NATIONAL BANKSHARES INC

Previous wording

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 trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts,

Current wording

geopolitical conditions, including trade restrictions and tariffs, acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, acts or threats of terrorism and/or military conflicts,

Previous wording

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.

Current wording

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 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.

Previous wording

The Company employs a discounted cash flow ("DCF") model whereby cash flows are projected according to each loan's contractual terms and modified by internal historical prepayment rates. Cash flows are then discounted at the loan's effective interest rate, modified by loss rates determined using the probability of default ("PD") and loss given default ("LGD") sourced from internal and peer historical experience, and a forecast variable. Application of historical prepayment rates to project cash flows lowers the ACLL. Historical prepayment rates may not be representative of realized prepayment rates. Similarly, historical loss experience modified by the forecast variable may not be representative of realized loss experience.

Current wording

The Company employs a cash flow ("CF") model whereby each loan’s cash flows are projected according to contractual terms and modified by prepayment rates and loss rates. Prepayment rates are sourced from the Company’s historical experience. Loss rates are calculated using the probability of default ("PD") and loss given default ("LGD") sourced from internal and peer historical experience, and adjusted for a forecast variable. The modified cash flows are then discounted at the loan's contractual interest rate. Application of historical prepayment rates lowers the ACL and may not be representative of realized prepayment rates. Historical loss experience and the impact of the forecast variable may not be representative of realized loss experience.

Previous wording

Key to loss rate application is the Company's risk grading system, which is governed by a robust policy. Loss rates are calculated and applied by risk grade. Management relies upon risk grades to identify loans with risk characteristics that are different from other loans within a segment. Loans graded special mention or classified and that exceed a value threshold are individually evaluated. If management determines that a borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. Specific reserves for other individually evaluated loans are estimated using a DCF approach. Cash flows are determined by analyzing the borrower's ability to repay and economic conditions affecting the borrower's industry, discounted at loss rates appropriate to the risk grade. The ultimate recoverability of the loan may be higher or lower than the specific reserve.

Current wording

Key to loss rate application is the Company's risk grading system, which is governed by a robust policy. Loss rates are calculated and applied by risk grade. Management relies upon risk grades to identify loans with risk characteristics that are different from other loans within a segment. Loans graded special mention or classified and that exceed a value threshold are individually evaluated. If management determines that a borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. Specific reserves for other individually evaluated loans are estimated using a CF approach. Cash flows are determined by analyzing the borrower's ability to repay and economic conditions affecting the borrower's industry, discounted at loss rates appropriate to the risk grade. The ultimate recoverability of the loan may be higher or lower than the specific reserve.

Previous wording

The Company adjusts collectively-evaluated DCF model results for qualitative risk factors that are not inherent in historical losses, but are relevant in assessing expected credit losses within the loan portfolio. Risks considered include the impact of changes in(i) economic conditions, (ii) the nature and volume of the loan portfolio, (iii) the existence, growth and effect of any concentrations in credit, (iv) lending policies and procedures, including underwriting standards and practices, (v) the quality of the credit review function, (vi) the experience, ability and depth of lending management and staff, (vii) the volume and severity of past due loans, (viii)the value of underlying collateral for collateral-dependent loans, and (ix) other factors such as the regulatory, legal and competitive environments. Because of low loss rate history, statistical correlation between losses and qualitative risk factors is not possible and adjustments are based upon management judgment. Management assesses each factor and determines the adjustment to the ACLL based upon a documented and consistently applied methodology. Management's assessment my be higher or lower than actual impact.

Current wording

The Company adjusts collectively-evaluated CF model results for qualitative risk factors that are not inherent in historical losses, but are relevant in assessing expected credit losses within the loan portfolio. Risks considered include the impact of changes in (i) economic conditions, (ii) the nature and volume of the loan portfolio, (iii) the existence, growth and effect of any concentrations in credit, (iv) lending policies and procedures, including underwriting standards and practices, (v) the quality of the credit review function, (vi) the experience, ability and depth of lending management and staff, (vii) the volume and severity of past due loans, (viii) the value of underlying collateral for collateral-dependent loans, and (ix) other factors such as the regulatory, legal and competitive environments. Because of low loss rate history, statistical correlation between losses and qualitative risk factors is not possible and adjustments are based upon management judgment. Management assesses each factor and determines the adjustment to the ACLL based upon a documented and consistently applied methodology. Management's assessment may be higher or lower than actual impact.

Previous wording

Key to understanding the Company’s results of operations and financial position is the interest rate environment. The Federal Reserve's interest rate cuts between September 2025 and December 2025 eased deposit pricing pressure but remain at a level that allows adjustable rate loans to reprice higher than their previous rates. The Company completed the core system conversion during the second quarter of 2025, with related expenses presented in core system conversion expense on the Consolidated Statements of Income. Expanded discussion is provided in subsequent sections.

Current wording

The Company’s results of operations and financial position are heavily influenced by the interest rate environment. The Federal Reserve's interest rate cuts between September 2024 and September of 2025 eased deposit pricing pressure but remain at a level that allows adjustable rate loans to reprice higher than their previous rates. Also influential to the Company's results are a gain on the sale of an equity investment offset by a loss on the sale of securities in 2026, and a core system conversion completed during the second quarter of 2025, with core system conversion expense presented on the Consolidated Statements of Income. Expanded discussion of significant items for 2026 and 2025 is provided in subsequent sections.

Previous wording

Average dilutive common shares were 2,783 and 1,982 for the three months ended March 31, 2026 and 2025, respectively. Dilutive common shares stem from unvested restricted stock.

Current wording

Average dilutive common shares were 3,241 and 3,013 for the three and six months ended June 30, 2026, and 2,665 and 2,325 for the three and six months ended June 30, 2025. Dilutive common shares stem from unvested restricted stock.

Previous wording

Net income for the three months ended March 31, 2026 increased when compared with the comparable period of 2025, due to net interest margin expansion. Analysis of the net interest margin as well as key noninterest income and expense items are presented below.

Current wording

Net income for the three and six months ended June 30, 2026 increased when compared with the comparable periods of 2025, due to net interest margin expansion and core conversion related expenses in 2025. The net interest margin as well as key noninterest income and expense items are discussed below.

Previous wording

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.

Current wording

The efficiency ratio (non-GAAP) 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.

Previous wording

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.

Current wording

The adjusted return on average assets (non-GAAP) and adjusted return on average equity (non-GAAP) 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.

Previous wording

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

Current wording

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.

Previous wording

Included in interest income are loan fees of $202 and $87 for the three months ended March 31, 2026 and 2025, respectively. Also included in interest income is accretion of discounts on acquired loans of $417 and $251 for the three months ended March 31, 2026 and 2025.

Current wording

Included in interest income are loan fees of $169 and $113 for the three months ended June 30, 2026 and 2025, respectively. Also included in interest income is accretion of discounts on acquired loans of $177 and $363 for the three months ended June 30, 2026 and 2025, respectively.

Previous wording

Included in interest expense is amortization of premium on acquired time deposits of $18 and $58 for the three months ended March 31, 2026 and 2025, respectively.

Current wording

Included in interest expense is amortization of premium on acquired time deposits of $16 and $43 for the three months ended June 30, 2026 and 2025, respectively.

Previous wording

When the three months ended March 31, 2026 and 2025 are compared, the yield on earning assets increased and the cost of interest bearing liabilities decreased, improving the net interest margin. The Federal Reserve's interest rate cuts between September and December 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.

Current wording

When the three and six months ended June 30, 2026 and 2025 are compared, improvement in the net interest margin stemmed from higher yields on loans and securities and lower cost of time deposits and interest bearing demand deposits, somewhat offset by lower yield on interest-bearing deposit assets. The Federal Reserve's interest rate cuts between September 2024 and December 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.

Previous wording

Credit and debit card fees, net, increased when the three months ended March 31, 2026 are compared with the comparable period of 2025, due to contract re-negotiation associated with the core system conversion.

Current wording

Credit and debit card fees, net, increased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, due to improved terms for interchange fee income stemming from the the core system conversion in May of 2025.

Previous wording

Noninterest expense increased when the three months ended March 31, 2026 are compared with the comparable period of 2025. Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation increased when the three months ended March 31, 2026 is compared with the comparable period of 2025, driven by higher incentive and insurance expense.

Current wording

Salaries and employee benefits include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), pension expense, incentives and salary continuation. When the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, the increase was driven by higher incentive and medical insurance expense.

Previous wording

Occupancy, furniture and fixtures expense increased when the three months ended March 31, 2026 are compared with the comparable period of 2025 due to depreciation of assets placed in service after the first quarter of 2025 and additional lease expense.

Current wording

Occupancy, furniture and fixtures expense increased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025 due to depreciation and amortization of assets placed into service for the core system conversion in May 2025 and the Company's Roanoke and Lynchburg branch locations, opened in March 2025 and November 2025, respectively.

Previous wording

Professional services include legal, audit and consulting expenses, which increased when the three months ended March 31, 2026 are compared with the comparable period of 2025 due to higher audit and consulting fees.

Current wording

Professional services include legal, audit and consulting expenses, which decreased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025 due to lower legal expense.

Previous wording

Other operating expense decreased when the three months ended March 31, 2026 are compared with the comparable period of 2025. 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 $131 for the three months ended March 31, 2026 and $81 for the three months ended March 31, 2025. The Company places high priority on cybersecurity. The decrease in expense reflects renegotiation of contracts and licensing.

Current wording

Other operating expenses decreased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025 due to improvement in the non-service component of pension cost. The category of other operating expenses also includes expense for marketing and business development, supplies, and charitable donations, among others.

Previous wording

The Company’s income tax expense for the three months ended March 31, 2026 was $1,066 and effective tax rate was 17.63%. For the three months ended March 31, 2025, the Company’s income tax expense was $666 and effective tax rate was 17.07%. The effective tax rate increased due to comparable levels of nontaxable income while pre-tax earnings increased during the period.

Current wording

The Company’s income tax expense was $1,048 for the three months ended June 30, 2026 compared with $362 for the same period in 2025.The Company's income tax expense was $2,114 for the six months ended June 30, 2026 and effective tax rate was 17.44%. For the six months ended June 30, 2025, the Company’s income tax expense was $1,028 and effective tax rate was 15.69%. The effective tax rate increased due to comparable levels of nontaxable income while pre-tax earnings increased.

Previous wording

The Company’s risk analysis as of March 31, 2026 determined an ACLL of $9,739, or 0.98% of loans net of deferred fees and costs. This compares with an ACLL of $9,892 as of December 31, 2025, or 0.99% of loans. To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of collectively evaluated loans.

Current wording

The Company’s risk analysis as of June 30, 2026 determined an ACLL of $10,047, or 0.99% of loans net of deferred fees and costs. This compares with an allowance of $9,892 as of December 31, 2025, or 0.99% 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.

Previous wording

Individually evaluated loans were $8,898 as of March 31, 2026 and $8,802 as of December 31, 2025. As of both reporting dates, two 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 $106.

Current wording

Individually evaluated loans were $10,030 as of June 30, 2026 and $8,802 as of December 31, 2025. As of both reporting dates, two 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 $138 as of June 30, 2026 and $106 as of December 31, 2025.

Previous wording

Collectively evaluated loans totaled $987,166, with an ACLL of $9,633 as of March 31, 2026. As of December 31, 2025, collectively evaluated loans totaled $991,124, with an allowance of $9,786.

Current wording

Collectively evaluated loans totaled $1,005,382, with an ACLL of $9,909 as of June 30, 2026. As of December 31, 2025, collectively evaluated loans totaled $991,124, with an allowance of $9,786.

Previous wording

The Company applies national unemployment forecasts to project cash flows. The Company determined that 12 months represents a reasonable and supportable forecast period as of March 31, 2026, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied as of March 31, 2026 projects that unemployment will increase slightly over the next 12 months, higher than the forecast applied as of December 31, 2025. The higher unemployment forecast increased the required level of the ACLL when March 31, 2026 is compared with December 31, 2025.

Current wording

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 June 30, 2026, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied as of June 30, 2026 projects that unemployment will slightly decrease over the next 12 months at a lower level than the forecast applied as of December 31, 2025. The lower unemployment forecast decreased the required level of the ACLL when June 30, 2026 is compared with December 31, 2025.

Previous wording

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, 2025, business bankruptcy filings increased while personal bankruptcies filings decreased.

Current wording

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, 2025, business bankruptcy filings increased and personal bankruptcies filings decreased.

Previous wording

Residential vacancy rates and housing inventory are used to measure the health of 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 March 31, 2026 was at a lower level than the data incorporated into the December 31, 2025 calculation. Housing data available as of March 31, 2026 showed slightly lower inventory than as of December 31, 2025, resulting in a lower allocation.

Current wording

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 June 30, 2026 decreased compared to the data incorporated into the December 31, 2025 calculation, resulting in a lower allocation. Housing inventory increased when June 30, 2026 is compared with December 31, 2025, resulting in a higher allocation.

Previous wording

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 0.29% of total loans as of March 31, 2026, a decrease from 0.35% as of December 31, 2025.

Current wording

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 0.30% of total loans as of June 30, 2026, a decrease from 0.35% as of December 31, 2025.

Previous wording

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 decreases credit risk. Competition remained at similar levels to those at December 31, 2025. The legal and regulatory environments also remain in a similar posture to December 31, 2025.

Current wording

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. The Company's evaluation found slightly lower competitive pressure when compared with December 31, 2025. The legal and regulatory environments remain in a similar posture to December 31, 2025.

Previous wording

The Company monitors local economic news and internal indicators to consider the presence of risk that may not be reflected in its designated qualitative factors above. As of March 31, 2026, management identified elevated local unemployment data and collection activity, similar to December 31, 2025. The Company maintained its allocation from December 31, 2025.

Current wording

The Company monitors local economic news and internal indicators to consider the presence of risk that may not be reflected in its standard analysis of qualitative factors. As of June 30, 2026, management identified elevated local unemployment data and collection activity, similar to December 31, 2025, as well as geopolitical concerns that impact inflation. The Company increased its allocation from December 31, 2025.

Previous wording

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 ACLL is reasonable for the credit risk in the loan portfolio as of March 31, 2026.

Current wording

The estimate of the appropriate level for the ACLL requires management’s prudent and informed judgment. The Company's estimate is based on quantitative and qualitative analysis of historical indicators, asset quality and economic factors and represents a reasonable estimate of the credit risk in the loan portfolio as of June 30, 2026.

Previous wording

The ACL on unfunded commitments was $288, or 0.15% of unfunded commitments as of March 31, 2026. The ACL on unfunded commitments was $298, or 0.17% as of December 31, 2025.

Current wording

The ACL on unfunded commitments was $282, or 0.16 % of unfunded commitments as of June 30, 2026. The ACL on unfunded commitments was $298, or 0.17% as of December 31, 2025.

Previous wording

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 recovery of credit losses on loans of $63 and a recovery of credit losses on unfunded commitments of $10 for the three months ended March 31, 2026, compared with a provision for credit losses on loans of $277 and a recovery of $1 for unfunded commitments for the three months ended March 31, 2025. Changes in loss rates, qualitative factors and a lower balance of loans accounted for the difference in (recovery of) provision for credit losses.

Current wording

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 $260 and a recovery credit losses on unfunded commitments of $16 for the six months ended June 30, 2026, compared with a provision for credit losses on loans of $322 and a recovery of $10 for unfunded commitments for the six months ended June 30, 2025. For the three month period ended June 30, 2026, the Company recorded a provision for credit losses on loans of $323 and a recovery of credit losses on unfunded commitments of $6. For the three months ended June 30, 2025, the Company recorded a provision for credit losses on loans of $45 and a recovery of credit losses on unfunded commitments of $9.

Previous wording

During the three months ended March 31, 2026 and 2025, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty. During the three months ended March 31, 2026, the Company modified 70 loans totaling $27,988. During the three months ended March 31, 2025, the Company provided 195 modifications to loans totaling $24,105.

Current wording

During the three and six months ended June 30, 2026 and 2025, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty. During the three months ended June 30, 2026, the Company modified 57 loans totaling $11,908. During the six months ended June 30, 2026, the Company modified 127 loans totaling $39,896. During the three and six months ended June 30, 2025, the Company provided 173 modifications to loans totaling $17,750 and 368 modifications totaling $41,855, respectively.

Previous wording

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

Current wording

Lower interest bearing deposit assets reflect strategic investment in securities available for sale. Changes in securities, loans, deposits and stockholders’ equity are discussed below.

Previous wording

The Company purchased bonds totaling $19,555 during the first quarter of 2026. 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. A large percentage of the Company’s securities were purchased during the period prior to the Federal Reserve’s interest rate increases that began in March of 2022. The Company’s analysis of the securities portfolio determined no identifiable credit risk as of March 31, 2026 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies of the Company's 2025 Form 10-K and Note 3: Securities in Part I, Item 1 of this report for additional information on the securities portfolio.

Current wording

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. The Company’s analysis of the securities portfolio determined no identifiable credit risk as of June 30, 2026 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies of the Company's 2025 Form 10-K and Note 4: Securities in Part I, Item 1 of this report for additional information on the securities portfolio.

Previous wording

Lower demand and increased competition resulted in a slight decrease in the loan portfolio when March 31, 2026 is compared with December 31, 2025. The Company is positioned to make every loan that meets its underwriting standards.

Current wording

The Company anticipated the increase in real estate construction loans, as projects underlying previously approved loans reached development phases for advances. The Company is positioned to make every loan that meets its underwriting standards.

Previous wording

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 22% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Uninsured non-municipal deposits are approximately 20% of total deposits. As of March 31, 2026, the Company's largest deposit relationship was 5.15% of total deposits.

Current wording

The Company continues to focus on providing new deposit products that provide additional functionality and marketing opportunity, enabled by the core system conversion completed in 2025. During the first half of 2026, the Company implemented a treasury management suite for commercial and municipal deposit customers and a new account opening platform, with additional product releases planned throughout 2026. 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 22% 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 27% are uninsured.

Previous wording

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 table.

Current wording

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 $5 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:

Previous wording

As of March 31, 2026, the Company had $303,165 of borrowing capacity from the FHLB and $184,437 of borrowing capacity at the Federal Reserve Bank discount window. As of March 31, 2026, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.

Current wording

As of June 30, 2026, the Company had $300,885 of borrowing capacity from the FHLB and the Company had $127,215 of available capacity at the Federal Reserve Bank discount window. As of June 30, 2026, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.

Previous wording

The Company utilizes several other strategies to maintain sufficient liquidity. Loan and deposit growth are managed to keep the loan to deposit ratio within the Company’s internally-set target range. As of March 31, 2026, the loan to deposit ratio was 61.08%. 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.

Current wording

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 June 30, 2026, the loan to deposit ratio was 62.27%. 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.