Regarding Forward-Looking Statements
We make forward-looking statements in this Form 10-Q that are subject to significant risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon management's views and assumptions as of the date of this report. The words "believes," "expects," "may," "will," "should," "projects," "contemplates," "anticipates," "forecasts," "intends," or other similar words or terms are intended to identify forward-looking statements.
These forward-looking statements are based upon or are affected by factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, effects of or changes in:
•
inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments,
•
the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company's or banking industry's reputation becomes damaged,
•
the adequacy of the level of the Company's allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses,
•
general and local economic conditions,
•
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the Office of the Comptroller of the Currency ("OCC"), the Federal Reserve, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation ("FDIC"), and the impact of any policies or programs implemented pursuant to financial reform legislation,
•
unanticipated increases in the level of unemployment in the Company's market,
•
the quality or composition of the loan and/or investment portfolios,
•
demand for loan products,
•
deposit flows,
•
competition,
•
demand for financial services in the Company's market,
•
the real estate market in the Company's market,
•
laws, regulations and policies impacting financial institutions,
•
technological risks and developments, and cyber-threats, attacks or events,
•
the Company's technology initiatives,
•
geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts,
•
the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events,
•
the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment,
•
performance by the Company's counterparties or vendors,
•
applicable accounting principles, policies and guidelines, and
•
risks associated with mergers, acquisitions, and other expansion activities.
These risks and uncertainties should be considered in evaluating the forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which speak only as of the date of this report. This discussion and analysis should be read in conjunction with the description of our "Risk Factors" in Item 1A of the Company's 2024 Form 10-K.
Overview
NBI is a financial holding company that was organized in 1986 under the laws of Virginia and is registered under the Bank Holding Company Act of 1956. NBI common stock is listed on the Nasdaq Capital Market and is traded under the symbol "NKSH."
NBI has two wholly-owned subsidiaries; the National Bank of Blacksburg ("NBB") and National Bankshares Financial Services, Inc. ("NBFS"). NBB is a community bank and does business as National Bank from 28 office locations and one loan production office. NBB is the source of nearly all of the Company's revenue. NBFS does business as National Bankshares Investment Services and National Bankshares Insurance Services. Income from NBFS is not significant at this time, nor is it expected to be so in the near future.
Critical Accounting Policies
The Company's consolidated financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. Although the economics of the Company's transactions may not change, the timing of events that would impact the transactions could change.
Critical accounting policies are most important to the portrayal of the Company's financial condition or results of operations and require management's most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company's financial condition or results of operations may be materially impacted. The Company has designated the following policies as critical: those governing the allowance for credit losses, goodwill, the pension plan, core deposit intangibles and loans acquired in a business combination. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. For information on the Company's critical accounting policies, please refer to the Company's 2024 Form 10-K, Note 1: Summary of Significant Accounting Policies.
Acquisition of Frontier Community Bank
On June 1, 2024, the Company and the Bank acquired FCB, a Virginia chartered commercial bank headquartered in Waynesboro, Virginia. FCB's balances and results of operations are included in the Company's consolidated results beginning on June 1, 2024.
Non-GAAP Financial Measures
This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP. Details on non-GAAP measures follow.
Net Interest Margin
The Company uses the net interest margin (non-GAAP) to measure profitability of interest generating activities, as a percentage of total interest-earning assets. The Company's net interest margin is calculated on a fully taxable equivalent ("FTE") basis. The portion of interest income that is nontaxable is grossed up to the tax equivalent by adding the tax benefit based on a tax rate of 21%. Annualized FTE net interest income is divided by total average earning assets to calculate the net interest margin. The following tables present the reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, for the periods indicated:
|
Three Months Ended September 30, |
||||||||
|
Net Interest Margin, FTE |
2025 |
2024 |
||||||
|
Interest income (GAAP) |
$ |
19,010 |
$ |
18,651 |
||||
|
Add: FTE adjustment |
244 |
241 |
||||||
|
Interest income, FTE (non-GAAP) |
19,254 |
18,892 |
||||||
|
Interest expense (GAAP) |
7,336 |
9,218 |
||||||
|
Net interest income, FTE (non-GAAP) |
$ |
11,918 |
$ |
9,674 |
||||
|
Average balance of interest-earning assets |
$ |
1,731,992 |
$ |
1,750,407 |
||||
|
Net interest margin |
2.73 |
% |
2.20 |
% |
||||
|
Nine Months Ended September 30, |
||||||||
|
Net Interest Margin, FTE |
2025 |
2024 |
||||||
|
Interest income (GAAP) |
$ |
55,744 |
$ |
51,752 |
||||
|
Add: FTE adjustment |
726 |
729 |
||||||
|
Interest income, FTE (non-GAAP) |
56,470 |
52,481 |
||||||
|
Interest expense (GAAP) |
22,829 |
25,412 |
||||||
|
Net interest income, FTE (non-GAAP) |
$ |
33,641 |
$ |
27,069 |
||||
|
Average balance of interest-earning assets |
$ |
1,752,234 |
$ |
1,691,110 |
||||
|
Net interest margin (non-GAAP) |
2.57 |
% |
2.14 |
% |
||||
Efficiency Ratio
The efficiency ratio is computed by dividing noninterest expense by the sum of FTE net interest income and noninterest income, excluding certain items the Company's management deems unusual or non-recurring. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. The components of the efficiency ratio calculation for the periods indicated are summarized in the following table.
|
Three Months Ended September 30, |
||||||||
|
Efficiency Ratio |
2025 |
2024 |
||||||
|
Noninterest expense (GAAP) |
$ |
8,524 |
$ |
8,499 |
||||
|
Less: merger-related expense |
- |
(150 |
) |
|||||
|
Less: core system conversion expense (1) |
(50 |
) |
- |
|||||
|
Adjusted noninterest expense (non-GAAP) |
$ |
8,474 |
$ |
8,349 |
||||
|
Noninterest income (GAAP) |
$ |
2,537 |
$ |
2,288 |
||||
|
Net interest income, FTE (non-GAAP) |
11,918 |
9,674 |
||||||
|
Total income for efficiency ratio (non-GAAP) |
$ |
14,455 |
$ |
11,962 |
||||
|
Efficiency ratio |
58.62 |
% |
69.80 |
% |
||||
|
Nine Months Ended September 30, |
||||||||
|
Efficiency Ratio |
2025 |
2024 |
||||||
|
Noninterest expense (GAAP) |
$ |
27,739 |
$ |
26,388 |
||||
|
Less: merger-related expense |
- |
(2,891 |
) |
|||||
|
Less: core system conversion expense (1) |
(2,073 |
) |
(173 |
) |
||||
|
Adjusted noninterest expense (non-GAAP) |
$ |
25,666 |
$ |
23,324 |
||||
|
Noninterest income (GAAP) |
$ |
7,376 |
$ |
6,770 |
||||
|
Net interest income, FTE (non-GAAP) |
33,641 |
27,069 |
||||||
|
Total income for efficiency ratio (non-GAAP) |
$ |
41,017 |
$ |
33,839 |
||||
|
Efficiency ratio (non-GAAP) |
62.57 |
% |
68.93 |
% |
||||
(1)
Core system conversion expense stems from a core system upgrade that will provide greater efficiency and product offerings.
Adjusted Return on Average Assets and Adjusted Return on Average Equity
The adjusted return on average assets and adjusted return on average equity are measures of profitability, calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively. Significant income or expenses that are unusual or not expected to recur during the year are not annualized, in order to reduce distortion within the ratios. The tables below present the reconciliation of adjusted annualized net income, which is not a measurement under GAAP, for the periods indicated.
|
Three Months Ended September 30, |
||||||||
|
Annualized Net Income for Ratio Calculation |
2025 |
2024 |
||||||
|
Net income per GAAP |
$ |
4,420 |
$ |
2,677 |
||||
|
Items not annualized: |
||||||||
|
Merger-related expense net of tax of $6 for the period ended September 30, 2024 |
- |
144 |
||||||
|
Core system conversion expense, net of tax of $11 for the period ended September 30, 2025 |
39 |
- |
||||||
|
Total non-annualized items |
39 |
144 |
||||||
|
Adjusted net income |
$ |
4,459 |
$ |
2,821 |
||||
|
Adjusted net income, annualized |
$ |
17,691 |
$ |
11,223 |
||||
|
Total non-annualized items |
(39 |
) |
(144 |
) |
||||
|
Annualized net income for ratio calculation (non-GAAP) |
$ |
17,652 |
$ |
11,079 |
||||
|
Return on average assets (GAAP) |
0.98 |
% |
0.59 |
% |
||||
|
Adjusted return on average assets (non-GAAP) |
0.99 |
% |
0.61 |
% |
||||
|
Return on average equity (GAAP) |
10.22 |
% |
6.82 |
% |
||||
|
Adjusted return on average equity (non-GAAP) |
10.29 |
% |
7.10 |
% |
||||
|
Nine Months Ended September 30, |
||||||||
|
Annualized Net Income for Ratio Calculation |
2025 |
2024 |
||||||
|
Net income per GAAP |
$ |
9,945 |
$ |
4,544 |
||||
|
Items not annualized: |
||||||||
|
Partnership income net of tax of ($44) and ($35) for the periods ended September 30, 2025 and 2024, respectively |
(166 |
) |
(134 |
) |
||||
|
ACL provision, net of tax of $271 for the period ended September 30, 2024 |
- |
1,019 |
||||||
|
Merger-related expense net of tax of $417 for the period ended September 30, 2024 |
- |
2,474 |
||||||
|
Core system conversion expense, net of tax of $435 and $36 for the periods ended September 30, 2025 and 2024, respectively |
1,638 |
137 |
||||||
|
Total non-annualized items |
1,472 |
3,496 |
||||||
|
Adjusted net income |
$ |
11,417 |
$ |
8,040 |
||||
|
Adjusted net income, annualized |
$ |
15,264 |
$ |
10,740 |
||||
|
Total non-annualized items |
(1,472 |
) |
(3,496 |
) |
||||
|
Annualized net income for ratio calculation (non-GAAP) |
$ |
13,792 |
$ |
7,244 |
||||
|
Return on average assets (GAAP) |
0.74 |
% |
0.35 |
% |
||||
|
Adjusted return on average assets (non-GAAP) |
0.76 |
% |
0.42 |
% |
||||
|
Return on average equity (GAAP) |
7.98 |
% |
4.23 |
% |
||||
|
Adjusted return on average equity (non-GAAP) |
8.28 |
% |
5.05 |
% |
||||
Performance Summary
Key to understanding the Company's results of operations and financial position is the acquisition of FCB in 2024, the impact of the interest rate environment and the core system conversion completed during the second quarter of 2025 that will enhance efficiency, product offerings and future growth.
The acquisition of FCB on June 1, 2024 expanded the Company's footprint into desirable markets and increased its growth potential. The acquisition added to the balance sheet $118,743 in loans, $129,717 in deposits and $14,299 in equity. The Company also recorded merger expenses detailed under Non-GAAP Financial Measures above.
The Federal Reserve's interest rate cuts between September 2024 and September of 2025 eased deposit pricing pressure beginning in the fourth quarter of 2024. The interest rate environment continues at a level that allows adjustable rate loans to reprice higher than their previous rates.
The Company completed the core system conversion of both the acquired bank and the legacy bank during the second quarter of 2025, with related expenses presented in core system conversion expense on the Consolidated Statements of Income. The following table presents the Company's key performance indicators for the periods indicated:
|
Three Months Ended September 30, |
||||||||
|
2025 |
2024 |
|||||||
|
Net Income |
$ |
4,420 |
$ |
2,677 |
||||
|
Return on average assets |
0.98 |
% |
0.59 |
% |
||||
|
Adjusted return on average assets (1) |
0.99 |
% |
0.61 |
% |
||||
|
Return on average equity |
10.22 |
% |
6.82 |
% |
||||
|
Adjusted return on average equity (1) |
10.29 |
% |
7.10 |
% |
||||
|
Basic net income per common share |
$ |
0.70 |
$ |
0.42 |
||||
|
Diluted net income per common share |
$ |
0.69 |
$ |
0.42 |
||||
|
Net interest margin (1) |
2.73 |
% |
2.20 |
% |
||||
|
Efficiency ratio (1) |
58.62 |
% |
69.80 |
% |
||||
|
Nine Months Ended September 30, |
||||||||
|
Summary Key Performance Indicators |
2025 |
2024 |
||||||
|
Net Income |
$ |
9,945 |
$ |
4,544 |
||||
|
Return on average assets |
0.74 |
% |
0.35 |
% |
||||
|
Adjusted return on average assets (1) |
0.76 |
% |
0.42 |
% |
||||
|
Return on average equity |
7.98 |
% |
4.23 |
% |
||||
|
Adjusted return on average equity (1) |
8.28 |
% |
5.05 |
% |
||||
|
Basic net income per common share |
$ |
1.56 |
$ |
0.75 |
||||
|
Diluted net income per common share |
$ |
1.56 |
$ |
0.75 |
||||
|
Net interest margin (1) |
2.57 |
% |
2.14 |
% |
||||
|
Efficiency ratio (1) |
62.57 |
% |
68.93 |
% |
||||
(1)
See "Non-GAAP Financial Measures" above.
Net income for the three and nine months ended September 30, 2025 increased when compared with the comparable periods of 2024, due to net interest margin expansion and merger related expenses in 2024. The net interest margin as well as key noninterest income and expense items are discussed below.
Net Interest Income
The following tables present interest-earning assets and interest-bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net interest margin for the periods indicated.
|
Three Months Ended September 30, |
|||||||||||||||||||||||||
|
2025 |
2024 |
||||||||||||||||||||||||
|
($ in thousands) |
Average |
Interest |
Average |
Average |
Interest |
Average |
|||||||||||||||||||
|
Interest-earning assets: |
|||||||||||||||||||||||||
|
Loans (1)(2)(3)(4)(5) |
$ |
1,010,041 |
$ |
14,356 |
5.64 |
% |
$ |
994,744 |
$ |
13,295 |
5.32 |
% |
|||||||||||||
|
Taxable securities (5) |
588,212 |
3,704 |
2.50 |
% |
622,284 |
4,177 |
2.67 |
% |
|||||||||||||||||
|
Nontaxable securities (1)(5) |
62,730 |
454 |
2.87 |
% |
63,197 |
453 |
2.85 |
% |
|||||||||||||||||
|
Federal funds sold |
- |
- |
- |
918 |
13 |
5.63 |
% |
||||||||||||||||||
|
Interest-bearing deposits |
71,009 |
740 |
4.13 |
% |
69,264 |
954 |
5.48 |
% |
|||||||||||||||||
|
Total interest-earning assets |
$ |
1,731,992 |
$ |
19,254 |
4.41 |
% |
$ |
1,750,407 |
$ |
18,892 |
4.29 |
% |
|||||||||||||
|
Interest-bearing liabilities: |
|||||||||||||||||||||||||
|
Interest-bearing demand deposits |
$ |
827,977 |
$ |
4,307 |
2.06 |
% |
$ |
852,126 |
$ |
5,488 |
2.56 |
% |
|||||||||||||
|
Savings deposits |
141,197 |
55 |
0.15 |
% |
141,939 |
62 |
0.17 |
% |
|||||||||||||||||
|
Time deposits(6) |
322,782 |
2,907 |
3.57 |
% |
342,662 |
3,668 |
4.26 |
% |
|||||||||||||||||
|
Borrowings |
6,630 |
67 |
4.01 |
% |
- |
- |
NM |
||||||||||||||||||
|
Total interest-bearing liabilities |
$ |
1,298,586 |
$ |
7,336 |
2.24 |
% |
$ |
1,336,727 |
$ |
9,218 |
2.74 |
% |
|||||||||||||
|
Net interest income and interest rate spread |
$ |
11,918 |
2.17 |
% |
$ |
9,674 |
1.55 |
% |
|||||||||||||||||
|
Net interest margin |
2.73 |
% |
2.20 |
% |
|||||||||||||||||||||
(1)
Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.
(2)
Included in interest income are loan fees of $162 and $71 for the three months ended September 30, 2025 and 2024, respectively. Also included in interest income is accretion of discounts on acquired loans of $699 and $369 for the three months ended September 30, 2025 and 2024, respectively.
(3)
Nonaccrual loans are included in average balances for yield computations.
(4)
Includes loans held for sale.
(5)
Daily averages are shown at amortized cost.
(6)
Included in interest expense is amortization of premium on acquired time deposits of $27 and $135 for the three months ended September 30, 2025 and 2024, respectively.
|
Nine Months Ended September 30, |
|||||||||||||||||||||||||
|
2025 |
2024 |
||||||||||||||||||||||||
|
($ in thousands) |
Average |
Interest |
Average |
Average |
Interest |
Average |
|||||||||||||||||||
|
Interest-earning assets: |
|||||||||||||||||||||||||
|
Loans (1)(2)(3)(4)(5) |
$ |
1,004,552 |
$ |
41,052 |
5.46 |
% |
$ |
919,369 |
$ |
35,129 |
5.10 |
% |
|||||||||||||
|
Taxable securities (5) |
599,455 |
11,289 |
2.52 |
% |
626,672 |
12,644 |
2.70 |
% |
|||||||||||||||||
|
Nontaxable securities (1)(5) |
62,846 |
1,367 |
2.91 |
% |
63,730 |
1,373 |
2.88 |
% |
|||||||||||||||||
|
Federal funds sold |
152 |
5 |
4.40 |
% |
702 |
23 |
4.38 |
% |
|||||||||||||||||
|
Interest-bearing deposits |
85,229 |
2,757 |
4.32 |
% |
80,637 |
3,312 |
5.49 |
% |
|||||||||||||||||
|
Total interest-earning assets |
$ |
1,752,234 |
$ |
56,470 |
4.31 |
% |
$ |
1,691,110 |
$ |
52,481 |
4.15 |
% |
|||||||||||||
|
Interest-bearing liabilities: |
|||||||||||||||||||||||||
|
Interest-bearing demand deposits |
$ |
850,676 |
$ |
13,330 |
2.10 |
% |
$ |
839,211 |
$ |
15,747 |
2.51 |
% |
|||||||||||||
|
Savings deposits |
142,874 |
156 |
0.15 |
% |
140,628 |
173 |
0.16 |
% |
|||||||||||||||||
|
Time deposits(6) |
331,602 |
9,276 |
3.74 |
% |
303,355 |
9,490 |
4.18 |
% |
|||||||||||||||||
|
Borrowings |
2,234 |
67 |
4.01 |
% |
76 |
2 |
3.52 |
% |
|||||||||||||||||
|
Total interest-bearing liabilities |
$ |
1,327,386 |
$ |
22,829 |
2.30 |
% |
$ |
1,283,270 |
$ |
25,412 |
2.65 |
% |
|||||||||||||
|
Net interest income and interest |
$ |
33,641 |
2.01 |
% |
$ |
27,069 |
1.50 |
% |
|||||||||||||||||
|
Net interest margin |
2.57 |
% |
2.14 |
% |
|||||||||||||||||||||
(1)
Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.
(2)
Included in interest income are loan fees of $361 and $174 for the nine months ended September 30, 2025 and 2024, respectively. Also included in interest income is accretion of discounts on acquired loans of $1,324 and $480 for the nine months ended September 30, 2025 and 2024, respectively.
(3)
Nonaccrual loans are included in average balances for yield computations.
(4)
Includes loans held for sale.
(5)
Daily averages are shown at amortized cost.
(6)
Included in interest expense is amortization of premium on acquired time deposits of $128 and $193 for the nine months ended September 30, 2025 and 2024, respectively.
When the three and nine months ended September 30, 2025 and 2024 are compared, the yield on earning assets increased and the cost of interest bearing liabilities decreased, improving the net interest margin. The Federal Reserve's interest rate cuts between September 2024 and September 2025 immediately reduced expense for deposits with pricing based on the prime interest rate. Current interest rates are still at a level that will allow improved interest income as loans continue to reach repricing dates.
During the third quarter of 2025, the Company leveraged $50,000 in borrowings with a weighted average rate of 3.99% to purchase securities of $49,855 with a weighted average yield of 4.67%. The borrowings were structured to mirror expected cash flow from the securities portfolio over the following year. The strategy is part of the Company's focus on optimizing the net interest margin and earnings, with expectations for a lower interest rate environment in the future.
Noninterest Income
|
Three Months Ended September 30, |
Change |
|||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Service charges on deposits |
$ |
681 |
$ |
708 |
$ |
(27 |
) |
(3.81 |
)% |
|||||||
|
Other service charges and fees |
72 |
117 |
(45 |
) |
(38.46 |
)% |
||||||||||
|
Credit and debit card fees, net |
492 |
344 |
148 |
43.02 |
% |
|||||||||||
|
Trust income |
700 |
580 |
120 |
20.69 |
% |
|||||||||||
|
BOLI income |
304 |
295 |
9 |
3.05 |
% |
|||||||||||
|
Gain on sale of mortgage loans |
92 |
50 |
42 |
84.00 |
% |
|||||||||||
|
Other income |
196 |
194 |
2 |
1.03 |
% |
|||||||||||
|
Total noninterest income |
$ |
2,537 |
$ |
2,288 |
$ |
249 |
10.88 |
% |
||||||||
|
Nine Months Ended September 30, |
Change |
|||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Service charges on deposits |
$ |
2,114 |
$ |
2,019 |
$ |
95 |
4.71 |
% |
||||||||
|
Other service charges and fees |
228 |
286 |
(58 |
) |
(20.28 |
)% |
||||||||||
|
Credit and debit card fees, net |
1,275 |
1,141 |
134 |
11.74 |
% |
|||||||||||
|
Trust income |
1,857 |
1,596 |
261 |
16.35 |
% |
|||||||||||
|
BOLI income |
893 |
822 |
71 |
8.64 |
% |
|||||||||||
|
Gain on sale of mortgage loans |
171 |
132 |
39 |
29.55 |
% |
|||||||||||
|
Other income |
838 |
774 |
64 |
8.27 |
% |
|||||||||||
|
Total noninterest income |
$ |
7,376 |
$ |
6,770 |
$ |
606 |
8.95 |
% |
||||||||
Service charges on deposit accounts increased when the nine months ended September 30, 2025 is compared with the comparable period of 2024, due to higher levels of deposits.
Other service charges and fees decreased when the three and nine months ended September 30, 2025 are compared with the comparable periods of 2024, primarily due to receipt of certain infrequent fee income in 2024.
Credit and debit card fees, net, increased when the three and nine months ended September 30, 2025 are compared with the comparable periods of 2024, due to receipt of an incentive payment and lower processing costs after the core system conversion.
Trust income increased due to higher assets under management, when the three and nine months ended September 30, 2025 are compared with the comparable period of 2024.
BOLI income increased when the three and nine months ended September 30, 2025 are compared with the comparable periods of 2024. BOLI income includes the acquired FCB policies for the full nine months ended September 30, 2025, compared with four months for 2024.
Gain on sale of mortgage loans improved when the three and nine months ended September 30, 2025 are compared with the comparable periods of 2024, due to increased volume.
Other income includes revenue from investment and insurance sales, adjustments to partnership basis and other miscellaneous components. Insurance income and a vendor incentive payment account for the increase when the nine months ended September 30, 2025 is compared with the comparable period of 2024.
Noninterest Expense
|
Three Months Ended September 30, |
Change |
|||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Salaries and employee benefits |
$ |
5,114 |
$ |
4,953 |
$ |
161 |
3.25 |
% |
||||||||
|
Occupancy, furniture and fixtures |
770 |
715 |
55 |
7.69 |
% |
|||||||||||
|
Data processing |
848 |
963 |
(115 |
) |
(11.94 |
)% |
||||||||||
|
FDIC assessment |
210 |
211 |
(1 |
) |
(0.47 |
)% |
||||||||||
|
Intangible asset amortization |
92 |
102 |
(10 |
) |
(9.80 |
)% |
||||||||||
|
Franchise taxes |
350 |
373 |
(23 |
) |
(6.17 |
)% |
||||||||||
|
Professional services |
361 |
254 |
107 |
42.13 |
% |
|||||||||||
|
Merger-related expenses |
- |
150 |
(150 |
) |
NM |
|||||||||||
|
Core system conversion expense |
50 |
- |
50 |
NM |
||||||||||||
|
Other operating expenses |
729 |
778 |
(49 |
) |
(6.30 |
)% |
||||||||||
|
Total noninterest expense |
$ |
8,524 |
$ |
8,499 |
$ |
25 |
0.29 |
% |
||||||||
|
Nine Months Ended September 30, |
Change |
|||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Salaries and employee benefits |
$ |
15,505 |
$ |
14,106 |
$ |
1,399 |
9.92 |
% |
||||||||
|
Occupancy, furniture and fixtures |
2,240 |
1,975 |
265 |
13.42 |
% |
|||||||||||
|
Data processing |
2,532 |
2,529 |
3 |
0.12 |
% |
|||||||||||
|
FDIC assessment |
627 |
590 |
37 |
6.27 |
% |
|||||||||||
|
Intangible asset amortization |
284 |
137 |
147 |
107.30 |
% |
|||||||||||
|
Franchise taxes |
1,081 |
1,081 |
- |
0.00 |
% |
|||||||||||
|
Professional services |
1,169 |
766 |
403 |
52.61 |
% |
|||||||||||
|
Merger-related expenses |
- |
2,891 |
(2,891 |
) |
NM |
|||||||||||
|
Core system conversion expense |
2,073 |
173 |
1,900 |
1,098 |
% |
|||||||||||
|
Other operating expenses |
2,228 |
2,140 |
88 |
4.11 |
% |
|||||||||||
|
Total noninterest expense |
$ |
27,739 |
$ |
26,388 |
$ |
1,351 |
5.12 |
% |
||||||||
Noninterest expense increased when the three and nine months ended September 30, 2025 are compared with the comparable periods of 2024. Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when the three month period ended September 30, 2025 is compared with the comparable period of 2024 due to normal merit increases. The increase in salaries and employee benefits when the nine month period ended September 30, 2025 is compared with the comparable period of 2024 reflects the addition of FCB employees.
Occupancy, furniture and fixtures expense increased when the three and nine months ended September 30, 2025 are compared with the comparable periods of 2024 due to additional assets acquired from FCB, higher maintenance costs, and the opening of the Roanoke branch.
Data processing expense decreased when the three months ended September 30, 2025 are compared with the comparable period of 2024, reflecting savings from the core system conversion.
FDIC assessment increased when the nine months ended September 30, 2025 are compared with the comparable periods of 2024 due to a larger assessment base.
Professional services include legal, audit and consulting expenses, which increased when the three and nine months ended September 30, 2025 are compared with the comparable periods of 2024 due to higher legal and audit expense.
Core system conversion expense primarily includes payments made to the former core system vendor to exit the contracts as well as other expenses associated with the core system conversion.
Other operating expenses increased when the nine months ended September 30, 2025 are compared with the comparable period of 2024. The category of other operating expenses includes expense for marketing and business development, supplies, non-service pension cost and charitable donations, among others. Included in various categories of noninterest expense are expenses to manage cybersecurity risk. The cost of these measures was $114 for the three months ended September 30, 2025 and $92 for the three months ended September 30, 2024. For the nine months ended September 30, 2025, total cybersecurity expense was $255 compared to $276 for the nine months ended September 30, 2024. The Company places high priority on cybersecurity. The decrease in expense when the nine month period ended September 30, 2025 is compared with the comparable period of 2024 resulted from renegotiation of contracts and licensing.
Income Tax
The Company's income tax expense was $961 for the three months ended September 30, 2025 compared to an expense of $550 for the same period in 2024.The Company's income tax expense was $1,989 for the nine months ended September 30, 2025 and effective tax rate was 16.67%. For the nine months ended September 30, 2024, the Company's income tax expense was $891 and effective tax rate was 16.39%.
Asset Quality
Key indicators of the Company's asset quality are presented in the following table.
|
September 30, |
December 31, |
|||||||||||
|
2025 |
2024 |
2024 |
||||||||||
|
Nonaccrual loans |
$ |
2,027 |
$ |
2,283 |
$ |
2,222 |
||||||
|
Loans past due 90 days or more, and still accruing |
283 |
71 |
548 |
|||||||||
|
ACLL to loans net of deferred fees and costs |
1.04 |
% |
1.03 |
% |
1.04 |
% |
||||||
|
Net charge-off ratio (annualized) |
0.04 |
% |
0.04 |
% |
0.03 |
% |
||||||
|
Ratio of nonperforming loans to loans, net of |
0.20 |
% |
0.23 |
% |
0.22 |
% |
||||||
|
Ratio of ACLL to nonperforming loans |
521.90 |
% |
452.39 |
% |
461.84 |
% |
||||||
For information on the Company's policies on the ACLL, please refer to the Company's 2024 Form 10-K, Note 1: Summary of Significant Accounting Policies.
The Company's risk analysis as of September 30, 2025 determined an ACLL of $10,579, or 1.04% of loans net of deferred fees and costs. This compares with an allowance of $10,262 as of December 31, 2024, or 1.04% of loans. To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of loans evaluated collectively.
Individually Evaluated Loans
As of September 30, 2025, individually evaluated loans were $10,699. Three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $90.
As of December 31, 2024, individually evaluated loans were $10,521. Three individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $80.
Collectively Evaluated Loans
Collectively evaluated loans totaled $1,006,246, with an ACLL of $10,489 as of September 30, 2025. As of December 31, 2024, collectively evaluated loans totaled $978,092, with an allowance of $10,182.
Collectively evaluated loans are divided into classes based upon risk characteristics. Utilizing historical loss information and peer data, the Company calculates probability of default ("PD") and loss given default ("LGD") for each class, which is adjusted for a reasonable and supportable forecast. Cash flow projections based on each loan's contractual terms are modified by the adjusted PD and LGD for its class. Loan classes are allocated additional loss estimates based upon the Company's analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.
Reasonable and Supportable Forecast
The Company applies national unemployment forecasts to project cash flows. The Company determined that 12 months represents a reasonable and supportable forecast period as of September 30, 2025, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied as of September 30, 2025 projects that unemployment will slightly increase over the next 12 months at a lower level than the forecast applied as of December 31, 2024. The lower unemployment forecast decreased the required level of the ACLL when September 30, 2025 is compared with December 31, 2024.
Qualitative Factors: Economic
The Company sources economic data pertinent to its market from the most recently available publications, including business and personal bankruptcy filings, the residential vacancy rate and the inventory of new and existing homes.
Higher bankruptcy filings indicate heightened credit risk and increase the ACLL, while lower bankruptcy filings have a beneficial impact on credit risk. Compared with data available as of December 31, 2024, business and personal bankruptcies filings increased.
Residential vacancy rates and housing inventory are used to measure the housing market. The housing market directly or indirectly affects all loan classes. Higher vacancy and inventory levels increase credit risk. The residential vacancy rate available as of September
30, 2025 increased compared to the data incorporated into the December 31, 2024 calculation, resulting in a higher allocation. Housing inventory increased when September 30, 2025 is compared with December 31, 2024, resulting in a higher allocation.
The Company tracks economic news and data from its market to determine whether additional indicators should be considered in the allowance for credit losses. As of September 30, 2025, management identified local unemployment data for consideration. Historically, local unemployment has been slightly lower than national unemployment, but correlated in movement. However, for the most recent period local unemployment rose higher than national unemployment. The Company added an allocation to account for the change.
Qualitative Factors: Asset Quality Indicators
Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. Accruing loans past due 30-89 days were 0.27% of total loans as of September 30, 2025, decreased from 0.30% as of December 31, 2024.
Qualitative Factors: Other Considerations
The Company considers other factors that impact credit risk, including the interest rate environment, the competitive, legal and regulatory environments, changes in lending policies and loan review, changes in lending management, and high risk loans.
The interest rate environment impacts variable rate loans. The Company allocates additional reserve each time the Federal Reserve increases rates, under the expectation that higher payments may increase credit risk. After the rate increase has been in effect for one year, the allocation may be removed if management deems that the impact of the change has become integrated to the portfolio. As of September 30, 2025, no allocation was included for interest rate changes, unchanged from December 31, 2024.
The competitive, legal and regulatory environments were evaluated for changes that would affect credit risk. Higher competition for loans is deemed to increase credit risk, while lower competition is deemed to decrease credit risk. Prior allocations for the competitive and regulatory environments were evaluated and management determined that a sufficient period of time had passed so as to conclude that the impact is now integrated to loss rates, reducing the allocation. The legal environment remains in a similar posture to December 31, 2024, and no allocation was provided.
Lending policies, loan review procedures and management's experience influence credit risk. Policies and procedures remain similar to those at December 31, 2024. The Company maintained an allocation to account for integration of FCB lenders.
Levels of high risk loans are considered in the determination of the level of the ACLL. A decrease in the level of high risk loans within a class decreases the required allocation for the loan class, and an increase in the level of high risk loans within a class increases the required allocation for the loan class. Total high risk loans increased from the level at December 31, 2024.
Unallocated Surplus
The unallocated surplus as of September 30, 2025 was $47, or 0.45% in excess of the calculated requirement. The unallocated surplus at December 31, 2024 was $50, or 0.49% in excess of the calculated requirement. The surplus provides some mitigation of uncertainty about events that may exist at the reporting date but that are not known to the Company and may impact credit risk.
Conclusion
The calculation of the appropriate level for the ACLL incorporates analysis of multiple factors and requires management's prudent and informed judgment. Based on analysis of historical indicators, asset quality and economic factors, management believes the level of the ACLL is reasonable for the credit risk in the loan portfolio as of September 30, 2025.
ACL on Unfunded Commitments
The ACL on unfunded commitments was $288, or 0.16 % of unfunded commitments as of September 30, 2025. The ACL on unfunded commitments was $251, or 0.14% as of December 31, 2024.
Provision for (Recovery of) Credit Losses
The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance. The adequacy of the ACLL is reviewed quarterly and adjustments are made as determined necessary. The Company recorded a provision for credit losses on loans of $581 and a provision for credit losses on unfunded commitments of $36 for the nine months ended September 30, 2025, compared with a provision for credit losses on loans of $1,312 and a recovery of $25 for unfunded commitments for the nine months ended September 30, 2024. For the three month period ended September 30, 2025, the Company recorded a provision for credit losses on loans of $259 and a provision for credit losses on unfunded commitments of $47. For the three month period ended September 30, 2024, the Company recorded a provision for credit losses on loans of $5 and a recovery of credit losses on unfunded commitments of $10.
Loan Modifications
In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons. Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements. Modifications to consumer loans generally involve short-term payment extensions to accommodate specific, temporary circumstances. Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants.
The Company reviews each modification to determine whether the borrower is experiencing financial difficulty, including indicators of default, bankruptcy, going concern, insufficient projected cash flows and inability to obtain financing from other sources. Please refer to Note 3: Loans and Allowance for Credit Losses in Part I, Item 1 of this report for more information on loans modified for borrowers experiencing financial difficulty.
During the three and nine months ended September 30, 2025 and 2024, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty. During the three months ended September 30, 2025, the Company modified 46 loans totaling $13,884. During the nine months ended September 30, 2025, the Company modified 414 loans totaling $55,739. During the three and nine months ended September 30, 2024, the Company provided 205 modifications to loans totaling $42,969 and 637 modifications totaling $86,905, respectively.
Key Assets and Liabilities
NBI's key assets and liabilities and their change from December 31, 2024 are shown in the following table.
|
September 30, |
December 31, |
Change |
||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Interest-bearing deposits |
$ |
33,113 |
$ |
94,254 |
$ |
(61,141 |
) |
(64.87 |
)% |
|||||||
|
Securities available for sale, at fair value |
630,483 |
601,898 |
28,585 |
4.75 |
% |
|||||||||||
|
Loans, net |
1,005,823 |
977,688 |
28,135 |
2.88 |
% |
|||||||||||
|
Total assets |
1,802,407 |
1,811,636 |
(9,229 |
) |
(0.51 |
)% |
||||||||||
|
Deposits |
1,561,904 |
1,644,752 |
(82,848 |
) |
(5.04 |
)% |
||||||||||
Average Balances
Year-to-date daily averages for the major balance sheet categories are as follows:
|
September 30, |
December 31, |
Change |
||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Assets |
||||||||||||||||
|
Interest-bearing deposits |
$ |
85,229 |
$ |
76,211 |
$ |
9,018 |
11.83 |
% |
||||||||
|
Securities available for sale, at fair value |
593,896 |
610,298 |
(16,402 |
) |
(2.69 |
)% |
||||||||||
|
Loans, net |
993,824 |
928,293 |
65,531 |
7.06 |
% |
|||||||||||
|
Total assets |
1,807,982 |
1,744,440 |
63,542 |
3.64 |
% |
|||||||||||
|
Liabilities and stockholders' equity |
||||||||||||||||
|
Noninterest-bearing demand deposits |
$ |
302,373 |
$ |
290,038 |
$ |
12,335 |
4.25 |
% |
||||||||
|
Interest-bearing demand deposits |
850,676 |
838,526 |
12,150 |
1.45 |
% |
|||||||||||
|
Savings deposits |
142,874 |
141,148 |
1,726 |
1.22 |
% |
|||||||||||
|
Time deposits |
331,602 |
313,401 |
18,201 |
5.81 |
% |
|||||||||||
|
Stockholders' equity |
166,579 |
147,474 |
19,105 |
12.95 |
% |
|||||||||||
Higher customer deposits resulted in increased investment in interest bearing deposit assets. Changes in securities, loans, deposits and stockholders' equity are discussed below.
Securities
The Company's securities are designated as available for sale and as such, are reported at fair value. The following table presents information on securities available for sale as of the dates indicated:
|
September 30, |
December 31, |
Change |
||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Amortized cost |
$ |
687,097 |
$ |
680,496 |
$ |
6,601 |
0.97 |
% |
||||||||
|
Unrealized loss, net |
(56,614 |
) |
(78,598 |
) |
21,984 |
27.97 |
% |
|||||||||
|
Securities available for sale, at fair value |
$ |
630,483 |
$ |
601,898 |
$ |
28,585 |
4.75 |
% |
||||||||
The Company purchased bonds totalling $49,855 during the third quarter of of 2025 as part of a yield optimization strategy.
The unrealized loss in the Company's investment portfolio is due to interest rate risk. The fair value of bonds moves inversely to interest rate changes and expectations of interest rate changes. Most of the Company's securities were purchased during periods prior to the Federal Reserve's interest rate increases that began in March of 2022. The Company's analysis of the securities portfolio determined no identifiable credit risk as of September 30, 2025 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies of the Company's 2024 Form 10-K and Note 4: Securities in Part I, Item 1 of this report for additional information on the securities portfolio.
Loans
|
September 30, |
December 31, |
Change |
||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Real estate construction |
$ |
46,381 |
$ |
50,798 |
$ |
(4,417 |
) |
(8.70 |
)% |
|||||||
|
Consumer real estate |
324,597 |
307,855 |
16,742 |
5.44 |
% |
|||||||||||
|
Commercial real estate |
490,968 |
478,078 |
12,890 |
2.70 |
% |
|||||||||||
|
Commercial non real estate |
53,532 |
51,844 |
1,688 |
3.26 |
% |
|||||||||||
|
Public sector and IDA |
54,332 |
57,171 |
(2,839 |
) |
(4.97 |
)% |
||||||||||
|
Consumer non real estate |
47,135 |
42,867 |
4,268 |
9.96 |
% |
|||||||||||
|
Less: deferred fees and costs |
(543 |
) |
(663 |
) |
120 |
(18.10 |
)% |
|||||||||
|
Loans, net of deferred fees and costs |
$ |
1,016,402 |
$ |
987,950 |
$ |
28,452 |
2.88 |
% |
||||||||
The increase from December 31, 2024 is the result of organic growth. The Company is positioned to make every loan that meets its underwriting standards.
Deposits
|
September 30, |
December 31, |
Change |
||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Noninterest-bearing demand deposits |
$ |
312,578 |
$ |
290,088 |
$ |
22,490 |
7.75 |
% |
||||||||
|
Interest-bearing demand deposits |
793,552 |
864,753 |
(71,201 |
) |
(8.23 |
)% |
||||||||||
|
Savings deposits |
140,635 |
143,109 |
(2,474 |
) |
(1.73 |
)% |
||||||||||
|
Time deposits |
315,139 |
346,802 |
(31,663 |
) |
(9.13 |
)% |
||||||||||
|
Total deposits |
$ |
1,561,904 |
$ |
1,644,752 |
$ |
(82,848 |
) |
(5.04 |
)% |
|||||||
The Company's depositors within its market area are diverse, including individuals, businesses and municipalities. The Company does not have any brokered deposits. Depositors are insured up to the FDIC maximum of $250 thousand. Municipal deposits, which account for approximately 21% of the Company's deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company's non-municipal deposits, approximately 20% are uninsured.
Capital Resources
|
September 30, |
December 31, |
Change |
||||||||||||||
|
2025 |
2024 |
Dollars |
Percent |
|||||||||||||
|
Common stock and additional paid in capital |
$ |
21,974 |
$ |
21,831 |
$ |
143 |
0.66 |
% |
||||||||
|
Retained earnings |
201,643 |
196,343 |
5,300 |
2.70 |
% |
|||||||||||
|
Accumulated other comprehensive loss |
(44,397 |
) |
(61,765 |
) |
17,368 |
28.12 |
% |
|||||||||
|
Total stockholders' equity |
$ |
179,220 |
$ |
156,409 |
$ |
22,811 |
14.58 |
% |
||||||||
The increase in stockholders' equity reflects an improvement in the unrealized losses on securities available for sale and net income during the period.
The Company qualifies as a small bank holding company under the Federal Reserve's Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $3 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements. NBB is subject to various capital requirements administered by banking agencies, including an additional capital conservation buffer in order to make capital distributions or discretionary bonus payments. Risk-based capital ratios are calculated in compliance with OCC rules based on the Basel III Capital Rules. Capital ratios for NBB are shown in the following tables:
|
September 30, 2025 |
December 31, 2024 |
Regulatory |
Regulatory Capital |
|||||||||||||
|
Common Equity Tier I Capital Ratio |
16.55 |
% |
15.28 |
% |
4.50 |
% |
7.00 |
% |
||||||||
|
Tier I Capital Ratio |
16.55 |
% |
15.28 |
% |
6.00 |
% |
8.50 |
% |
||||||||
|
Total Capital Ratio |
17.45 |
% |
16.14 |
% |
8.00 |
% |
10.50 |
% |
||||||||
|
Leverage Ratio |
10.92 |
% |
10.25 |
% |
4.00 |
% |
4.00 |
% |
||||||||
Liquidity
Liquidity measures the Company's ability to meet its financial commitments at a reasonable cost. Demands on the Company's liquidity include funding additional loan demand and accepting withdrawals of existing deposits. The Company has diverse liquidity sources, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing, short-term borrowing, and FHLB advances.
As of September 30, 2025, the Company had $260,395 of borrowing capacity from the FHLB and the Company had $188,090 of available capacity at the Federal Reserve Bank discount window. As of September 30, 2025, the Company had $40,000 in FHLB borrowings with terms of one year or less and $10 million in Federal Reserve Discount Window borrowings with a term of less than three months.
The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters. Portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased/decreased liquidity from public funds deposits or discount window borrowings results in increased/decreased liquidity from pledging requirements. The Company monitors public funds pledging requirements and unpledged available for sale securities accessible for liquidity needs.
Regulatory capital levels determine the Company's ability to use purchased deposits and the Federal Reserve Bank discount window. As of September 30, 2025, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve Bank discount window.
The Company monitors factors that may increase its liquidity needs. Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments and loan growth. As of September 30, 2025, the Company's liquidity is sufficient to meet projected trends.
To monitor and estimate liquidity levels, the Company performs stress testing under varying assumptions on credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows. The Company's Contingency Funding Plan sets forth avenues for rectifying liquidity shortfalls. As of September 30, 2025, the analysis indicated adequate liquidity under the tested scenarios.
The Company utilizes several other strategies to maintain sufficient liquidity. Loan and deposit growth are managed to keep the loan to deposit ratio within the Company's internally-set target range. As of September 30, 2025, the loan to deposit ratio was 65.07%.
The investment strategy takes into consideration the term of the investment, and securities in the available for sale portfolio are laddered based upon projected funding needs.
Off-Balance Sheet Arrangements
In the normal course of business, NBB extends lines of credit and letters of credit to its customers. Depending on their needs, customers may draw upon lines of credit at any time in any amount up to a pre-approved limit. Financial letters of credit guarantee payments to facilitate customer purchases. Performance letters of credit guarantee payment if the customer fails to complete a specific obligation.
While it would be possible for customers to fully draw on approved lines of credit and for beneficiaries to call all letters of credit, historically this has not occurred. In the event of a sudden and substantial draw on these lines, the Company would be able to access multiple options, including its lines of credit with correspondents, raising additional deposits, or selling securities available for sale or loans. The Company estimates an ACL on unfunded loan commitments under the current expected credit losses model.
The Company sells mortgages on the secondary market. Our agreements with the purchasers provide for strict underwriting and documentation requirements. Violation of the representations and warranties of the agreement would entitle the purchaser to recourse provisions. The Company has determined that its risk in this area is not significant because of the low volume of secondary market mortgage loans and high underwriting standards. The Company estimates a potential loss reserve for recourse provisions that is not material as of September 30, 2025. To date, no recourse provisions have been invoked. If funds were needed, the Company would access the same sources as noted above for funding lines and letters of credit. There were no material changes in off-balance sheet arrangements during the three and nine months ended September 30, 2025.
Contractual Obligations
The Company had no finance lease or purchase obligations and no long-term debt at September 30, 2025.
National Bankshares Inc. published this content on November 13, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 13, 2025 at 16:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]