Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
$ in thousands, except per share data.
The purpose of this discussion and analysis is to provide information about the results of operations, financial condition, liquidity and capital resources of the Company. The discussion should be read in conjunction with the material presented in Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K.
Subsequent events have been considered through the date of this Form 10-K.
Cautionary Statement Regarding Forward-Looking Statements
We make forward-looking statements in this Form 10-K that are subject to significant risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon our management’s views and assumptions as of the date of this report. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements.
These forward-looking statements are based upon or are affected by factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, effects of or changes in:
inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments,
the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged,
the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses,
general and local economic conditions,
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the OCC, the Federal Reserve, the CFPB and the FDIC, and the impact of any policies or programs implemented pursuant to financial reform legislation,
unanticipated increases in the level of unemployment in the Company’s market,
the quality or composition of the loan and/or investment portfolios,
our ability to maintain existing deposit relationships or attract new deposit relationships,
changes in consumer spending, borrowing and savings habits,
increased competition with other financial institutions and fintech companies,
demand for financial services in the Company’s market,
the real estate market in the Company’s market,
laws, regulations and policies impacting financial institutions,
technological risks and developments, and cyber-threats, attacks or events,
the Company’s technology initiatives,
geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts,
the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events,
the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment,
performance by the Company’s counterparties or vendors,
applicable accounting principles, policies and guidelines, and
risks associated with mergers, acquisitions, and other expansion activities.
These risks and uncertainties should be considered in evaluating the forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which speak only as of the date of this report. This discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A. of this Form 10-K.
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Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing expense, recovering an asset or relieving a liability. Although the economics of the Company’s transactions may not change, the timing of events that would impact the transactions could change.
Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. The Company designates as critical those policies governing the ACLL and the pension plan. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed.
ACLL
The ACLL represents the Company's best estimate of current expected credit losses on loans over the expected life as of the measurement date. The estimation utilizes internal and peer historical credit loss experience, current conditions and reasonable and supportable forecasts. The results are also dependent upon management's selection of methodologies, loan credit risk ratings, and determination of the impact of internal and external variables.
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.
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.
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.
The estimation of the ACLL involves analysis of internal and external variables, methodologies, assumptions and management’s judgment and experience. These judgments are inherently subjective and actual losses could be greater or less than the estimate. Future estimates of the ACLL could increase or decrease based on changes in the financial condition of individual borrowers, concentrations of various types of loans, economic conditions or the markets in which collateral may be sold. The estimate of the ACLL determines the amount of provision expense and directly affects our financial results. Please refer to Note 1 and Note 5 of Notes to Consolidated Financial Statements for additional information.
Pension Plan
Pension obligations are determined through actuarial calculations based upon significant assumptions, including the IRS mortality table, an effective interest rate of 5.32% for December 31, 2025 and 5.24% for December 31, 2024, a discount rate of 5.50% for December 31, 2025 and 4.75% for December 31, 2024, anticipated rate of compensation increases of 4% for both reporting dates, and an expected long-term rate of return of 7.50% for both reporting dates. Actual outcomes could vary from the assumptions and result in underaccrual or overaccrual of pension obligations. Please refer to Note 1 and Note 8 of Notes to Consolidated Financial Statements for information on these and other accounting policies.
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Performance Summary
Key to understanding the Company’s results of operations and financial position is the interest rate environment, the core system conversion in 2025 and the acquisition of FCB in 2024.
The Federal Reserve's interest rate cuts between September 2024 and December 2025 eased deposit pricing pressure for the fourth quarter of 2024 and the year ended December 31, 2025. The interest rate environment continues at a level that allows adjustable rate loans to reprice higher than their previous rates.
The Company completed the core system conversion of both the former FCB and the legacy bank during the second quarter of 2025, with related expenses presented in core system conversion expense on the Consolidated Statements of Income.
The acquisition of FCB on June 1, 2024 expanded the Company's footprint into desirable markets and increased its growth potential. The acquisition added to the balance sheet $118,743 in loans, $129,717 in deposits and $14,299 in equity. The Company also recorded one-time expenses of $2,916 and provision for credit loss of $1,290 associated with the merger. For more information on the acquisition, see Note 22: Business Combination.
Summary information on results of operations, changes in key balances and asset quality is presented below. Expanded discussion is provided in subsequent sections.
Summary Results of Operations
The following tables present summary income, expenses and key performance indicators for the years indicated. Key performance indicators provide a summary of the Company’s results and allow comparison with results from prior years.
Year Ended December 31,
Summary Income and Expenses
Interest income
Interest expense
Net interest income
(Recovery of) provision for credit losses
Net interest income after (recovery of) provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Year Ended December 31,
Summary Key Performance Indicators
Return on average assets
Return on average equity
Basic net income per common share
Diluted net income per common share
Net interest margin (1)
Efficiency ratio (1)
See "Non-GAAP Financial Measures" below.
Net income for the year ended December 31, 2025 increased when compared with the year ended December 31, 2024, due to net interest margin expansion and a lower provision for credit losses. The net interest margin as well as key noninterest income and expense items are discussed under “Income Statement” below.
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Non-GAAP Financial Measures
This report refers to certain financial measures that are computed on a basis other than GAAP (“non-GAAP”). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP. Details on non-GAAP measures follow.
Net Interest Margin
The Company uses the net interest margin (non-GAAP) to measure profitability of interest generating activities, as a percentage of total interest-earning assets. The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis. The portion of interest income that is nontaxable is grossed up to the tax equivalent by adding the tax benefit based on a tax rate of 21%. Annualized FTE net interest income is divided by total average earning assets to calculate the net interest margin. The following tables present the reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, for the periods indicated.
Year Ended December 31,
Net Interest Margin, FTE
Interest income (GAAP)
Add: FTE adjustment
Interest income, FTE (non-GAAP)
Interest expense (GAAP)
Net interest income, FTE (non-GAAP)
Average balance of interest-earning assets
Net interest margin (non-GAAP)
Efficiency Ratio
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.
Year Ended December 31,
Efficiency Ratio
Noninterest expense (GAAP)
Less: merger-related expense
Less: core system conversion expense
Adjusted noninterest expense (non-GAAP)
Noninterest income (GAAP)
Net interest income, FTE (non-GAAP)
Total income for efficiency ratio (non-GAAP)
Efficiency ratio (non-GAAP)
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Summary Change in Key Balances
Key balances are presented in the following table as of the dates indicated:
December 31,
Change
Dollars
Percent
Loans, net of deferred fees and costs, and the ACLL
Securities available for sale
Deposits
Total assets
Stockholders’ equity
Organic growth accounted for the increase in loans, net of deferred fees and costs and the ACLL, when December 31, 2025 is compared with December 31, 2024. While the Federal Reserve's rate cuts in 2024 and 2025 were favorable for the net interest margin, the interest rate environment continues to restrain loan demand.
Securities available for sale increased from the prior year due to purchases of $83,872 and improvement in fair value, which moves inversely to interest rate changes and expectations of interest rate changes. Further detail is provided in the “Balance Sheet” section below.
Customer deposits decreased when December 31, 2025 is compared with December 31, 2024. The Company manages deposits and deposit pricing in consideration of loan demand, optimizing the net interest margin, liquidity needs, and strategic initiatives. During 2025, the Company strategically lowered pricing on time deposits, resulting in lower time deposit balances and improved deposit costs.
The increase in stockholders’ equity reflects an improvement in unrealized losses on securities available for sale and retained net income.
Summary Asset Quality
Key indicators of the Company’s asset quality are presented in the following table as of the dates indicated:
December 31,
Nonaccrual loans
Loans past due 90 days or more, and still accruing
ACLL to loans net of deferred fees and costs
Net charge-off to average loans ratio
Ratio of nonperforming loans to loans, net of
deferred fees and costs
Ratio of ACLL to nonperforming loans
The Company monitors asset quality indicators in managing credit risk and in determining the ACLL and provision for credit losses. Nonaccrual loans improved when December 31, 2025 is compared with December 31, 2024, due to the return of one loan relationship to accrual status. The net charge-off ratio remained at the same low level and accruing loans past due 90 days or more increased slightly, but remain low.
The Company dedicates resources to resolving problem assets, and exposure to loss is somewhat mitigated by collateralization. More information about nonaccrual and past due loans is provided in Note 1 and Note 5 of Notes to Consolidated Financial Statements.
Income Statement
The following provides information on the results of operations for the years ended December 31, 2025 and December 31, 2024.
Net Interest Income
The Company’s primary source of revenue is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on customer deposits and other interest-bearing liabilities. Net interest income is affected by various factors, including the Federal Reserve’s monetary policy, U.S. fiscal policy, competitive pressure, the level and composition of the interest-earning assets and the composition of interest-bearing liabilities. Changes in the Federal Reserve’s target interest rate immediately affect the yield on the Company’s interest-bearing deposits in correspondent banks and affect other interest-earning assets over time.
The net interest margin for the year ended December 31, 2025 increased when compared with the year ended December 31, 2024. Loans repriced upward while the Federal Reserve's interest rate cuts resulted in lower yields on adjustable rate securities and interest
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bearing deposit assets, as well as lower cost of deposits. Current interest rates are still at a level that will allow improved yield on loans as adjustable loans reach repricing dates.
The frequency and/or magnitude of future changes in market interest are difficult to predict and may have a greater short-term impact on net interest income than adjustments by management. Please refer to the section titled “Analysis of Changes In Interest Income and Interest Expense” for further information related to rate and volume changes.
Analysis of Net Interest Earnings
The following table presents the major categories of 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 yield on average interest‑earning assets for the years indicated.
Year Ended December 31,
($ in thousands)
Average
Balance
Interest
Average
Yield/Rate
Average
Balance
Interest
Average
Yield/Rate
Interest-earning assets:
Loans (1)(2)(3)(4)(5)
Taxable securities (4)
Nontaxable securities (4)(5)
Federal funds sold
Interest-bearing deposits
Total interest-earning assets
Interest-bearing liabilities:
Interest-bearing demand deposits
Savings deposits
Time deposits (6)
Borrowings
Total interest-bearing liabilities
Net interest income and interest
rate spread
Net interest margin
Loans are net of deferred fees and costs. Loans include loans held in portfolio and loans held for sale.
Net loan fees included in interest income in 2025 were $503. Net loan fees included in interest income in 2024 were $245.
Nonaccrual loans are included in average balances for yield computations.
Daily averages are presented at amortized cost.
Interest on nontaxable loans and securities is computed on an FTE basis using a Federal income tax rate of 21%.
Included in interest expense is amortization of premium on acquired time deposits of $149 and $278 for the twelve months ended December 31, 2025 and 2024, respectively.
The following table reconciles net interest income on an FTE basis (non-GAAP) to net interest income on a GAAP basis for the years indicated.
December 31,
Net interest income, GAAP
FTE adjustment
Net interest income, FTE (non-GAAP)
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Analysis of Changes in Interest Income and Interest Expense
The following table summarizes changes in interest income and interest expense resulting from changes in average asset and liability balances (volume) and changes in average interest rates (rate), when the year ended December 31, 2025 is compared with the year ended December 31, 2024.
2025 Over 2024
Increase (Decrease) due to Changes in:
Net Dollar
Rates (2)
Volume (2)
Change
Interest income: (1)
Loans
Taxable securities
Nontaxable securities
Federal Funds Sold
Interest-bearing deposits
Interest income
Interest expense:
Interest-bearing demand deposits
Savings deposits
Time deposits
Short-term borrowings
Interest expense
Net interest income
FTE basis using a Federal income tax rate of 21%.
Variances caused by the change in rate multiplied by the change in volume have been allocated to rate and volume changes proportional to the relationship of the absolute dollar amounts of the change in each.
Interest Rate Sensitivity
Interest rate risk is the risk to earnings or capital arising from movements in market interest rates. When interest-earning assets and interest-bearing liabilities reprice at different times or in different degrees or when call options are exercised, in response to change in market interest rates, future net interest income is impacted. When interest-earning assets mature or re-price more quickly than interest-bearing liabilities, the balance sheet is considered “asset sensitive”. An asset sensitive position will produce relatively more net interest income when interest rates rise and less net interest income when rates decline. Conversely, when interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, the balance sheet is considered “liability sensitive”. A liability sensitive position will produce relatively more net interest income when interest rates fall and less net interest income when rates increase.
The Company considers interest rate risk to be a significant risk and manages its exposure through policies approved by its Asset Liability Committee ("ALCO") and Board of Directors. ALCO reviews periodic reports of the Company's interest rate risk position, including results of simulation analysis. Simulation analysis applies interest rate shocks, hypothetical immediate shifts in interest rates, to the Company’s financial instruments and determines the impact to projected one-year net interest income and other key measures. The following table shows the results of rate shocks on net interest income projected for one year from the reporting date.
Rate Shift
(basis points)
Change in Projected Net Interest Income as of December 31,
Results of the net interest income simulation indicate that the Company is liability sensitive as of December 31, 2025 and December 31, 2024. The simulation process requires certain estimates and assumptions including, but not limited to, asset growth, the mix of assets and liabilities, the interest rate environment and local and national economic conditions. Asset growth and the mix of
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assets can, to a degree, be influenced by management. Other areas, such as the interest rate environment and economic factors, cannot be controlled. In addition, competitive pressures can make it difficult to price deposits and loans in a manner that optimally minimizes interest rate risk. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes; changes in market conditions and customer behavior; and changes in management strategies.
While the asset/liability management program is designed to protect the Company over the long term, it does not provide near-term protection from interest rate shocks, as interest rate sensitive assets and liabilities do not by their nature move up or down in tandem in response to changes in the overall rate environment. The Company’s profitability in the near-term may be temporarily negatively affected in a period of rapidly rising or rapidly falling rates, because it takes some time for the Company’s portfolio to reflect changes to offering rates in response to a new interest rate environment.
(Recovery of) Provision for Credit Losses
The Company recovered provision of $16 for the year ended December 31, 2025 , made up of a recovery of credit losses on funded loans of $63 partially offset by provision for credit losses on unfunded loan balances of $47. For the year ended December 31, 2024, the Company recorded a net provision of $1,227, which included a provision of $1,290 for non-PCD loans recorded upon acquisition of FCB, offset by $48 recovery reflecting changes in the Company's assessment of credit risk for both funded and unfunded loan balances. More information about the ACLL is provided in “Balance Sheet – Loans – Allowance for Credit Losses” below and in Notes 1 and 5 of Notes to Consolidated Financial Statements.
Noninterest Income
The following table presents the Company’s noninterest income for the years indicated.
Year Ended December 31,
Change
Dollars
Percent
Service charges on deposit accounts
Other service charges and fees
Credit and debit card fees, net
Trust income
BOLI income
Gain on sale of mortgage loans held for sale
Other income
Total noninterest income
Service charges on deposit accounts increased when the year ended December 31, 2025 is compared with the year ended December 31, 2024, due to increased customer use of the Bank’s overdraft program, ATM fees and wire transfer fees.
Other service charges and fees decreased when 2025 is compared with 2024, due to nonrecurring fee income received in 2024 and lower fees associated with non-customer use of NBB ATMs. Other service charges and fees also include charges for official checks, income from the sale of checks to customers, safe deposit box rent, and income from commissions on the sale of credit life, accident and health insurance.
Credit and debit card fees, net, increased when 2025 is compared with 2024 due to contract re-negotiation associated with the core system conversion.
Trust income increased when the year ended December 31, 2025 is compared with the year ended December 31, 2024, reflecting the Company's investment in business development. Trust fees are generated from a number of different types of accounts, including estates, personal trusts, employee benefit trusts, investment management accounts, attorney-in-fact accounts and guardianships. Trust income varies depending on the number and type of accounts under management and financial market conditions.
The gain on sale of mortgage loans increased from 2024 to 2025 as volume improved.
Other income includes dividends, adjustments to partnership basis in investments, commissions from investment and insurance sales and other miscellaneous components. Improved commissions from investment and insurance sales and a vendor incentive payment drove the increase from 2024 to 2025.
Noninterest Expense
The following table presents the Company’s noninterest expense for the years indicated.
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Year Ended December 31,
Change
Dollars
Percent
Salaries and employee benefits
Occupancy, furniture and fixtures
Data processing
FDIC assessment
Intangible asset amortization
Franchise taxes
Professional services
Merger-related expenses
Core system conversion expense
Other operating expenses
Total noninterest expense
Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k) plan, pension service costs, incentives and salary continuation, increased when 2025 is compared with 2024, reflecting the addition of FCB employees and normal merit adjustments.
When the year ended December 31, 2025 is compared with the year ended December 31, 2024, occupancy, furniture and fixtures expense increased due to higher maintenance costs and depreciation related to assets acquired from FCB, infrastructure investment and the opening of the Roanoke branch.
Data processing expense decreased when the year ended December 31, 2025 is compared with the year ended December 31, 2024, reflecting savings from the core system conversion and other technology upgrades.
FDIC assessment expense increased from 2024 to 2025, due to an expanded assessment base after the FCB acquisition.
Upon acquisition of FCB in 2024, the Company recognized a core deposit intangible asset that is amortized over 10 years.
Franchise tax expense decreased from 2024 to 2025. Franchise taxes are levied by the states in which NBB operates and are based upon NBB’s total equity at the prior year-end, adjusted for real estate taxes and certain other items.
When 2025 is compared with 2024, higher legal and audit expenses drove the increase in professional services, which also includes consulting expense.
Merger-related expenses included legal, accounting, regulatory, and executive and employee severance costs associated with the FCB acquisition.
The core system conversion was completed during the second quarter of 2025 positioning the Company for future growth.
Other operating expenses decreased when the years ended December 31, 2025 and 2024 are compared. The category of other operating expenses includes expense for marketing and business development, supplies, non-service pension cost and charitable donations. The decrease is due to non-service pension cost, resulting from a higher expected return on plan assets when 2025 is compared with 2024, higher recognized net gain due to settlement when 2025 is compared with 2024, and a net actuarial loss in 2024 that was not recognized in 2025.
Included within other operating expense and data processing expense are expenses related to cybersecurity. These expenses include testing and vulnerability assessment, technological defenses, insurance and employee training. The cost of these measures was $409 for 2025 and $365 for 2024.
Income Taxes
Income tax expense for 2025 was $3,340 compared to $1,499 in 2024. The Company’s statutory tax rate was 21% for each year. The Company’s effective tax rates for 2025 and 2024 were 17.43% and 16.43%, respectively. The Company’s effective tax rate is lower than the statutory rate of 21% primarily due to investments in tax-advantaged loans and securities. The Company's effective tax rate for 2024 was also affected by a significant portion of merger related expense that was not tax deductible. See Note 9 of Notes to Consolidated Financial Statements for information relating to income taxes.
Balance Sheet
The following provides information on the Company’s financial position as of December 31, 2025 and December 31, 2024.
Loans
The Company’s loan categorization reflects its approach to loan portfolio management and includes six groups. Real estate construction loans include construction loans for residential and commercial properties as well as land. Consumer real estate loans include conventional and junior lien mortgages, equity lines and investor-owned residential real estate. Commercial real estate loans are comprised of owner-occupied and leased nonfarm, nonresidential properties, multi-family residence loans and farmland. Commercial non-real estate loans include agricultural loans, operating capital lines and loans secured by capital assets. Public sector and industrial
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development authority (“IDA”) loans are extended to municipalities. Consumer non-real estate loans include automobile loans, personal loans, credit cards and consumer overdrafts. The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated.
December 31,
December 31,
Real estate construction
Consumer real estate
Commercial real estate
Commercial non-real estate
Public sector and IDA
Consumer non-real estate
Gross loans
Less: deferred fees and costs
Loans, net of deferred fees and costs
Allowance for credit losses on loans
Total loans, net
Maturities and Interest Rate Sensitivities
The following table presents maturities and interest rate sensitivities for total loans, loans with predetermined interest rates and loans with adjustable interest rates as of the dates indicated. Predetermined interest rates do not adjust throughout the life of the loan. Loans are presented on a gross basis.
December 31, 2025
< 1 Year
1-5 Years
6-15 Years
>15 Years
Total
Total loans:
Real estate construction
Consumer real estate
Commercial real estate
Commercial non-real estate
Public sector and IDA
Consumer non-real estate
Total loans
Loans with predetermined interest rates:
Real estate construction
Consumer real estate
Commercial real estate
Commercial non-real estate
Public sector and IDA
Consumer non-real estate
Total loans with predetermined interest rates
Loans with adjustable interest rates:
Real estate construction
Consumer real estate
Commercial real estate
Commercial non-real estate
Public sector and IDA
Consumer non-real estate
Total loans with adjustable interest rates
Modifications
In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons. Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements. Modifications to consumer loans generally involve short-term payment extensions to accommodate specific, temporary
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circumstances. Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants.
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. Please refer to Note 5 of Notes to Financial Statements for information on modifications to loans for borrowers experiencing financial difficulty during the years ended December 31, 2025 and December 31, 2024.
During the years ended December 31, 2025 and 2024, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty. During 2025, the Company modified 487 loans totaling $66,886. During 2024, the Company provided modifications for competitive purposes to 875 loans totaling $130,347.
Summary of Loan Loss Experience
The following table provides information about the allowance for credit losses on loans, nonperforming assets and accruing loans past due 90 days or more as of the dates indicated:
December 31,
ACLL
Total loans, net of deferred fees
ACLL to loans, net of deferred fees and costs
Nonaccrual loans
Nonperforming loans to total loans, net of deferred fees and costs
ACLL to nonperforming loans
Accruing loans past due 90 days or more
More information about the level and calculation methodology of the allowance for credit losses on loans is provided in the sections “Allowance for Credit Losses on Loans” as well as Notes 1 and 5 of Notes to Consolidated Financial Statements.
Analysis of Net Charge-Offs
The following tables show net charge-offs, average loan balance and the percentage of charge-offs to average loan balance for each of the Company’s loan segments at the end of each period. Average loans are presented net of deferred fees and costs.
December 31, 2025
Net Charge-Offs (Recoveries)
Average
Loans, net of deferred fees and costs
Percentage of
Net Charge-Offs (Recoveries)
to Average
Loans
Real estate construction
Consumer real estate
Commercial real estate
Commercial non-real estate
Public Sector and IDA
Consumer non-real estate
Total
December 31, 2024
Net Charge-Offs (Recoveries)
Average
Loans, net of deferred fees and costs
Percentage of
Net Charge-Offs (Recoveries)
to Average
Loans
Real estate construction
Consumer real estate
Commercial real estate
Commercial non-real estate
Public Sector and IDA
Consumer non-real estate
Total
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The Company charges off commercial real estate loans at the time that a loss is confirmed. When delinquency status or other information indicates that the borrower will not repay the loan, the Company considers collateral value based upon a current appraisal or internal evaluation. Any loan amount in excess of collateral value is charged off and the collateral is taken into OREO.
Allowance for Credit Losses on Loans
The Company’s risk analysis as of December 31, 2025 determined an ACLL of $9,892, or 0.99% of loans net of deferred fees and costs. This compares with an ACLL of $10,262 as of December 31, 2024, or 1.04% of loans net of deferred fees and costs. For information on the Company’s policies on the ACLL, please refer to Note 1 and Note 5 of Notes to Consolidated Financial Statements. To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of loans evaluated collectively.
Individually Evaluated Loans
Individually evaluated loans were $8,802 as of December 31, 2025, a decrease from $10,521 as of December 31, 2024. Please refer to Note 1 of Notes to Consolidated Financial Statements for information on the Company’s identification of individually evaluated loans. As of December 31, 2025, 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 DCF method, resulting in an allocation of $106.
Collectively Evaluated Loans
Collectively evaluated loans totaled $991,124 with an ACLL of $9,786 as of December 31, 2025. At December 31, 2024, collectively evaluated loans totaled $978,092, with an allowance of $10,182.
Collectively evaluated loans are divided into classes based upon risk characteristics. Utilizing historical loss information and peer data, the Company calculates PD and LGD for each class, which is adjusted for a reasonable and supportable forecast. Cash flow projections based on each loan’s contractual terms are modified by the adjusted PD and LGD for its class. Loan classes are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.
Reasonable and Supportable Forecast
The Company applies national unemployment forecasts to project cash flows. The Company determined that 12 months represents a reasonable and supportable forecast period as of December 31, 2025, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied as of December 31, 2025 projects that unemployment will be stable over the next 12 months at a similar level to the forecast applied as of December 31, 2024.
Qualitative Factors: Economic
The Company sources economic data pertinent to its market from the most recently available publications, including business and personal bankruptcy filings, the residential vacancy rate and the inventory of new and existing homes.
Higher bankruptcy filings indicate heightened credit risk and increase the ACLL, while lower bankruptcy filings have a beneficial impact on credit risk. Compared with data available at December 31, 2024, business bankruptcy filings decreased while personal bankruptcy filings increased.
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 at December 31, 2025 increased compared to the data incorporated into the December 31, 2024 calculation, resulting in a higher allocation. Housing inventory increased when December 31, 2025 is compared with December 31, 2024, resulting in a higher allocation.
Qualitative Factors: Asset Quality Indicators
Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. On a portfolio level, accruing loans past due 30-89 days increased to 0.35% of total loans at December 31, 2025, from 0.30% at December 31, 2024.
Qualitative Factors: Other Considerations
The Company considers other factors that impact credit risk, including the competitive, legal and regulatory environments, changes in lending policies and loan review, changes in lending management, and high risk loans.
Competitive, legal and regulatory environments were evaluated for changes that would affect credit risk. Higher competition for loans is deemed to increase credit risk, while lower competition is deemed to decrease credit risk. Prior allocations for the competitive and regulatory environments were evaluated and management determined that a sufficient period of time had passed so as to conclude that the impact is now integrated to loss rates, reducing the allocation. The legal environment remains in a similar posture to December 31, 2024, and no allocation was provided.
Lending policies, loan review procedures and management experience influence credit risk. Policies and procedures remain similar to those at December 31, 2024. The Company maintained an allocation to account for integration of FCB lenders.
Levels of high-risk loans are considered in the determination of the level of the ACLL. A decrease in the level of high-risk loans
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within a class decreases the required allocation for the loan class, and an increase in the level of high-risk loans within a class increases the required allocation for the loan class. Total high-risk loans increased from the level at December 31, 2024.
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 December 31, 2025, management identified local unemployment data and collection activity. An unanticipated increase in unemployment in some of the Company’s market areas during the third quarter of 2025 resulted in a local unemployment rate that exceeded national unemployment. Historically, local unemployment has been correlated with national unemployment but slightly lower. The levels moderated during the fourth quarter of 2025, but remain higher than those as of December 31, 2024. The Company also documented an increase in collection activity, that while successful, may indicate additional credit risk. The Company added an allocation to account for the change.
Unallocated Surplus
The unallocated surplus as of December 31, 2025 was $50, or 0.51% in excess of the calculated requirement. The unallocated surplus at December 31, 2024 was $50, or 0.49% in excess of the calculated requirement. The surplus provides some mitigation of current economic uncertainty that may impact credit risk.
Conclusion
The calculation of the appropriate level for the ACLL incorporates analysis of multiple factors and requires management’s prudent and informed judgment. Based on analysis of historical indicators, asset quality and economic factors, management believes the level of ACLL is reasonable for the credit risk in the loan portfolio as of December 31, 2025.
Please refer to Note 5 of Notes to Consolidated Financial Statements for further information on collectively evaluated loans, individually evaluated impaired loans and the unallocated portion of the allowance for credit losses on loans.
Allocation of the Allowance for Credit Losses on Loans
The allowance for credit losses on loans has been allocated according to the amount deemed necessary to provide for anticipated losses within the categories of loans as of the dates indicated. Loans are presented net of deferred fees and costs. The following table presents information on the ACLL as of the dates indicated:
December 31, 2025
December 31, 2024
Allowance
Amount
Percent of
Loans to
Total Gross
Loans
Percent of
Allowance to
Gross Loans
Allowance
Amount
Percent of
Loans to
Total Gross
Loans
Percent of
Allowance to
Gross Loans
Real estate construction
Consumer real estate
Commercial real estate
Commercial non-real estate
Public sector and IDA
Consumer non-real estate
Unallocated
Securities
The Company’s securities are designated as available for sale and as such, are reported at fair value. The following table presents information on securities available for sale as of the dates indicated.
December 31,
December 31,
Change
Dollars
Percent
Amortized cost
Unrealized loss, net
Securities available for sale, at fair value
During 2025, the Company purchased securities in anticipation of coming maturities and to capitalize on higher interest rates. Investment decisions are managed by a subcommittee within the Company’s Asset Liability Management Committee, which monitors all of the Company’s financial assets and liabilities. In making investment decisions, management seeks to optimize yield and risk profiles, adhering to internal policy guidelines for security quality and industry and geographic concentrations.
The unrealized loss in the Company’s investment portfolio is due to interest rate risk associated with securities purchased prior to the Federal Reserve’s rate increases during 2022 and 2023. Improvement in the unrealized loss reflects lower interest rates as of December 31, 2025 when compared with December 31, 2024.
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Management regularly monitors the quality of the investment portfolio as part of its risk management function. Credit risk in the Company’s investment portfolio is evaluated on an individual security basis. An allowance for credit risk will be recorded if analysis indicates the presence of credit risk. As of December 31, 2025, there are no credit risk concerns with any of the Company’s securities.
Additional information about securities available for sale can be found in Note 3 of Notes to Consolidated Financial Statements.
Deposits
The following table presents deposits by category as of the dates indicated:
December 31,
December 31,
Change
Dollars
Percent
Noninterest-bearing demand deposits
Interest-bearing demand deposits
Savings deposits
Time deposits
Total deposits
Deposits, including noninterest-bearing demand deposits, interest-bearing deposits and interest-bearing time deposits are obtained in the Company’s markets through traditional marketing techniques. The Company’s deposits do not include any brokered deposits.
Average Amounts of Deposits and Average Rates Paid
Average amounts and average rates paid on deposit categories during the periods indicated are presented below:
Years Ended December 31,
Average
Amounts
Average
Rates Paid
Average
Amounts
Average
Rates Paid
Noninterest-bearing demand deposits
Interest-bearing demand deposits
Savings deposits
Time deposits
Average total deposits
Uninsured Deposits
FDIC insurance covers deposits of up to $250 per depositor. As of December 31, 2025, $673,764 of the Bank’s deposits were uninsured. Municipal deposits, which account for 23.00% 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, 19.75% are uninsured.
The following table presents the maturity distribution of time deposits that exceed $250 as of the date indicated.
December 31, 2025
3 Months or Less
Over 3 Months Through 6 Months
Over 6 Months
Through 12 Months
Over 12 Months
Total
Total time deposits exceeding $250
Derivatives and Market Risk Exposures
The Company engages in derivative financial instruments associated with its secondary market operation, recorded within other assets and other liabilities. Please refer to Note 1 of Notes to Consolidated Financial Statements for information on derivative valuation. The Company is not a party to derivatives with off-balance sheet risks such as futures, forwards, swaps, and options.
The Company is a party to financial instruments with off-balance sheet risks such as commitments to extend credit, standby letters of credit, and recourse obligations in the normal course of business to meet the financing needs of its customers. See Note 13 of Notes to Consolidated Financial Statements for additional information relating to financial instruments with off-balance sheet risk. Management does not plan any future involvement in high risk derivative products.
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The Company’s investments in mortgage-backed securities are primarily through the Government National Mortgage Association and Federal National Mortgage Association. See Note 3 of Notes to Consolidated Financial Statements for information on securities.
The Company’s securities and loans are subject to credit and interest rate risk, and its deposits are subject to interest rate risk. Management considers credit risk when a loan is granted and monitors credit risk after the loan is granted. The Company maintains an allowance for credit losses to absorb losses in the collection of its loans. See Note 5 of Notes to Consolidated Financial Statements for information relating to the allowance for credit losses on loans. See Note 14 of Notes to Consolidated Financial Statements for information relating to concentrations of credit risk.
The effects of changing interest rates are primarily managed through adjustments to the loan portfolio and deposit base, to the extent competitive factors allow. Adjustments for asset and liability management are made when securities are called or mature and funds are subsequently reinvested. Securities may be sold for reasons related to credit quality, to maintain compliance with regulatory limitations or for interest rate risk management. No trading activity is planned in the foreseeable future.
See Interest Rate Sensitivity for further details on asset liability management and Note 15 of Notes to Consolidated Financial Statements for information relating to fair value of financial instruments.
Liquidity
Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost. Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits. The Company has diverse liquidity sources, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing and FHLB advances.
As of December 31, 2025, the Company had borrowing capacity of $306,870 from the FHLB and $190,586 of borrowing capacity at the Federal Reserve discount window, with no amounts advanced against those lines. The Company assumed FHLB borrowings from FCB, which it repaid during the week following acquisition. During 2025, the Company accessed FHLB and Federal Reserve discount window borrowings as part of a leveraged securities purchase strategy. The advances were fully repaid by the end of the year. The Company did not engage in purchasing deposits during 2025 or 2024.
The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters. Portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased/decreased liquidity from public funds deposits or discount window borrowings results in increased/decreased liquidity from pledging requirements. The Company monitors public funds pledging requirements and unpledged available for sale securities accessible for liquidity needs.
Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve discount window. As of December 31, 2025, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve discount window.
The Company monitors factors that may increase its liquidity needs. Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments and loan growth. As of December 31, 2025, the Company’s liquidity is sufficient to meet projected trends.
To monitor and estimate liquidity levels, the Company performs stress testing under varying assumptions on credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows. The Company’s Contingency Funding Plan sets forth avenues for rectifying liquidity shortfalls. As of December 31, 2025, the analysis indicated adequate liquidity under the tested scenarios.
The Company utilizes several other strategies to maintain sufficient liquidity. Loan and deposit growth are managed to keep the loan to deposit ratio within the Company’s internally-set target range. As of December 31, 2025, the loan to deposit ratio was 61.42%. 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.
In the normal course of business, we enter into certain contractual obligations, including obligations to make future payments on lease arrangements, contractual commitments with depositors, and service contracts. The table below presents our significant contractual obligations as of the dates indicated, except for pension and other postretirement benefit plans, which are included in Note 8 of Notes to Consolidated Financial Statements.
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Payments Due by Period
December 31, 2025
Total
Less Than
1 Year
1-3 Years
4-5 Years
More Than
5 Years
Time deposits
Purchase obligations (1)
Operating leases
Total
Includes contracts with a minimum annual payment of $100.
As of December 31, 2025, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity. As of December 31, 2025, the Company has no material commitments for long-term debt or for capital expenditures.
Capital Resources
The following table presents components of stockholders’ equity:
December 31,
December 31,
Change
Dollars
Percent
Common stock and additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total stockholders’ equity increased when December 31, 2025 is compared with December 31, 2024, due primarily to improvement in the unrealized loss on securities and value of assets held by the Company's retirement plan. The largest component of stockholders’ equity, retained earnings, increased from December 31, 2024 to December 31, 2025.
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 and presented below.
December 31, 2025
December 31, 2024
Regulatory
Capital
Minimum
Ratios
Regulatory Capital
Minimum Ratios
with Capital
Conservation
Buffer
Common Equity Tier I Capital Ratio
Tier I Capital Ratio
Total Capital Ratio
Leverage Ratio
Off-Balance Sheet Arrangements
The Company’s off-balance sheet arrangements as of December 31, 2025 are detailed in the table below. All are due in less than one year.
Payments Due by Period
Total
Less Than 1 Year
Commitments to extend credit
Standby letters of credit
Mortgage loans with potential recourse
Total
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In the normal course of business the Company’s banking affiliate extends lines of credit to its customers. The Bank also issues two types of standby letters of credit to customers: financial standby letters of credit that guarantee payment to facilitate customer purchases and performance letters of credit that guarantee payment if the customer fails to perform a specific obligation. Associated revenue from letters of credit was $26 in 2025. Amounts drawn upon these lines and letters of credit vary at any given time depending on the business needs of the customers. 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 manage liquidity using cash on hand, borrowing capacity, or sale of investments or loans.
The Company sells mortgages on the secondary market subject to recourse agreements. The mortgages originated must meet strict underwriting and documentation requirements for the sale to be completed. To date, no recourse provisions have ever been invoked. If the Company identified a factor or trend that indicated recourse risk, a loss reserve would be recorded.
Recent Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements for information relating to recent accounting pronouncements.
