NATIONAL BANKSHARES INC

National Bankshares, Inc.

Notes to Consolidated Financial Statements

*** March 31, 2024***

(Unaudited)

$ in thousands, except per share data

Note1: General and Summary of Significant Accounting Policies

The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (the “Bank” or “NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of the Company’s management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.

Application of the principles of GAAP and practices within the banking industry requires management to make estimates, assumptions, and judgements that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgements are based on information available as of the date of the financial statement; accordingly, as this information changes, the financial statements* mayreflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may*have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance of credit losses on loans.

The results of operations for thethree month period ended* March 31, 2024arenot* necessarily indicative of results of operations for the full year or any other interim period. The interim period consolidated financial statements and financial information included in this Form10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s Annual Report on Form10-K for the year ended* December 31, 2023 (**“2023* Form10-K”). The Company’s significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note1 of the2023 Form10-K. There have beenno significant changes to the application of significant accounting policies since* December 31, 2023.All amounts and disclosures included in this quarterly report as of December 31, 2023,were derived from the Company’s audited consolidated financial statements. The Company posts all reports required to be filed under the Securities Exchange Act of1934* on its web site atwww.nationalbankshares.com.

Certain items in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications hadno effect on prior year net income or stockholders’ equity.

Risks and Uncertainties

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

Recent Accounting Pronouncements

ASU2023*-*09

In* December 2023,the FASB issued ASU2023*-09, “Income Taxes (Topic740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater thanfive percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater thanfive percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after* December 15, 2024.Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company doesnot* expect the adoption of ASU2023-09 to have a material impact on its consolidated financial statements.

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Recently Adopted Accounting Standards

ASU2022*-*03

In* June 2022,the Financial Accounting Standards Board (FASB) issued ASU2022*-03, “Fair Value Measurement (Topic820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU2022-03 clarifies that a contractual restriction on the sale of an equity security isnot considered part of the unit of account of the equity security and, therefore, isnot considered in measuring fair value. ASU2022-03 was effective for the Company on* January 1, 2024.The adoption of ASU2022*-03 didnot have a material impact on the Company’s consolidated financial statements.

Note2: Loans and Allowance for Credit Losses

Loans

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

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

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Past Due and Nonaccrual Loans

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

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

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

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Allowance for Credit Losses on Loans (ACLL)

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

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

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

Collateral Dependent Loans

Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually evaluated. The Company measures the ACL on collateral dependent loans based upon the fair value of the collateral, as permitted by ASU2016-13. Fair value of the collateral is adjusted for liquidation costs/discounts. If the fair value of the collateral falls below the amortized cost of the loan, the shortfall is recognized in the ACLL. If the fair value of the collateral exceeds the amortized cost,no ACL is required.

As of* March 31, 2024,five of the Company’s individually evaluated loans were collateral dependent. As of December 31, 2023,three of the Company’s individually evaluated loans were collateral dependent. All collateral dependent loans were secured by real estate as of March 31, 2024and December 31, 2023.*The following table details the amortized cost of the collateral dependent loans as of the date indicated:

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Credit Quality

The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, historical payment experience, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. Loans rated pass have acceptable credit quality. Loans rated special mention have potential weakness due to challenging economic or financial conditions. Loans rated classified have well-defined weaknesses that heighten the risk of default. The tables below present the loan portfolio by amortized cost basis, year of origination, loan class, credit quality, and charge-offs as of the dates indicated.

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Loan Modifications to Borrowers Experiencing Financial Difficulty

The Company modifies loans for a variety of reasons. At the date of modification, the Company assesses whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated and is typically changed to special mention or classified, which results in individual evaluation of the loan for the ACLL. There weretwo loans modified for borrowers experiencing financial difficulty during thethree months period ended* March 31, 2024.There wereno loans to borrowers experiencing financial difficulty that were modified during thethree* months ended* March 31, 2023.*

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

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty. Both loans are in current status as of* March 31, 2024.*

There wereno loans to borrowers experiencing financial difficulty that had a payment default during thethree months ended* March**31,* 2024 and2023 and were modified in thetwelve months prior to that default. Default is determined at90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.

Residential Real Estate Loans In Process of Foreclosure

As of* March31,* 2024 the Company hadthree 1-4 family residential real estate loans totaling $126 in process of foreclosure. As of* December31,* 2023, one 1-4 family residential real estate loan of $7 was in process of foreclosure.

ACL on Unfunded Commitments

The following tables present the balance and activity in the ACL for unfunded commitments for thethree months ended* March 31, 2024and2023:*

Note3: Securities

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

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

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

The deferred tax asset for the net unrealized loss on securities available for sale was $17,516 as of* March 31, 2024and $16,629 as of December 31, 2023.*The deferred tax asset is included in other assets on the Consolidated Balance Sheets.

The amortized cost and fair value of single maturity securities available for sale at* March 31, 2024,by contractual maturity, are shown below. Expected maturities maydiffer from contractual maturities because borrowers may*have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities included in these totals are categorized by final maturity.

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

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

At* March 31, 2024,the Company had 574 securities with a fair value of $598,720 in an unrealized loss position. The Company reviews securities in an unrealized loss position to evaluate credit risk. The Company considers payment history, risk ratings from external parties, financial statements for municipal and corporate securities, public statements from issuers and other available credible published sources in evaluating credit risk.No credit risk was found andno* ACL on securities available for sale was recorded as of* March 31, 2024.The unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions. The Company doesnot* have the intent to sell any of these securities and believes that it is more likely thannot that the Company willnot have to sell any such securities before a recovery of cost. The contractual terms of the investments donot permit the issuers to settle the securities at a price less than the cost basis of the investments. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

Restricted Stock.

The Company holds restricted stock that is reported separately from available for sale securities. As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. The Company purchases stock from or sells stock back to the correspondents based on their calculations. The stock is held by member institutions only and isnot actively traded.

Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB* maydeclare dividends on the stock. In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling $506,896 at March 31, 2024.The Company’s management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at March 31, 2024,didnot* determine any impairment.

Realized Securities Gains and Losses

There wereno sales of securities during2024. During thefirst three months of2023, the Company realized net securities gains of $12 on the sale of securities with an amortized cost basis of $17,987. The sales were part of the Company’s interest rate risk management strategy.

Note4: Defined Benefit Plan

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

The service cost component of net periodic benefit cost is included in salaries and employee benefits expense in the Consolidated Statements of Income. All other components are included in other operating expense in the Consolidated Statements of Income. In* Aprilof2024,* the Company made a contribution of $3,000 to the defined benefit plan.

Note5: Fair Value Measurements

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

Fair value is best determined by quoted market prices. However, in cases where quoted market prices arenot available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates* maynot* be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented* maynot* necessarily represent the underlying fair value of the Company.** **The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements.

Financial Instruments Measured at Fair Value on a Recurring Basis

Securities Available for Sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level1). If quoted market prices arenot available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and* maydetermine the fair value of identical or similar securities by using pricing models that consider observable market data (Level2*). The carrying value of restricted Federal Reserve Bank of Richmond and Federal Home Loan Bank of Atlanta stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables. The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated.

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The Company’s securities portfolio is valued using Level2 inputs. The Company relies on an independentthird party vendor to provide market valuations. The inputs used to determine value include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads,two-sided markets, benchmark securities, bids, offers and reference data including market research publications. Thethird party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio. Level2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any,* may*impact securities fair value, deferred tax assets or liabilities, or expense.

Interest Rate Loan Contracts and Forward Sale Commitment

The Company originates consumer real estate loans which it intends to sell to a correspondent lender. Interest rate loan contracts and forward sale commitments result from originating loans held for sale and are derivatives reported at fair value. The Company enters interest rate lock commitments with customers who apply for a loan which the Company intends to sell to a correspondent lender. The interest rate loan contract ends when the loan closes or the customer withdraws their application. Fair value of the interest rate loan contract is based upon the correspondent lender’s pricing quotes at the report date. Fair value is adjusted for the estimated probability of the loan closing with the borrower.

At the time the Company enters into an interest rate loan contract with a customer, it also enters into a best efforts forward sales commitment with the correspondent lender. If the loan is closed and funded, the best efforts commitment converts to a mandatory forward sales commitment. Fair value is based on the gain or loss that would occur if the Company were to pair-off the transaction with the investor at the measurement date. This is a Level3 input. The Company measures and reports best efforts commitments at fair value.

Interest rate loan contracts and forward sale commitments are valued based on quotes from the correspondent lender at the reporting date. Pricing changes daily and if a loan hasnot been sold to the correspondent by the next reporting date, the fair value* may*be different from that reported currently. Changes in fair value measurement impacts net income.

The Company hadtwo rate lock commitments as of* March 31, 2024,resulting in interest rate loan contracts and forward sales commitments. The interest rate lock commitments gave rise to an asset and the forward loan sales contracts gave rise to a liability. The Company hadone* rate lock commitment as of* December 31, 2023,*resulting in an interest rate loan contract and a forward sales commitment. The interest rate lock commitment gave rise to an asset and the forward loan sales contracts gave rise to a liability. The following tables present information on the interest rate loan contracts and forward sale commitments as of the date indicated:

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

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

Loans Held for Sale

Loans held for sale are carried at the lower of cost or fair value. These loans currently consist ofone-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which isnot materially different than cost due to the short duration between origination and sale (Level2). As such, the Company records any fair value adjustments on a nonrecurring basis.No nonrecurring fair value adjustments were recorded on loans held for sale at* March 31, 2024or December 31, 2023.*

Collateral Dependent Loans

Collateral dependent loans are measured on a non-recurring basis for the ACL. If the fair value of the collateral is lower than the loan’s amortized cost basis, the shortfall is recognized in the ACLL. When repayment is expected from the operation of the collateral, fair value is estimated as the present value of expected cash flows from the operation of the collateral. When repayment is expected from the sale of the collateral, fair value is estimated using measurement techniques discussed below and discounted by the estimated cost to sell. The ACLL* maybezero* if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

For loans secured by real estate, fair value of collateral is determined by the “as-is” value of appraisals orthird party evaluations that are less than24 months of age. Appraisals are prepared by independent, licensed appraisers. Appraisals are based upon observable market data analyzed through an income or sales valuation approach. Valuation falls within Level2 categorization. The Company* mayfurther discount appraisals for marketing strategies, which results in Level3* categorization.

The value of business equipment is based upon an outside appraisal (Level2) if deemed significant, or the net book value on the applicable business’ financial statements (Level3) ifnot considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level3).

As of* March 31, 2024,*three consumer real estate loan totaling $121 andtwo commercial real estate loans totaling $2,156 were collateral dependent. Valuations were based upon athird party evaluation (Level2) and didnot result in a specific allocation.

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Other Real Estate Owned (“OREO”)

Certain assets such as OREO are measured at fair value less cost to sell. Valuation of OREO is determined using current appraisals from independent parties, a Level2 input. The Company works with a realtor to determine the list price, which* maybe set at appraised value or at a different amount based on the realtor’s advice and management’s judgement of marketability. Discounts to appraisals for selling costs or for marketability result in a Level3* estimate.

The Company didnot have any OREO as of* March 31, 2024or December 31, 2023.*

Fair Value Summary

The following presents the recorded amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of the dates indicated. Fair values are estimated using the exit price notion.

Note6: Components of Accumulated Other Comprehensive Loss

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

Note7: Revenue Recognition

Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams such as service charges on deposit accounts, other service charges and fees, credit and debit card fees, trust income, and annuity and insurance commissions are recognized in accordance with Accounting Standards Codification (“ASC”) Topic606, “Revenue from Contracts with Customers”. Topic606 doesnot apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance. Noninterest revenue streams within the scope of Topic606 are discussed below.

Service Charges on Deposit Accounts

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

Other Service Charges and Fees

Other service charges include safe deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transactional based, and therefore the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.

Credit and Debit Card Fees

Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa and MasterCard. Merchant services income mainly represents commission fees based upon merchant processing volume. The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. In compliance with Topic606, credit and debit card fee income is presented net of associated expense.

Trust Income

Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company doesnot earn performance-based incentives. Estate management fees are based upon the size of the estate. A partial fee is recognized half-way through the estate administration and the remainder of the fee is recognized when remaining assets are distributed and the estate is closed.

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Insurance and Investment

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

Investment income consists of recurring revenue streams such as commissions from sales of mutual funds, annuities and other investments. Commissions from the sale of mutual funds, annuities and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined.

OREO Gains and Losses

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic606, for the periods indicated.

Note8: Leases

The Company’s leases are recorded under ASC Topic842, “Leases”. The Company examines its contracts to determine whether they are or contain a lease. A contract with a lease is further examined to determine whether the lease is a short-term, operating or finance lease. As permitted by ASC Topic842, the Company electednot to capitalize short-term leases, defined by the standard as leases with terms of12 months or less. The Company also elected the practical expedientnot to separate non-lease components from lease components within a single contract.

Right-of-use assets and lease liabilities are recognized for operating and finance leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease.

Lease payments

Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Payments for leases with terms longer than12 months are included in the determination of the lease liability. Payments* maybe fixed for the term of the lease or variable. Variable payments result when the lease agreement includes a clause providing for escalation of lease payments at specified dates. If the escalation factor is known, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase isnot* included in the cash flows used to determine the lease liability. One of the Company’s leases provides a known escalator that is included in the determination of the lease liability. The remaining leases donot have variable payments during the term of the lease.

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Options to Extend, Residual Value Guarantees, Restrictions and Covenants

Of the Company’ssix operating leases as of* March 31, 2024,*four leases offer the option to extend the lease term. At the time of capitalization, the Company wasnot reasonably certain whether it would exercise the options and didnot include the time period in the calculation of the lease liability. The lease agreements provide that the lease payment will increase at the exercise date based on the Consumer Price Index for All Urban Consumers (“CPI-U”). Because the CPI-U at the exercise date is unknown, the increase isnot included in the cash flows determining the lease liability.None of the Company’s leases provide for residual value guarantees andnone provide restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The contracts in which the Company is lessee are with parties external to the Company andnot related parties. The Company’s lease right of use asset is included in other assets and the lease liability is included in other liabilities. The following tables present information about leases as of the dates and for the periods indicated:

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

Note9: Stock Based Compensation

The Company’s2023 Stock Incentive Plan (“the Plan”) was approved by shareholders at the annual shareholder’s meeting on* May 9, 2023.The Plan provides for the grant of various forms of stock-based compensation awards that maybe settled in, or based upon the value of, the Company’s common stock. The maximum number of shares available for issuance under the Plan is 120,000 shares. For further information on the Plan, refer to the Company’s Proxy Statement filed with the SEC on March 10, 2023and the Company’s S-8 filed with the SEC on June 7, 2023.*

Restricted Stock*** ***Awards

Under the Plan, part of the* Juneand December 2023semi-annual retainer for non-employee directors was paid in restricted stock awards (“RSAs”). A summary of changes in the Company’s nonvested RSAs under the Plan for thethree* months ended* March 31, 2024*follows:

The RSAs have aone year vesting period. Expense for the RSAs will be recognized over the vesting period based on the fair value of the stock at the issue date. Stock based compensation expense charged against income was $32 for thethree months ended* March 31, 2024.As of March 31, 2024,expense of $52 related to the nonvested RSAs is expected to be recognized over the coming9* months.

Note10: Earnings Per Share

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

RSA grants are disregarded in the computation of diluted earnings per share if they are determined to be anti-dilutive. There wereno anti-dilutive RSAs for thethree month periods ended* March 31, 2024and March 31, 2023.*