NATIONAL BANKSHARES INC
For the period ended Jun 30, 2024. Filed Aug 14, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 14, 2024
NKSH$39.19-0.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-15.
0001437749-24-016875
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001437749-24-026741
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 107 previous paragraphs and 115 current paragraphs.
63 unchanged; 38 reworded; 14 added; 6 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 20 previous and 60 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
Acquisition of Frontier Community Bank
Current report
On June 1, 2024, the Company and the Bank acquired FCB, a Virginia chartered commercial bank headquartered in Waynesboro, Virginia. FCB’s results of operations are included in the Company’s consolidated results since the Acquisition Date, and accordingly the Company’s second quarter and first half of 2024 results reflect increased levels of average balances, net interest income, and expense compared to the prior quarter and first half of 2024 results.
Current report
The acquisition was made pursuant to an Agreement and Plan of Merger, dated January 23, 2024, by and among the Company, the Bank and FCB under which FCB merged with and into the Bank (the “FCB Merger Agreement”). Pursuant to the terms of the FCB Merger Agreement, at the effective time of the acquisition, each share of FCB common stock was converted into either $14.48 in cash or 0.4250 shares of the Company’s common stock, with FCB shareholders having the ability to elect the merger consideration to be received, subject to the allocation and proration procedures set forth in the FCB Merger Agreement. The Company issued 464,855 shares of common stock and paid $2,050 to former FCB shareholders in the acquisition. As a result of the transaction, the Bank expanded its operations into the Waynesboro, Staunton and Lynchburg, Virginia markets. Please refer to Note 2: Business Combination in Part I, Item 1 of this report for additional information of the acquisition of FCB.
Current report
Service charges on deposit accounts increased when the three and six months ended June 30, 2024 are compared with the comparable periods of 2023, due to changes in fee structure.
Current report
Noninterest expense increased when the three and six months ended June 30, 2024 are compared with the comparable periods of 2023. Key noninterest expense items include occupancy, furniture and fixtures, professional services, merger-related expenses, and contract termination expenses.
Current report
Occupancy, furniture and fixtures expense increased when compared with 2023 due to receipt of a one-time insurance reimbursement during 2023.
Current report
During 2024, the Company recorded expenses associated with its acquisition of FCB, including executive and employee severance benefits and legal and consulting fees.
Current report
During the second quarter of 2024, the Company recorded a contract termination expense when it gave formal notification to a vendor that it intends to end its relationship in 2025.
Current report
The Company’s income tax benefit for the three months ended June 30, 2024 was $177. For the three months ended June 30, 2023, the Company recorded an income tax expense of $540. For the six months ended June 30, 2024, the Company’s income tax expense was $341 and effective tax rate was 15.44%. For the six months ended June 30, 2023, the Company’s income tax expense was $1,488 and effective tax rate was 15.00%. A significant portion of the merger related expense was not tax deductible, resulting in an increase to the Company’s effective tax rate for 2024. During 2023, the Company recognized a gain on the settlement of a BOLI policy that was not taxable.
Current report
The ACL on unfunded commitments was $251, or 0.14% of unfunded commitments as of June 30, 2024. The ACL on unfunded commitments was $259, or 0.16% as of December 31, 2023..
Current report
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 considered necessary. The Company recorded a provision for credit losses on loans of $1,307 and a recovery of credit losses on unfunded commitments of $15 for the six months ended June 30, 2024, compared with provision for credit losses on loans of $12 for the six months ended June 30, 2023 and a recovery of $9 for unfunded commitments. Upon acquisition of FCB in June 2024, the Company recorded a provision for credit losses of $1,290 to establish an allowance on non-PCD loans.
Current report
Borrowings
Current report
The Company acquired FHLB borrowings in the FCB merger, which were repaid upon completion of the merger.
Current report
The increase in stockholders’ equity reflects the stock consideration issued to acquire FCB. The Company paid dividends to shareholders in June 2024.
Removed paragraphs (6)
Previous report
Further detail on the net interest margin is provided under the Net Interest Income discussion.
Previous report
Service charges on deposit accounts increased when the three months ended March 31, 2024 is compared with the comparable period of 2023, primarily due to fees generated from increased customer use of the Bank’s overdraft program. Service charges on deposit accounts also include account maintenance fees, ATM fees and wire transfer fees.
Previous report
The Company’s effective tax rate was 19.24% and 17.30% for the three month periods ended March 31, 2024 and 2023, respectively. The increase in the Company’s effective tax rate was primarily due to recognition of non-deductible merger-related expenses.
Previous report
The ACL on unfunded commitments as a percentage of unfunded commitments decreased from 0.16% as of December 31, 2023 to 0.14% as of March 31, 2024 primarily due to lower loss rates derived from the calculations for the ACLL.
Previous report
(Recovery of) Provision for Credit Losses
Previous report
The decrease in stockholders’ equity reflects an increase in the unrealized loss on securities available for sale, partially offset by net income for the three months ended March 31, 2024.
Reworded paragraphs (38)
Previous wording
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 2023 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.
Current wording
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 Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 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.
Previous wording
On January 23, 2024, the Company and the Bank entered into the Merger Agreement with Frontier Community Bank (“Frontier”), pursuant to which the Company will acquire Frontier in the Merger. In addition to the factors described above, the Company’s operations, performance, business strategy and results may be affected by the following factors:
Current wording
On June 1, 2024, the Company and the Bank acquired Frontier Community Bank (“FCB”). In addition to the factors described above, the Company’s operations, performance, business strategy and results may be affected by the following factors:
Previous wording
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 most recently filed Form 10-K.
Current wording
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 2023 Form 10-K.
Previous wording
NBI has two wholly-owned subsidiaries; the National Bank of Blacksburg and National Bankshares Financial Services, Inc. NBB is a community bank and does business as National Bank from 24 office locations and two loan production offices. 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.
Current wording
NBI has two wholly-owned subsidiaries; the National Bank of Blacksburg and National Bankshares Financial Services, Inc. NBB is a community bank and does business as National Bank from 27 office locations and two loan production offices. 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.
Previous wording
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 three policies as critical, including those governing the allowance for credit losses, goodwill and the pension plan. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Please refer to the Company’s 2023 Form 10-K, Note 1: Summary of Significant Accounting Policies for information on these and other accounting policies.
Current wording
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 allowance for credit losses, goodwill and the pension plan, please refer to the Company’s 2023 Form 10-K, Note 1: Summary of Significant Accounting Policies. For information on policies governing core deposit intangibles and loans acquired in a business combination, please refer to Note 1: General and Summary of Significant Accounting Policies of this Form 10-Q report.
Previous wording
Net income for the three months ended March 31, 2024 decreased when compared with the comparable period of 2023, primarily due to higher interest expense. The net interest margin as well as key noninterest income and expense items are discussed below.
Current wording
Net income for the three and six months ended June 30, 2024 decreased when compared with the comparable periods of 2023, due to net interest margin compression, merger related expenses and contract termination expense. The net interest margin as well as key noninterest income and expense items are discussed below.
Previous wording
Interest income and the yield on earning assets continues to grow in response to the Federal Reserve’s interest rate increases between March 2022 and July 2023. Many of the Company’s loans are adjustable with repricing dates in the future. If rates remain at the current level or do not decrease substantially, repricing will continue to contribute to improved interest income.
Current wording
Interest income and the yield on earning assets continues to grow in response to the Federal Reserve’s interest rate increases between March 2022 and July 2023. Many of the Company’s loans are adjustable with repricing dates in the future. If rates remain at the current level or do not decrease substantially, the Company expects that repricing will continue to contribute to improved interest income.
Previous wording
The competitive pressure for deposits that first began affecting the Company in the first quarter of 2023 and increased throughout 2023 has moderated, but continues to contribute to higher cost of funds and compressed net interest margin when results for the first quarter of 2024 are compared with the first quarter of 2023. The Company continuously monitors its deposit base and funding costs. Further information on the Company’s funds management and deposit strategy is discussed under the Deposits section below.
Current wording
The competitive pressure for deposits that first began affecting the Company in the first quarter of 2023 and increased throughout 2023 has moderated, but continues to contribute to higher cost of funds and compressed net interest margin when results for the three and six months ended June 30, 2024 are compared with the same periods of 2023. The Company continuously monitors its deposit base and funding costs. Further information on the Company’s funds management and deposit strategy is discussed under the Deposits section below.
Previous wording
Other service charges and fees decreased when the three months ended March 31, 2024 is compared with the comparable period of 2023 due to lower fees associated with letters of credit.
Current wording
Other service charges and fees decreased when the three and six months ended June 30, 2024 are compared with the comparable periods of 2023, due to lower fees associated with letters of credit.
Previous wording
Credit and debit card fees, net, decreased when the three months ended March 31, 2024 are compared with the comparable period of 2023, due to higher processing costs.
Current wording
Credit and debit card fees, net, increased when the three months ended June 30, 2024 are compared with the comparable period of 2023, due an increase in customer use. When the six months ended June 30, 2024 and June 30, 2023 are compared, credit and debit card fees, net, decreased due to higher processing expense.
Previous wording
Trust income increased due to higher volume and BOLI reflected normal increase, when the three months ended March 31, 2024 are compared with the comparable period of 2023.
Current wording
Trust income increased due to higher volume, when the three and six months ended June 30, 2024 are compared with the comparable periods of 2023. BOLI income decreased when compared over the same periods due to the settlement of a policy in the second quarter of 2023.
Previous wording
Other income includes revenue from investment and insurance sales, adjustments to partnership basis and other miscellaneous components. These areas fluctuate with market conditions and competitive factors. Other income decreased for the three month period ended March 31, 2024 compared to the same period in 2023 due to a decrease in income from partnership interests.
Current wording
Other income includes revenue from investment and insurance sales, adjustments to partnership basis and other miscellaneous components. During 2023, the Company recognized an incentive payment from a vendor. These areas fluctuate with market conditions and competitive factors.
Previous wording
The Company also recorded a gain on the sale of securities during the first quarter of 2023. The sale of securities is discussed in more detail under the Securities section below.
Current wording
The Company also recorded a gain on the sale of an investment and a loss on the sale of securities during the second quarter of 2023. The sale of securities is discussed in more detail under the Securities section below.
Previous wording
Noninterest expense increased when the three months ended March 31, 2024 are compared with the comparable period of 2023. Key noninterest expense items include FDIC insurance, professional services and merger-related expenses. FDIC insurance expense increased due to an increase in the FDIC’s general assessment rate. Professional services include legal and other expenses for the Company’s response to a threatened proxy contest from an activist shareholder during 2023, which amounted to $441 for the three months ended March 31, 2023. The Company also recognized expenses associated with its planned merger with Frontier Community Bank in 2024.
Current wording
Professional services include legal and other expenses for the Company’s response to a threatened proxy contest from an activist shareholder during 2023, which amounted to $327 and $768 for the three and six months ended June 30, 2023, respectively.
Previous wording
Included in various categories of noninterest expense are expenses to manage cybersecurity risk. The cost of these measures was $89 for the three months ended March 31, 2024 and $133 for the three months ended March 31, 2023.
Current wording
Included in various categories of noninterest expense are expenses to manage cybersecurity risk. The cost of these measures was $94 for the three months ended June 30, 2024 and $150 for the three months ended June 30, 2023. For the six months ended June 30, 2024, the total cybersecurity expense was $184 compared to $283 for the six months ended June 30, 2023.
Previous wording
The Company’s risk analysis as of March 31, 2024 determined an ACLL of $9,055, or 1.05% of loans net of unearned income and deferred fees and costs. This compares with an allowance of $9,094 as of December 31, 2023, or 1.06% 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.
Current wording
The Company’s risk analysis as of June 30, 2024 determined an ACLL of $10,502, or 1.06% of loans net of unearned income and deferred fees and costs. This compares with an allowance of $9,094 as of December 31, 2023, or 1.06% 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 $10,565 as of March 31, 2024, a slight increase from $10,544 as of December 31, 2023. As of March 31, 2024, five 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 $568.
Current wording
Individually evaluated loans were $13,471 as of June 30, 2024, a slight increase from $10,544 as of December 31, 2023. As of June 30, 2024, four 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 $644.
Previous wording
Collectively evaluated loans totaled $853,526, with an ACLL of $8,487 as of March 31, 2024. At December 31, 2023, collectively evaluated loans totaled $846,631, with an allowance of $8,522.
Current wording
Collectively evaluated loans totaled $976,427, with an ACLL of $9,858 as of June 30, 2024. At December 31, 2023, collectively evaluated loans totaled $846,631, with an allowance of $8,522.
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, 2024, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied at March 31, 2024 projects that unemployment will rise over the next 12 months, to a higher level than the forecast applied as of December 31, 2023. The higher unemployment forecast increased the required level of the ACLL when March 31, 2024 is compared with December 31, 2023.
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, 2024, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied at June 30, 2024 projects that unemployment will rise over the next 12 months, to a slightly higher level than the forecast applied as of December 31, 2023. The higher unemployment forecast increased the required level of the ACLL when June 30, 2024 is compared with December 31, 2023.
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 at December 31, 2023, business bankruptcy filings decreased slightly while personal bankruptcy filings increased slightly.
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 at December 31, 2023, business bankruptcy filings remained the same while personal bankruptcy filings increased slightly.
Previous wording
Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market. Higher levels increase credit risk. The residential vacancy rate available at March 31, 2024 remained at the same level as the data incorporated into the December 31, 2023 calculation. Housing data available as of March 31, 2024 showed lower inventory than at December 31, 2023, resulting in a lower allocation.
Current wording
Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market. Higher levels increase credit risk. The residential vacancy rate available at June 30, 2024 increased from the data incorporated into the December 31, 2023 calculation. Housing data available as of June 30, 2024 showed higher inventory than at December 31, 2023, 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 0.14% of total loans at March 31, 2024, a decrease from 0.19% at December 31, 2023.
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 0.25% of total loans at June 30, 2024, an increase from 0.19% at December 31, 2023.
Previous wording
The interest rate environment affects variable rate loans. The Federal Reserve’s interest rate increases between March 2022 and July 2023 have increased and are expected to continue to increase payments on variable rate loans as they reach contractual repricing dates. Higher payments may increase credit risk. The Company allocates additional reserve each time the Federal Reserve increases rates. After the rate increase has been in effect for one year, the allocation may be removed under the assumption that the impact of the change has become integrated to the portfolio. For the calculation as of March 31, 2024, the Company opted to maintain the allocation at December 31, 2023 to account for uncertainty surrounding the impact of loans that will reprice in the future.
Current wording
The interest rate environment impacts variable rate loans. The Federal Reserve’s interest rate increases between March 2022 and July 2023 have increased and are expected to continue to increase payments on the Company’s variable rate loans as they reach contractual repricing dates. Higher payments may increase credit risk. The Company allocates additional reserve each time the Federal Reserve increases rates. After the rate increase has been in effect for one year, the allocation may be removed under the assumption that the impact of the change has become integrated to the portfolio. As of June 30, 2024, the Company reduced its allocation from the December 31, 2023 allocation to reflect improvement in inflationary pressures.
Previous wording
Lending policies, loan review procedures and management’s experience influence credit risk. Policies and procedures remain similar to those at December 31, 2023.
Current wording
Lending policies, loan review procedures and management’s experience influence credit risk. Policies and procedures remain similar to those at December 31, 2023. The Company added an allocation to account for absorption of FCB acquired loans and integration of FCB lenders.
Previous wording
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 decreased from the level at December 31, 2023, resulting in a lower allocation.
Current wording
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, 2023.
Previous wording
The unallocated surplus as of March 31, 2024 is $381, or 4.39% in excess of the calculated requirement. The unallocated surplus at December 31, 2023 was $350, or 4.00% in excess of the calculated requirement. The surplus provides some mitigation of current economic uncertainty that may impact credit risk.
Current wording
The unallocated surplus as of June 30, 2024 is $400, or 3.96% in excess of the calculated requirement. The unallocated surplus at December 31, 2023 was $350, or 4.00% in excess of the calculated requirement. The surplus provides some mitigation of current economic uncertainty that may impact credit risk.
Previous wording
The Company recorded a provision for credit losses on loans of $5 and a recovery of credit losses on unfunded commitments of $15 for the three months ended March 31, 2024, compared with a provision for credit losses on loans of $2 for the three months ended March 31, 2023.
Current wording
Provision for (Recovery of) Credit Losses
Previous wording
The Company reviews modifications 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. If a modification is made to a borrower experiencing financial difficulty, the loan’s risk rating is downgraded to special mention or classified, resulting in individual evaluation for the ACL. During the three months ended March 31, 2024, the Company modified two loans totaling $6,403 for borrowers who were experiencing financial difficulty. Both loans were individually evaluated for the ACLL in previous periods and as of March 31, 2024, using the discounted cash flow methodology. There were no loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023.
Current wording
The Company reviews modifications 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. If a modification is made to a borrower experiencing financial difficulty, the loan’s risk rating is downgraded to special mention or classified, resulting in individual evaluation for the ACLL. During the three months ended June 30, 2024, the Company modified one loan totaling $7 for a borrower who was experiencing financial difficultly. During the six months ended June 30, 2024, the Company modified two loans totaling $6,403 for borrowers who were experiencing financial difficulty. Both loans were individually evaluated for the ACLL in previous periods and as of June 30, 2024, using the discounted cash flow methodology. During the three and six months ended June 30, 2023, the Company modified one loan totaling $6,396 for a borrower who was experiencing financial difficulty. The loan was individually evaluated using the discounted cash flow methodology for the ACLL as of June 30, 2023.
Previous wording
During the three month periods ended March 31, 2024 and 2023, 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, 2024, the Company modified 216 loans totaling $22,322. During the three months ended March 31, 2023, the Company provided 201 modifications to loans totaling $30,508.
Current wording
During the three and six months ended June 30, 2024 and 2023, 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, 2024, the Company modified 216 loans totaling $21,704. During the six months ended June 30, 2024, the Company modified 432 loans totaling $43,936. During the three months ended June 30, 2023, the Company provided 194 modifications to loans totaling $11,528. For the six months ended June 30, 2023, the Company provided 395 modifications to loans totaling $42,036.
Previous wording
Securities available for sale are presented at fair value as of each reporting date. The fair value of bonds moves inversely to interest rate changes and expectations of interest rate changes. Most of the Company’s securities were purchased during periods prior to the Federal Reserve’s interest rate increases that began in March of 2022. The Company’s analysis of the securities portfolio determined no identifiable credit risk as of March 31, 2024 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies and Note 3: Securities for additional information.
Current wording
Securities available for sale are presented at fair value as of each reporting date. 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 June 30, 2024 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies of the 2023 Form 10-K and Note 4: Securities in Part I, Item 1 of this report for additional information on the securities portfolio.
Previous wording
The higher interest rate environment continues to restrain loan demand. The Company is positioned to make every loan that meets its underwriting standards.
Current wording
The increase from December 31, 2023 reflects the acquisition of FCB. The higher interest rate environment continues to restrain loan demand. 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 25% 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 21.5% are uninsured.
Current 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 24% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 21% 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. The Bank’s ratios are well above the required minimums as of March 31, 2024. Risk based capital ratios for NBB are shown in the following tables.
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 $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. The Bank’s ratios are well above the required minimums as of June 30, 2024. Capital ratios for NBB are shown in the following tables.
Previous wording
As of March 31, 2024, the Company had $308,943 of borrowing capacity from the FHLB and an unsecured federal funds line of credit with an unaffiliated bank of $10,000, with no amounts advanced against those lines. Additionally, the Company had $180,839 of unused capacity at the Federal Reserve Bank discount window. Periodically during 2023, the Company accessed FHLB borrowings. The advances were fully repaid, due to the success of the Company’s deposit strategy. As of March 31, 2024, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.
Current wording
As of June 30, 2024, the Company had $297,917 of borrowing capacity from the FHLB and an unsecured federal funds line of credit with an unaffiliated bank of $10,000, with no amounts advanced against those lines. Additionally, the Company had $180,278 of unused capacity at the Federal Reserve Bank discount window. Periodically during 2023, the Company accessed FHLB borrowings. The advances were fully repaid, due to the success of the Company’s deposit strategy. As of June 30, 2024, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.
Previous wording
Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve discount window. As of March 31, 2024, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve discount window.
Current wording
Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve Bank discount window. As of June 30, 2024, 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.
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, 2024, the loan to deposit ratio was 56.15%. 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, 2024, the loan to deposit ratio was 60.14%. 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.
Previous wording
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 CECL model.
Current wording
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 ("CECL") model.
Previous wording
The Company sells mortgages on the secondary market. Our agreement with the purchaser provides for strict underwriting and documentation requirements. Violation of the representations and warranties of the agreement would entitle the purchaser to recourse provisions. The Company has determined that its risk in this area is not significant because of a low volume of secondary market mortgage loans and high underwriting standards. The Company estimates a potential loss reserve for recourse provisions that is not material as of March 31, 2024. To date, no recourse provisions have been invoked. If funds were needed, the Company would access the same sources as noted above for funding lines and letters of credit. There were no material changes in off-balance sheet arrangements during the three months ended March 31, 2024.
Current wording
The Company sells mortgages on the secondary market. Our agreement with the purchaser provides for strict underwriting and documentation requirements. Violation of the representations and warranties of the agreement would entitle the purchaser to recourse provisions. The Company has determined that its risk in this area is not significant because of a 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 June 30, 2024. 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 six months ended June 30, 2024.