10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    

     For the quarterly period ended June 30, 2026

    

     ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    

For the transition period from ________ to ________

Commission File Number: 0-15204

NATIONAL BANKSHARES, INC.

(Exact name of registrant as specified in its charter)


Virginia	54-1375874
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

101 Hubbard Street

Blacksburg, Virginia 24062-9002

(Address of principal executive offices) (Zip Code)

(540) 951-6300

(Registrant’s telephone number, including area code)

(Not applicable)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.25 per share	NKSH	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     Outstanding shares of common stock at August 12, 2026

    

     6,370,620

    

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NATIONAL BANKSHARES, INC.

Form 10-Q

Index


Part I – Financial Information		Page

Item 1	Financial Statements	3

	Consolidated Balance Sheets, June 30, 2026 (Unaudited) and December 31, 2025	3

	Consolidated Statements of Income for the Three Months Ended June 30, 2026 and 2025 (Unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2026 and 2025 (Unaudited)	5

	Consolidated Statements of Income for the Six Months Ended June 30, 2026 and 2025 (Unaudited)	6

	Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2026 and 2025 (Unaudited)	7

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended June 30, 2026 and 2025 (Unaudited)	8

	Consolidated Statements of Changes in Stockholders' Equity for the Six Months Ended June 30, 2026 and 2025 (Unaudited)	8

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2026 and 2025 (Unaudited)	9

	Notes to Consolidated Financial Statements (Unaudited)	11

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4	Controls and Procedures	43

Part II – Other Information

Item 1	Legal Proceedings	44

Item 1A	Risk Factors	44

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3	Defaults Upon Senior Securities	44

Item 4	Mine Safety Disclosures	44

Item 5	Other Information	44

Item 6	Exhibits	44

Signatures		46

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Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

National Bankshares, Inc.

Consolidated Balance Sheets


	(Unaudited)
(in thousands, except share and per share data)	June 30, 2026			December 31, 2025
Assets
Cash and due from banks	$	8,854		$	8,419
Interest-bearing deposits		45,709			50,831
Total cash and cash equivalents		54,563			59,250
Securities available for sale, at fair value		652,660			654,377
Mortgage loans held for sale		331			-
Loans:
Real estate construction loans		72,220			40,694
Consumer real estate loans		330,204			328,653
Commercial real estate loans		456,181			467,783
Commercial non real estate loans		49,616			52,018
Public sector and IDA loans		62,124			63,677
Consumer non real estate loans		45,067			47,101
Total loans		1,015,412			999,926
Less: deferred fees and costs		(758	)		(616	)
Loans, net of deferred fees and costs		1,014,654			999,310
Less: allowance for credit losses on loans		(10,047	)		(9,892	)
Loans, net		1,004,607			989,418
Premises and equipment, net		18,269			18,479
Accrued interest receivable		7,029			6,538
Goodwill		10,718			10,718
Core deposit intangible, net		1,319			1,490
Bank-owned life insurance ("BOLI")		49,174			48,568
Other assets		34,030			35,668
Total assets	$	1,832,700		$	1,824,506
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits	$	313,453		$	313,022
Interest-bearing demand deposits		861,560			853,756
Savings deposits		139,593			142,645
Time deposits		314,850			317,510
Total deposits		1,629,456			1,626,933
Accrued interest payable		1,439			1,581
Other liabilities		9,574			11,084
Total liabilities		1,640,469			1,639,598
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value, 5,000,000 shares authorized; none issued and outstanding	$	-		$	-
Common stock of $1.25 par value and additional paid in capital. Authorized 10,000,000 shares; issued and outstanding 6,370,620 (including 4,619 unvested) shares as of June 30, 2026 and 6,368,410 (including 5,039 unvested) shares as of December 31, 2025		22,149			22,024
Retained earnings		207,789			202,558
Accumulated other comprehensive loss, net		(37,707	)		(39,674	)
Total stockholders' equity		192,231			184,908
Total liabilities and stockholders' equity	$	1,832,700		$	1,824,506

See accompanying notes to consolidated financial statements.

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National Bankshares, Inc.

Consolidated Statements of Income
(Unaudited)


	Three Months Ended June 30,
(in thousands, except share and per share data)	2026			2025
Interest Income
Interest and fees on loans	$	14,068		$	13,494
Interest on federal funds sold		-			2
Interest on interest-bearing deposits		605			978
Interest on securities – taxable		4,439			3,725
Interest on securities – nontaxable		342			337
Total interest income		19,454			18,536
Interest Expense
Interest on time deposits		2,541			3,058
Interest on other deposits		3,856			4,488
Interest on borrowings		7			-
Total interest expense		6,404			7,546
Net interest income		13,050			10,990
Provision for credit losses		317			36
Net interest income after provision for credit losses		12,733			10,954
Noninterest Income
Service charges on deposit accounts		690			734
Other service charges and fees		69			73
Credit and debit card fees, net		544			366
Trust income		667			578
BOLI income		306			297
Gain on sale of mortgage loans held for sale		75			54
Other income		278			177
Gain on sale of equity investment		6,566			–
Loss on sale of securities, net		(6,549	)		–
Total noninterest income		2,646			2,279
Noninterest Expense
Salaries and employee benefits		5,788			5,211
Occupancy, furniture and fixtures		838			731
Data processing		965			617
FDIC assessment		207			210
Intangible asset amortization		84			95
Franchise taxes		351			358
Professional services		358			509
Core system conversion expense		–			1,977
Other operating expenses		711			874
Total noninterest expense		9,302			10,582
Income before income tax expense		6,077			2,651
Income tax expense		1,048			362
Net Income	$	5,029		$	2,289
Basic net income per common share	$	0.79		$	0.36
Diluted net income per common share	$	0.79		$	0.36
Weighted average number of common shares outstanding, basic		6,363,920			6,358,917
Weighted average number of common shares outstanding, diluted		6,367,161			6,361,582
Dividends declared per common share	$	0.75		$	0.73

See accompanying notes to consolidated financial statements.

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National Bankshares, Inc.

Consolidated Statements of Comprehensive Income

Three Months Ended June 30, 2026 and 2025

(Unaudited)


	Three months ended June 30,
(in thousands)	2026			2025
Net Income	$	5,029		$	2,289

Other Comprehensive Income, Net of Tax
Unrealized holding (loss) gain on available for sale securities net of tax of ($173) and $1,000 for the periods ended June 30, 2026 and 2025, respectively		(654	)		3,763
Reclassification adjustment for loss included in net income, net of tax of $1,375 in 2026		5,174			-
Other comprehensive income, net of tax		4,520			3,763
Total Comprehensive Income	$	9,549		$	6,052

See accompanying notes to consolidated financial statements.

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National Bankshares, Inc.

Consolidated Statements of Income
(Unaudited)


	For the Six Months Ended June 30,
(in thousands, except share and per share data)	2026			2025
Interest Income
Interest and fees on loans	$	28,012		$	26,454
Interest on federal funds sold		-			5
Interest on interest-bearing deposits		1,029			2,017
Interest on securities – taxable		8,672			7,585
Interest on securities – nontaxable		682			673
Total interest income		38,395			36,734
Interest Expense
Interest on time deposits		5,172			6,369
Interest on other deposits		7,543			9,124
Interest on borrowings		7			-
Total interest expense		12,722			15,493
Net interest income		25,673			21,241
Provision for credit losses		244			312
Net interest income after provision for credit losses		25,429			20,929
Noninterest Income
Service charges on deposit accounts		1,339			1,433
Other service charges and fees		211			156
Credit and debit card fees, net		1,001			783
Trust income		1,251			1,157
BOLI income		607			589
Gain on sale of mortgage loans held for sale		94			79
Other income		805			642
Gain on sale of equity investment		6,566			-
Loss on sale of securities, net		(6,549	)		-
Total noninterest income		5,325			4,839
Noninterest Expense
Salaries and employee benefits		11,622			10,391
Occupancy, furniture and fixtures		1,722			1,470
Data processing		1,893			1,600
FDIC assessment		414			417
Intangible asset amortization		171			192
Franchise taxes		701			731
Professional services		731			808
Core system conversion expense		-			2,023
Other operating expenses		1,376			1,583
Total noninterest expense		18,630			19,215
Income before income tax expense		12,124			6,553
Income tax expense		2,114			1,028
Net Income	$	10,010		$	5,525
Basic net income per common share	$	1.57		$	0.87
Diluted net income per common share	$	1.57		$	0.87
Weighted average number of common shares outstanding, basic		6,363,647			6,358,665
Weighted average number of common shares outstanding, diluted		6,366,660			6,360,990
Dividends declared per common share	$	0.75		$	0.73

See accompanying notes to consolidated financial statements.

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National Bankshares, Inc.

Consolidated Statements of Comprehensive Income

Six Months Ended June 30, 2026 and 2025

(Unaudited)


	For the Six Months Ended June 30,
(in thousands)	2026			2025
Net Income	$	10,010		$	5,525

Other Comprehensive Income, Net of Tax
Unrealized holding (loss) gain on available for sale securities net of tax of ($853) and $3,017 for the periods ended June 30, 2026 and 2025, respectively		(3,207	)		11,353
Reclassification adjustment for loss included in net income, net of tax of $1,375 in 2026		5,174			-
Other comprehensive income, net of tax		1,967			11,353
Total Comprehensive Income	$	11,977		$	16,878

See accompanying notes to consolidated financial statements.

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National Bankshares, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended June 30, 2026 and 2025

(Unaudited)


(in thousands except share data)	Common Stock and Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balances at March 31, 2025	$	21,874	$	199,579		$	(54,175	)	$	167,278
Net income		–		2,289			–			2,289
Cash dividends of $0.73 per share		–		(4,645	)		–			(4,645	)
Other comprehensive income, net of tax of $1,000		–		–			3,763			3,763
Stock based compensation		51		–			–			51
Balances at June 30, 2025	$	21,925	$	197,223		$	(50,412	)	$	168,736

Balances at March 31, 2026	$	22,086	$	207,539		$	(42,227	)	$	187,398
Net income		–		5,029			–			5,029
Cash dividends of $0.75 per share		–		(4,779	)		–			(4,779	)
Other comprehensive income, net of tax of $1,202		–		–			4,520			4,520
Stock based compensation		63		–			–			63
Balances at June 30, 2026	$	22,149	$	207,789		$	(37,707	)	$	192,231

Six Months Ended June 30, 2026 and 2025

(Unaudited)


(in thousands except per share data)	Common Stock and Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balances at December 31, 2024	$	21,831	$	196,343		$	(61,765	)	$	156,409
Net income		–		5,525			–			5,525
Cash dividends of $0.73 per share		–		(4,645	)		–			(4,645	)
Other comprehensive income, net of tax of $3,017		–		–			11,353			11,353
Stock based compensation		94		–			–			94
Balances at June 30, 2025	$	21,925	$	197,223		$	(50,412	)	$	168,736

Balances at December 31, 2025	$	22,024	$	202,558		$	(39,674	)	$	184,908
Net income		–		10,010			–			10,010
Cash dividends of $0.75 per share		–		(4,779	)		–			(4,779	)
Other comprehensive income, net of tax of $522		–		–			1,967			1,967
Stock based compensation		125		–			–			125
Balances at June 30, 2026	$	22,149	$	207,789		$	(37,707	)	$	192,231

See accompanying notes to consolidated financial statements.

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National Bankshares, Inc.

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2026 and 2025

(Unaudited)


	For the Six Months Ended June 30,
(in thousands)	2026			2025
Cash Flows from Operating Activities
Net income	$	10,010		$	5,525
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		244			312
Depreciation of premises and equipment		634			509
Amortization of premiums and accretion of discounts on securities, net		432			525
Loss on sale of securities available for sale, net		6,549			-
Amortization of core deposit intangible		171			192
Accretion of fair value of acquired loans		(594	)		(615	)
Amortization of fair value of acquired time deposits and leases		25			92
Origination of mortgage loans held for sale		(6,916	)		(5,270	)
Proceeds from sale of mortgage loans held for sale		6,679			4,896
Gain on sale of mortgage loans held for sale		(94	)		(79	)
Increase in cash value of bank-owned life insurance		(607	)		(589	)
Gain on disposal of premises and equipment, net		(9	)		-
Gain on sale of equity investment		(6,566	)		-
Equity based compensation expense		125			94
Net change in:
Accrued interest receivable		(491	)		56
Other assets		(1,160	)		(352	)
Accrued interest payable		(142	)		60
Other liabilities		(1,478	)		(723	)
Net cash provided by operating activities		6,812			4,633

Cash Flows from Investing Activities
Proceeds from repayments of mortgage-backed securities		16,641			6,722
Proceeds from calls, sales and maturities of securities available for sale		137,317			19,000
Purchases of available for sale securities		(156,733	)		-
Net change in restricted stock		(25	)		-
Proceeds from sale of equity investment		8,856			-
Purchase of loan participations		(13,162	)		(17,027	)
Collection of loan participations		880			2,060
Loan originations and principal collections, net		(2,744	)		(7,418	)
Recoveries on loans charged off		171			91
Purchases of premises and equipment		(419	)		(1,506	)
Proceeds from sale of premises and equipment		9			-
Net cash (used in) provided by investing activities		(9,209	)		1,922

Cash Flows from Financing Activities
Net change in time deposits		(2,694	)		(18,345	)
Net change in other deposits		5,183			1,167
Cash dividends paid		(4,779	)		(4,645	)
Net cash used in financing activities		(2,290	)		(21,823	)
Net change in cash and cash equivalents		(4,687	)		(15,268	)
Cash and cash equivalents at beginning of period		59,250			108,117
Cash and cash equivalents at end of period	$	54,563		$	92,849

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	For the Six Months Ended June 30,
(in thousands)	2026		2025
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest on deposits and borrowings	$	12,830	$	15,433
Income taxes		1,820		1,076

Supplemental Disclosure of Noncash Activities
Loans charged against the allowance for credit losses	$	276	$	253
Unrealized holding gain on securities available for sale		2,489		14,370
Lease liabilities arising from obtaining right-of-use assets during the period		-		354

See accompanying notes to consolidated financial statements.

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National Bankshares, Inc.

Notes to Consolidated Financial Statements

June 30, 2026

(Unaudited)

$ in thousands, except per share data

Note 1: General and Summary of Significant Accounting Policies

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

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

The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of results of operations for the full year or any other interim period. The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”). The Company’s significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the Company's 2025 Form 10-K. All amounts and disclosures included in this quarterly report as of December 31, 2025, were derived from the Company’s audited consolidated financial statements. Certain items in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications had no effect on prior year net income or stockholders’ equity. The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com.

Risks and Uncertainties

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

Recent Accounting Pronouncements

ASU 2025-08

In November 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2025-08,“Financial Instruments—Credit Losses (Topic 326): Purchased Loans.” The amendments in this ASU expand the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. This ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts this ASU in an interim reporting period, it should apply it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. The Company does not expect the adoption of ASU 2025-08 to have a material impact on its consolidated financial statements at the time of adoption; however, is considering the impacts to future acquisition activity.

ASU 2024-03

In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense

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captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.

Note 2: Loans and Allowance for Credit Losses

Loans

Loans include acquired loans and originated loans. Acquired loans are presented at their outstanding principal balance, net of the remaining purchase discount of $4,957 as of June 30, 2026 and $5,551 as of December 31, 2025. Originated loans as of June 30, 2026 and December 31, 2025 are presented at amortized cost. Accrued interest receivable of $3,780 at June 30, 2026 and $3,361 at December 31, 2025 is not included in total loans above and is excluded from the Company's estimate of credit losses on loans.

Past Due and Nonaccrual Loans

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


June 30, 2026	Accruing Current Loans		Accruing Loans 30 – 89 Days Past Due		Accruing Loans 90 or More Days Past Due		Nonaccrual Loans		Total Loans		Accruing and Nonaccrual 90 or More Days Past Due
Real Estate Construction
Construction, 1-4 family residential	$	17,059	$	415	$	-	$	-	$	17,474	$	-
Construction, other		54,746		-		-		-		54,746		-
Consumer Real Estate
Equity line		28,218		14		109		-		28,341		109
Residential closed-end first liens		194,398		1,448		116		-		195,962		116
Residential closed-end junior liens		10,570		5		-		-		10,575		-
Investor-owned residential real estate		95,326		-		-		-		95,326		-
Commercial Real Estate
Multifamily residential real estate		143,158		-		-		-		143,158		-
Commercial real estate owner-occupied		127,444		88		-		178		127,710		179
Commercial real estate, other		185,156		-		-		157		185,313		-
Commercial Non Real Estate
Commercial and industrial		49,124		492		-		-		49,616		-
Public Sector and IDA
States and political subdivisions		62,124		-		-		-		62,124		-
Consumer Non Real Estate
Credit cards		4,718		1		1		-		4,720		1
Automobile		13,102		241		-		-		13,343		-
Other consumer loans		26,637		350		17		-		27,004		17
Total	$	1,011,780	$	3,054	$	243	$	335	$	1,015,412	$	422

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December 31, 2025	Accruing Current Loans		Accruing Loans 30 – 89 Days Past Due		Accruing Loans 90 or More Days Past Due		Nonaccrual Loans		Total Loans		Accruing and Nonaccrual 90 or More Days Past Due
Real Estate Construction
Construction, 1-4 family residential	$	11,282	$	-	$	-	$	-	$	11,282	$	-
Construction, other		29,101		311		-		-		29,412		-
Consumer Real Estate
Equity line		27,494		-		50		-		27,544		50
Residential closed-end first liens		196,857		1,447		-		-		198,304		-
Residential closed-end junior liens		11,154		6		-		-		11,160		-
Investor-owned residential real estate		91,471		174		-		-		91,645		-
Commercial Real Estate
Multifamily residential real estate		148,644		189		-		-		148,833		-
Commercial real estate owner-occupied		130,856		-		429		188		131,473		617
Commercial real estate, other		186,939		538		-		-		187,477		-
Commercial Non Real Estate
Commercial and industrial		51,435		248		335		-		52,018		335
Public Sector and IDA
States and political subdivisions		63,677		-		-		-		63,677		-
Consumer Non Real Estate
Credit cards		4,727		7		2		-		4,736		2
Automobile		12,707		245		14		-		12,966		14
Other consumer loans		28,991		357		51		-		29,399		51
Total	$	995,335	$	3,522	$	881	$	188	$	999,926	$	1,069

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


	June 30, 2026						December 31, 2025
	With No Allowance		With an Allowance		Total		With No Allowance		With an Allowance		Total
Commercial Real Estate
Commercial real estate owner-occupied	$	-	$	178	$	178	$	-	$	188	$	188
Commercial real estate, other		-		157		157		-		-		-
Total	$	-	$	335	$	335	$	-	$	188	$	188

No accrued interest receivable was reversed against interest income during the three and six months ended June 30, 2026 or June 30, 2025.

Allowance for Credit Losses on Loans (“ACLL”)

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


	Activity in the ACLL for the Six Months Ended June 30, 2026
	Real Estate Construction		Consumer Real Estate			Commercial Real Estate		Commercial Non-Real Estate			Public Sector and IDA		Consumer Non-Real Estate			Total
Balance, December 31, 2025	$	337	$	3,823		$	3,805	$	849		$	308	$	770		$	9,892
Charge-offs		-		-			-		(22	)		-		(254	)		(276	)
Recoveries		-		3			-		52			-		116			171
Provision for (recovery of) credit losses		334		(10	)		29		(205	)		17		95			260
Balance, June 30, 2026	$	671	$	3,816		$	3,834	$	674		$	325	$	727		$	10,047

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	Activity in the ACLL for the Six Months Ended June 30, 2025
	Real Estate Construction		Consumer Real Estate			Commercial Real Estate		Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Total
Balance, December 31, 2024	$	350	$	3,945		$	4,320	$	658		$	338		$	651		$	10,262
Charge-offs		-		(3	)		-		-			-			(250	)		(253	)
Recoveries		-		-			16		31			-			44			91
Provision for (recovery of) credit losses		16		(6	)		99		(64	)		(15	)		292			322
Balance, June 30, 2025	$	366	$	3,936		$	4,435	$	625		$	323		$	737		$	10,422


	Activity in the ACLL for the Year Ended December 31, 2025
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Total
Balance, December 31, 2024	$	350		$	3,945		$	4,320		$	658		$	338		$	651		$	10,262
Charge-offs		-			(3	)		-			(50	)		-			(529	)		(582	)
Recoveries		-			-			133			33			-			109			275
Provision for (recovery of) credit losses		(13	)		(119	)		(648	)		208			(30	)		539			(63	)
Balance, December 31, 2025	$	337		$	3,823		$	3,805		$	849		$	308		$	770		$	9,892

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


	ACLL by Segment and Evaluation Method
June 30, 2026	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non-Real Estate		Public Sector and IDA		Consumer Non-Real Estate		Total
Individually evaluated	$	–	$	35	$	103	$	–	$	–	$	–	$	138
Collectively evaluated		671		3,781		3,731		674		325		727		9,909
Total	$	671	$	3,816	$	3,834	$	674	$	325	$	727	$	10,047


	ACLL by Segment and Evaluation Method
December 31, 2025	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Total
Individually evaluated	$	-	$	26	$	80	$	-	$	-	$	-	$	106
Collectively evaluated		337		3,797		3,725		849		308		770		9,786
Total	$	337	$	3,823	$	3,805	$	849	$	308	$	770	$	9,892

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


	Loans by Segment and Evaluation Method
June 30, 2026	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non-Real Estate		Public Sector and IDA		Consumer Non-Real Estate		Total
Individually evaluated	$	–	$	639	$	9,391	$	–	$	–	$	–	$	10,030
Collectively evaluated		72,220		329,565		446,790		49,616		62,124		45,067		1,005,382
Total	$	72,220	$	330,204	$	456,181	$	49,616	$	62,124	$	45,067	$	1,015,412


	Loans by Segment and Evaluation Method
December 31, 2025	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Total
Individually evaluated	$	-	$	465	$	8,337	$	-	$	-	$	-	$	8,802
Collectively evaluated		40,694		328,188		459,446		52,018		63,677		47,101		991,124
Total	$	40,694	$	328,653	$	467,783	$	52,018	$	63,677	$	47,101	$	999,926

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Collateral Dependent Loans

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

As of June 30, 2026 and December 31, 2025, two of the Company’s individually evaluated loans were collateral dependent and secured by real estate. The following table provides detail on collateral dependent loans as of the dates indicated:


	June 30, 2026				December 31, 2025
	Balance		Related Allowance		Balance		Related Allowance
Commercial Real Estate
Commercial real estate, owner occupied	$	6,183	$	-	$	6,248	$	-
Commercial real estate, other		663		-		673		-
Total Loans	$	6,846	$	-	$	6,921	$	-

Credit Quality

The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, payment history, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. General descriptions of risk ratings are as follows:

•

Pass: loans with acceptable credit quality are rated pass.

•

Special mention: loans with potential weakness due to challenging economic or financial conditions are rated special mention.

•

Classified: loans with well-defined weaknesses that heighten the risk of default are rated classified.

The following tables present the amortized cost basis of the loan portfolio by year of origination, loan class and credit quality as of the dates indicated.

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	Term Loans Amortized Cost Basis by Origination Year														Revolving Loans Converted
June 30, 2026	Prior		2022		2023		2024		2025		2026		Revolving		to Term		Total
Construction, residential
Pass	$	-	$	-	$	688	$	415	$	5,162	$	1,023	$	10,166	$	20	$	17,474
Construction, other
Pass	$	3,592	$	1,056	$	23,849	$	569	$	6,129	$	15,023	$	4,528	$	-	$	54,746
Equity lines
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	28,232	$	-	$	28,232
Classified		-		-		-		-		-		-		109		-		109
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	28,341	$	-	$	28,341
Residential closed-end first liens
Pass	$	81,024	$	32,375	$	28,451	$	18,070	$	23,532	$	11,906	$	95	$	-	$	195,453
Special Mention		-		126		-		-		-		-		-		-		126
Classified		383		-		-		-		-		-		-		-		383
Total	$	81,407	$	32,501	$	28,451	$	18,070	$	23,532	$	11,906	$	95	$	-	$	195,962
Residential closed-end junior liens
Pass	$	1,056	$	1,686	$	1,097	$	2,590	$	3,311	$	802	$	33	$	-	$	10,575
Investor-owned residential real estate
Pass	$	57,231	$	10,695	$	2,760	$	3,650	$	11,291	$	5,579	$	3,480	$	-	$	94,686
Classified		640		-		-		-		-		-		-		-		640
Total	$	57,871	$	10,695	$	2,760	$	3,650	$	11,291	$	5,579	$	3,480	$	-	$	95,326
Multifamily residential real estate
Pass	$	68,395	$	22,732	$	3,602	$	12,957	$	31,119	$	3,120	$	104	$	-	$	142,029
Classified		184		945		-		-		-		-		-		-		1,129
Total	$	68,579	$	23,677	$	3,602	$	12,957	$	31,119	$	3,120	$	104	$	-	$	143,158
Commercial real estate, owner-occupied
Pass	$	71,374	$	21,461	$	8,937	$	6,276	$	4,526	$	4,729	$	2,767	$	400	$	120,470
Special mention		6,183		-		-		-		-		-		-		-		6,183
Classified		914		-		-		-		-		-		143		-		1,057
Total	$	78,471	$	21,461	$	8,937	$	6,276	$	4,526	$	4,729	$	2,910	$	400	$	127,710
Commercial real estate, other
Pass	$	126,538	$	30,048	$	14,007	$	5,417	$	2,760	$	3,173	$	1,952	$	-	$	183,895
Special Mention		663		-		-		-		-		-		-		-		663
Classified		171		427		157		-		-		-		-		-		755
Total	$	127,372	$	30,475	$	14,164	$	5,417	$	2,760	$	3,173	$	1,952	$	-	$	185,313
Commercial and industrial
Pass	$	16,146	$	1,988	$	2,335	$	7,618	$	6,381	$	6,047	$	9,050	$	-	$	49,565
Special Mention		-		-		-		-		-		-		37		-		37
Classified		-		-		-		-		-		-		14		-		14
Total	$	16,146	$	1,988	$	2,335	$	7,618	$	6,381	$	6,047	$	9,101	$	-	$	49,616
Public sector and IDA
Pass	$	40,424	$	5,277	$	6,386	$	37	$	-	$	-	$	10,000	$	-	$	62,124
Credit cards
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	4,720	$	-	$	4,720
Automobile
Pass	$	106	$	429	$	1,422	$	2,313	$	4,865	$	4,191	$	-	$	-	$	13,326
Classified		-		-		-		-		17		-		-		-		17
Total	$	106	$	429	$	1,422	$	2,313	$	4,882	$	4,191	$	-	$	-	$	13,343
Other consumer
Pass	$	618	$	512	$	1,406	$	4,479	$	11,518	$	6,768	$	1,421	$	225	$	26,947
Special Mention		-		-		-		4		-		29		-		-		33
Classified		-		-		-		-		24		-		-		-		24
Total	$	618	$	512	$	1,406	$	4,483	$	11,542	$	6,797	$	1,421	$	225	$	27,004
Total Loans
Pass	$	466,504	$	128,259	$	94,940	$	64,391	$	110,594	$	62,361	$	76,548	$	645	$	1,004,242
Special Mention		6,846		126		-		4		-		29		37		-		7,042
Classified		2,292		1,372		157		-		41		-		266		-		4,128
Total	$	475,642	$	129,757	$	95,097	$	64,395	$	110,635	$	62,390	$	76,851	$	645	$	1,015,412

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	Term Loans Amortized Cost Basis by Origination Year														Revolving Loans Converted
December 31, 2025	Prior		2021		2022		2023		2024		2025		Revolving		to Term		Total
Construction, residential
Pass	$	-	$	-	$	-	$	265	$	1,135	$	5,780	$	3,565	$	537	$	11,282
Construction, other
Pass	$	3,702	$	752	$	1,107	$	16,721	$	1,045	$	2,293	$	3,742	$	50	$	29,412
Equity lines
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	27,494	$	-	$	27,494
Classified		-		-		-		-		-		-		50		-		50
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	27,544	$	-	$	27,544
Residential closed-end first liens
Pass	$	54,388	$	32,152	$	33,508	$	27,107	$	21,529	$	25,624	$	39	$	3,673	$	198,020
Special mention		47		-		130		-		-		-		-		-		177
Classified		107		-		-		-		-		-		-		-		107
Total	$	54,542	$	32,152	$	33,638	$	27,107	$	21,529	$	25,624	$	39	$	3,673	$	198,304
Residential closed-end junior liens
Pass	$	1,208	$	241	$	1,757	$	1,269	$	3,106	$	3,547	$	32	$	-	$	11,160
Investor-owned residential real estate
Pass	$	44,806	$	15,403	$	10,847	$	2,956	$	3,760	$	11,172	$	2,236	$	-	$	91,180
Classified		465		-		-		-		-		-		-		-		465
Total	$	45,271	$	15,403	$	10,847	$	2,956	$	3,760	$	11,172	$	2,236	$	-	$	91,645
Multifamily residential real estate
Pass	$	40,234	$	38,409	$	26,165	$	4,126	$	13,043	$	26,180	$	137	$	-	$	148,294
Classified		189		-		350		-		-		-		-		-		539
Total	$	40,423	$	38,409	$	26,515	$	4,126	$	13,043	$	26,180	$	137	$	-	$	148,833
Commercial real estate, owner occupied
Pass	$	69,884	$	6,700	$	24,662	$	9,084	$	5,913	$	4,810	$	2,669	$	-	$	123,722
Special mention		6,248		-		-		-		-		-		-		-		6,248
Classified		1,014		102		-		-		125		-		262		-		1,503
Total	$	77,146	$	6,802	$	24,662	$	9,084	$	6,038	$	4,810	$	2,931	$	-	$	131,473
Commercial real estate, other
Pass	$	96,143	$	34,432	$	30,660	$	14,173	$	6,047	$	3,039	$	1,613	$	-	$	186,107
Classified		673		-		538		159		-		-		-		-		1,370
Total	$	96,816	$	34,432	$	31,198	$	14,332	$	6,047	$	3,039	$	1,613	$	-	$	187,477
Commercial and industrial
Pass	$	6,927	$	9,845	$	2,502	$	3,318	$	9,388	$	7,662	$	11,842	$	170	$	51,654
Special mention		-		-		-		-		-		-		20		-		20
Classified		-		-		-		-		313		-		31		-		344
Total	$	6,927	$	9,845	$	2,502	$	3,318	$	9,701	$	7,662	$	11,893	$	170	$	52,018
Public sector and IDA
Pass	$	18,540	$	23,207	$	5,495	$	6,390	$	45	$	-	$	10,000	$	-	$	63,677
Credit cards
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	4,736	$	-	$	4,736
Automobile
Pass	$	49	$	212	$	700	$	2,257	$	3,390	$	6,343	$	-	$	-	$	12,951
Classified		-		1		-		-		-		14		-		-		15
Total	$	49	$	213	$	700	$	2,257	$	3,390	$	6,357	$	-	$	-	$	12,966
Other Consumer
Pass	$	371	$	413	$	933	$	2,235	$	6,033	$	17,762	$	1,589	$	-	$	29,336
Special mention		-		-		-		-		5		0		-		-		5
Classified		-		-		3		47		4		2		2		-		58
Total	$	371	$	413	$	936	$	2,282	$	6,042	$	17,764	$	1,591	$	-	$	29,399
Total Loans
Pass	$	336,252	$	161,766	$	138,336	$	89,901	$	74,434	$	114,212	$	69,694	$	4,430	$	989,025
Special mention		6,295		-		130		-		5		-		20		-		6,450
Classified		2,448		103		891		206		442		16		345		-		4,451
Total	$	344,995	$	161,869	$	139,357	$	90,107	$	74,881	$	114,228	$	70,059	$	4,430	$	999,926

The following tables present gross charge offs during the periods indicated, by loan class and year of origination:

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	Gross Charge Offs by Origination Year for the Six Months Ended June 30, 2026														Revolving Loans Converted
	Prior		2022		2023		2024		2025		2026		Revolving		to Term		Total
Commercial and industrial	$	-	$	-	$	-	$	-	$	-	$	-	$	22	$	-	$	22
Credit cards		-		-		-		-		-		-		38		-		38
Automobile		1		-		-		-		17		-		-		-		18
Other consumer		-		3		18		68		39		68		2		-		198
Total gross charge-offs	$	1	$	3	$	18	$	68	$	56	$	68	$	62	$	-	$	276


	Gross Charge Offs by Origination Year for the Twelve Months Ended December 31, 2025														Revolving Loans Converted
	Prior		2021		2022		2023		2024		2025		Revolving		to Term		Total
Residential closed-end first liens	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	3
Commercial and industrial		-		-		-		50		-		-		-		-		50
Credit cards		-		-		-		-		-		-		54		-		54
Automobile		-		4		22		59		23		-		-		-		108
Other consumer		-		1		36		40		78		212		-		-		367
Total gross charge-offs	$	3	$	5	$	58	$	149	$	101	$	212	$	54	$	-	$	582

Loan Modifications to Borrowers Experiencing Financial Difficulty

On the date a loan is modified, the Company assesses whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan is risk rated special mention or classified, as appropriate. If the loan exceeds $400, if it is placed in nonaccrual, or if foreclosure is probable, the loan is individually evaluated for the ACLL. No loans were modified for borrowers experiencing financial difficulty during the three and six month periods ended June 30, 2026, or June 30, 2025.

Consumer Real Estate Loans In Process of Foreclosure

As of June 30, 2026, there were three consumer real estate loans totaling $130 in process of foreclosure. As of December 31, 2025, three consumer real estate loans totaling $126 were in process of foreclosure.

ACL for Unfunded Commitments

The following tables present the balance and activity in the ACL for unfunded commitments for the six months ended June 30, 2026 and 2025:


Allowance for Credit Losses on Unfunded Commitments
Balance, December 31, 2025	$	298
Recovery of credit losses		(16	)
Balance, June 30, 2026	$	282

Balance, December 31, 2024	$	251
Recovery of credit losses		(10	)
Balance, June 30, 2025	$	241

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Note 3: Securities

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


June 30, 2026	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agencies and corporations	$	190,735	$	-	$	20,599	$	170,136
States and political subdivisions		177,135		-		24,406		152,729
Mortgage-backed securities		329,651		353		4,173		325,831
Corporate debt securities		4,502		-		538		3,964
Total securities available for sale	$	702,023	$	353	$	49,716	$	652,660


December 31, 2025	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agencies and corporations	$	312,353	$	-	$	24,298	$	288,055
States and political subdivisions		177,453		-		23,736		153,717
Mortgage-backed securities		210,918		129		3,406		207,641
Corporate debt securities		5,505		-		541		4,964
Total securities available for sale	$	706,229	$	129	$	51,981	$	654,377

The following tables present information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous loss position, as of the dates indicated:


	Less Than 12 Months				12 Months or More
June 30, 2026	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government agencies and corporations	$	1,986	$	14	$	168,150	$	20,585
State and political subdivisions		2,797		378		149,548		24,028
Mortgage-backed securities		187,949		1,796		36,248		2,377
Corporate debt securities		-		-		3,964		538
Total temporarily impaired securities	$	192,732	$	2,188	$	357,910	$	47,528


	Less Than 12 Months				12 Months or More
December 31, 2025	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government agencies and corporations	$	-	$	-	$	288,055	$	24,298
State and political subdivisions		1,680		364		151,652		23,372
Mortgage-backed securities		55,986		223		99,446		3,183
Corporate debt securities		-		-		4,964		541
Total temporarily impaired securities	$	57,666	$	587	$	544,117	$	51,394

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

At June 30, 2026, the Company had 410 securities with a fair value of $550,642 in an unrealized loss position. The Company reviews securities in an unrealized loss position to evaluate credit risk. The Company considers payment history, risk ratings from external parties, financial statements for municipal and corporate securities, public statements from issuers and other available credible published sources in evaluating credit risk. No credit losses were identified and no ACL on securities available for sale was recorded as of June 30, 2026. The unrealized losses are attributed to noncredit-related factors, including changes in interest rates and other market conditions. The Company does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The contractual terms of the investments do not permit the

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issuers to settle the securities at a price less than the cost basis of the investments. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

The amortized cost and fair value of securities available for sale at June 30, 2026, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities included in these totals are categorized by final maturity.


June 30, 2026	Amortized Cost		Fair Value
Available for Sale:
Due in one year or less	$	20,517	$	20,305
Due after one year through five years		130,924		119,640
Due after five years through ten years		178,222		154,468
Due after ten years		372,360		358,247
Total securities available for sale	$	702,023	$	652,660

Accrued interest receivable on securities, included in accrued interest receivable on the Consolidated Balance Sheets, totaled $3,249 at June 30, 2026 and $3,177 at December 31, 2025.

The deferred tax asset for the net unrealized loss on securities available for sale was $10,366 as of June 30, 2026 and $10,889 as of December 31, 2025. The deferred tax asset is included in other assets on the Consolidated Balance Sheets.

Realized Securities Gains and Losses

During 2026, the Company realized a loss of $6,549 on the sale securities under a restructuring plan to manage interest rate risk. No securities were sold in 2025. Information pertaining to realized losses on sold securities follows:


	Sale of Available for Sale Securities
For the Three and Six Months Ended	Proceeds		Amortized Cost		Gross Gain		Gross Loss			Net Loss
June 30, 2026	$	125,317	$	131,866	$	-	$	(6,549	)	$	(6,549	)

Restricted Stock.

The Company held restricted stock of $1,872 as of June 30, 2026 and $1,848 as of December 31, 2025. Restricted stock is reported separately from available for sale securities and is included in other assets on the Consolidated Balance Sheets. As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. The Company purchases stock from or sells stock back to the correspondents based on their calculations. The stock is held by member institutions only and is not actively traded.

Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling $504,596 at June 30, 2026. The Company’s management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at June 30, 2026, did not determine any impairment.

Note 4: Defined Benefit Plan

The following table presents components of net periodic benefit income for the periods indicated:


	Net Periodic Benefit Income
	Three Months Ended June 30,
	2026			2025
Service cost	$	287		$	248
Interest cost		341			324
Expected return on plan assets		(739	)		(692	)
Net periodic benefit income	$	(111	)	$	(120	)

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	Net Periodic Benefit Income
	Six Months Ended June 30,
	2026			2025
Service cost	$	574		$	496
Interest cost		682			648
Expected return on plan assets		(1,479	)		(1,385	)
Net periodic benefit income	$	(223	)	$	(241	)

The service cost component of net periodic benefit cost is included in salaries and employee benefits expense in the Consolidated Statements of Income. All other components are included in other operating expense in the Consolidated Statements of Income.

Note 5: Fair Value Measurements

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


	Level 1 –		Valuation is based on quoted prices in active markets for identical assets and liabilities.
	Level 2 –		Valuation is based on observable inputs including: • quoted prices in active markets for similar assets and liabilities, • quoted prices for identical or similar assets and liabilities in less active markets, • inputs other than quoted prices that are observable, and • model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
	Level 3 –		Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

Fair value is best determined by quoted market prices. However, in cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements.

Financial Instruments Measured at Fair Value on a Recurring Basis

Securities Available for Sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated.


			Fair Value Measurement Using
June 30, 2026	Balance		Level 1		Level 2		Level 3
U.S. government agencies and corporations	$	170,136	$	-	$	170,136	$	-
States and political subdivisions		152,729		-		152,729		-
Mortgage-backed securities		325,831		-		325,831		-
Corporate debt securities		3,964		-		3,964		-
Total securities available for sale	$	652,660	$	-	$	652,660	$	-

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			Fair Value Measurement Using
December 31, 2025	Balance		Level 1		Level 2		Level 3
U.S. government agencies and corporations	$	288,055	$	-	$	288,055	$	-
States and political subdivisions		153,717		-		153,717		-
Mortgage-backed securities		207,641		-		207,641		-
Corporate debt securities		4,964		-		4,964		-
Total securities available for sale	$	654,377	$	-	$	654,377	$	-

The Company’s securities portfolio is valued using Level 2 inputs. The Company relies on an independent third party vendor to provide market valuations. The inputs used to determine value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio. Level 2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any, may impact securities fair value, deferred tax assets or liabilities, or expense.

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

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

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on mortgage loans held for sale as of June 30, 2026 or December 31, 2025.

Collateral Dependent Loans

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

For loans secured by real estate, fair value of collateral is determined by the “as-is” value of appraisals or third party evaluations that are less than 24 months of age. Appraisals are prepared by independent, licensed appraisers. Appraisals are based upon observable market data analyzed through an income or sales valuation approach. Valuation falls within Level 2 categorization. The Company may further discount appraisals for marketing strategies, which results in Level 3 categorization.

The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

As of June 30, 2026, two commercial real estate loans totaling $6,846 were measured under the fair value of collateral method using third party appraisals (Level 2). None of the measurements resulted in a specific allocation. As of December 31, 2025, two commercial real estate loans totaling $6,921 were measured under the fair value of collateral method using third party appraisals (Level 2). None of the measurements resulted in a specific allocation.

Restricted Stock

The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity.

Fair Value Summary

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

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			Estimated Fair Value
June 30, 2026	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	8,854	$	8,854	$	-	$	-
Interest-bearing deposits		45,709		45,709		-		-
Securities available for sale		652,660		-		652,660		-
Restricted stock, at cost		1,872		-		1,872		-
Mortgage loans held for sale		331		-		331		-
Loans, net		1,004,607		-		-		979,795
Accrued interest receivable		7,029		-		7,029		-
Bank-owned life insurance		49,174		-		49,174		-
Financial liabilities:
Deposits	$	1,629,456	$	-	$	1,314,606	$	314,600
Accrued interest payable		1,439		-		1,439		-


			Estimated Fair Value
December 31, 2025	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	8,419	$	8,419	$	-	$	-
Interest-bearing deposits		50,831		50,831		-		-
Securities available for sale		654,377		-		654,377		-
Restricted stock, at cost		1,848		-		1,848		-
Loans, net		989,418		-		-		955,899
Accrued interest receivable		6,538		-		6,538		-
Bank-owned life insurance		48,568		-		48,568		-
Financial liabilities:
Deposits	$	1,626,933	$	-	$	1,309,423	$	317,625
Accrued interest payable		1,581		-		1,581		-

Note 6: Components of Accumulated Other Comprehensive Loss

The following tables summarize the activity related to each component of accumulated other comprehensive loss for the periods indicated:


	Net Unrealized Loss on Securities			Adjustments Related to Pension Benefits		Accumulated Other Comprehensive Loss
Balance at March 31, 2025	$	(54,503	)	$	328	$	(54,175	)
Unrealized holding gain on available for sale securities, net of tax of $1,000		3,763			-		3,763
Balance at June 30, 2025	$	(50,740	)	$	328	$	(50,412	)

Balance at March 31, 2026	$	(43,517	)	$	1,290	$	(42,227	)
Unrealized holding loss on available for sale securities, net of tax of ($173)		(654	)		-		(654	)
Reclassificationi adjustment, net of tax of $1,375		5,174			-		5,174
Balance at June 30, 2026	$	(38,997	)	$	1,290	$	(37,707	)

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	Net Unrealized Loss on Securities			Adjustments Related to Pension Benefits		Accumulated Other Comprehensive Loss
Balance at December 31, 2024	$	(62,093	)	$	328	$	(61,765	)
Unrealized holding gain on available for sale securities, net of tax of $3,017		11,353			-		11,353
Balance at June 30, 2025	$	(50,740	)	$	328	$	(50,412	)

Balance at December 31, 2025	$	(40,964	)	$	1,290	$	(39,674	)
Unrealized holding loss on available for sale securities, net of tax of ($853)		(3,207	)		-		(3,207	)
Reclassification adjustment, net of tax of $1,375		5,174			-		5,174
Balance at June 30, 2026	$	(38,997	)	$	1,290	$	(37,707	)

Note 7: Revenue Recognition

Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams such as service charges on deposit accounts, other service charges and fees, credit and debit card fees, trust income, and annuity and insurance commissions are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance. Noninterest revenue streams within the scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

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

Other Service Charges and Fees

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

Credit and Debit Card Fees

Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa and MasterCard. Merchant services income mainly represents commission fees based upon merchant processing volume. The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. In compliance with Topic 606, credit and debit card fee income is presented net of associated expense.

Trust Income

Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Estate

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management fees are based upon the size of the estate. A partial fee is recognized half-way through the estate administration and the remainder of the fee is recognized when remaining assets are distributed and the estate is closed.

Insurance and Investment

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

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

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated:


	Three Months Ended June 30,
Noninterest Income	2026		2025
In-scope of Topic 606:
Service charges on deposit accounts	$	690	$	734
Other service charges and fees		69		73
Credit and debit card fees, net		544		366
Trust income		667		578
Insurance and Investment (1)		208		170
Noninterest Income (in-scope of Topic 606)	$	2,178	$	1,921
Noninterest Income (out-of-scope of Topic 606)		468		358
Total noninterest income	$	2,646	$	2,279


	Six Months Ended June 30,
Noninterest Income	2026		2025
In-scope of Topic 606:
Service charges on deposit accounts	$	1,339	$	1,433
Other service charges and fees		211		156
Credit and debit card fees, net		1,001		783
Trust income		1,251		1,157
Insurance and Investment (1)		584		524
Noninterest Income (in-scope of Topic 606)	$	4,386	$	4,053
Noninterest Income (out-of-scope of Topic 606)		939		786
Total noninterest income	$	5,325	$	4,839

(1) Included within other income in the Consolidated Statements of Income

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Note 8: Leases

The Company categorizes leases as short-term, operating or finance leases. Leases with terms of 12 months or less are designated as short-term and are not capitalized. Operating and finance leases are capitalized as right-of-use assets and lease liabilities. Right-of-use assets, included in other assets, represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Lease liabilities, included in other liabilities, represent the Company’s obligation to make lease payments and are reported at the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The Company does not separate non-lease components from lease components within a single contract. Counterparties for the Company’s lease contracts are external to the Company and not related parties.

Lease payments

Short-term lease payments are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Operating and finance lease payments may be fixed for the term of the lease or variable. If the escalation factor for a variable lease payment is known, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability.

Options to Extend, Residual Value Guarantees, Restrictions and Covenants

Certain of the Company’s operating leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about leases as of the dates and for the periods indicated:


	June 30,			December 31,
	2026			2025
Lease liability	$	1,789		$	2,038
Right-of-use asset	$	1,600		$	1,839
Weighted average remaining lease term (in years)		3.85			4.26
Weighted average discount rate		3.91	%		3.90	%


	For the Three Months Ended June 30,
Lease Expense	2026		2025
Operating lease expense	$	134	$	104
Cash paid for amounts included in lease liabilities	$	138	$	112


	For the Six Months Ended June 30,
Lease Expense	2026		2025
Operating lease expense	$	268	$	210
Cash paid for amounts included in lease liabilities	$	278	$	224
Right-of-use assets obtained in exchange for operating lease liabilities commencing during the period	$	-	$	354

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


Undiscounted Cash Flow for the Period	As of June 30, 2026
Twelve months ending June 30, 2027	$	532
Twelve months ending June 30, 2028		521
Twelve months ending June 30, 2029		417
Twelve months ending June 30, 2030		293
Twelve months ending June 30, 2031		143
Thereafter		12
Total undiscounted cash flows	$	1,918
Less: discount		(129	)
Lease liability	$	1,789

Note 9: Stock Based Compensation

The Company’s 2023 Stock Incentive Plan (“the Plan”) provides for the grant of various forms of stock-based compensation awards that may be settled in, or based upon the value of, the Company’s common stock. The maximum number of shares available for issuance under the Plan is 120,000 shares. The restricted stock has voting rights and rights to dividends, which are paid upon the vest date. For further information on the Plan, please refer to the Company’s 2025 Form 10-K.

Restricted Stock Awards and Restricted Stock Units

As of December 31, 2025, the Company had nonvested restricted stock awards ("RSAs"), granted to non-employee directors, and restricted stock units ("RSUs"), granted to designated employees. During 2026, the Company awarded to designated employees additional RSUs that will vest in equal parts in 2027, 2028, and 2029. The Company also granted to directors additional RSAs that will vest in 2027.

The Company valued the RSAs and RSUs at the closing stock price on the grant date. The Company records expense over the associated vesting period. Stock based compensation expense charged against income was $63 and $125 for the three and six months ended June 30, 2026 and $51 and $94 for the three and six months ended June 30, 2025. As of June 30, 2026, compensation expense of $188 related to the nonvested RSAs and RSUs is expected to be recognized over the coming 12 months. A summary of changes in the Company’s nonvested RSAs and RSUs under the Plan for the six months ended June 30, 2026 follows:


	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2026		9,584		$	28.85
Granted		6,937			37.25
Vested and released		(2,630	)		26.59
Forfeited		(1,835	)		33.11
Nonvested at June 30, 2026		12,056		$	33.53

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Note 10: Net Income Per Common Share

The factors used in the computation of net income per common share for the periods indicated are presented below:


	For the Three Months Ended June 30,
	2026						2025
	Net Income (Numerator)		Common Shares Weighted Average Outstanding (Denominator)		Per Share		Net Income (Numerator)		Common Shares Weighted Average Outstanding (Denominator)		Per Share
Basic net income per common share	$	5,029		6,363,920	$	0.79	$	2,289		6,358,917	$	0.36
Dilutive shares				3,241						2,665
Diluted net income per common share	$	5,029		6,367,161	$	0.79	$	2,289		6,361,582	$	0.36


	For the Six Months Ended June 30,
	2026						2025
	Net Income (Numerator)		Common Shares Weighted Average Outstanding (Denominator)		Per Share		Net Income (Numerator)		Common Shares Weighted Average Outstanding (Denominator)		Per Share
Basic net income per common share	$	10,010		6,363,647	$	1.57	$	5,525		6,358,665	$	0.87
Dilutive shares				3,013						2,325
Diluted net income per common share	$	10,010		6,366,660	$	1.57	$	5,525		6,360,990	$	0.87

RSAs are disregarded in the computation of diluted net income per share if they are determined to be anti-dilutive. There were no anti-dilutive RSAs for the three and six months ended June 30, 2026 and June 30, 2025.

Note 11 – Goodwill and Other Intangibles

Core deposit intangible amortization expense was $84 and $171 for the three and six months ended June 30, 2026. Core deposit intangible amortization expense was $95 and $192 for the three and six months ended June 30, 2025. The following table provides information on the significant components of goodwill and other acquired intangible assets during the six months ended June 30, 2026:


	Beginning Balance		Additions		Amortization			Ending Balance
Goodwill	$	10,718	$	-	$	-		$	10,718
Core deposit intangible	$	1,490	$	-	$	(171	)	$	1,319

As of June 30, 2026, estimated future remaining amortization of the core deposit intangible within the years ending December 31, is as follows:


	Amortization Expense
2026	$	161
2027		290
2028		248
2029		207
2030		165
2031		123
Thereafter		125
Total amortizing core deposit intangible	$	1,319

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

$ in thousands, except per share data

The purpose of this discussion and analysis is to provide information about the financial condition and results of operations of the Company. Please refer to the financial statements and other information included in this report as well as the Company’s 2025 Form 10-K for an understanding of the following discussion and analysis. References in the following discussion and analysis to “we” or “us” refer to the Company unless the context indicates that the reference is to the Bank.

Cautionary Statement Regarding Forward-Looking Statements

We make forward-looking statements in this Form 10-Q that are subject to significant risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon management’s views and assumptions as of the date of this report. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements.

These forward-looking statements are based upon or are affected by factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, effects of or changes in:

•

inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments,

•

the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged,

•

the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses,

•

general and local economic conditions,

•

monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation (“FDIC”), and the impact of any policies or programs implemented pursuant to financial reform legislation,

•

unanticipated increases in the level of unemployment in the Company’s market,

•

the quality or composition of the loan and/or investment portfolios,

•

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

•

the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events,

•

the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment,

•

performance by the Company’s counterparties or vendors,

•

applicable accounting principles, policies and guidelines, and

•

risks associated with mergers, acquisitions, and other expansion activities.

These risks and uncertainties should be considered in evaluating the forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which speak only as of the date of this report. This discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A of the Company's 2025 Form 10-K.

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Overview

NBI is a financial holding company that was organized in 1986 under the laws of Virginia and is registered under the Bank Holding Company Act of 1956. NBI common stock is listed on the Nasdaq Capital Market and is traded under the symbol “NKSH.”

NBI has two wholly-owned subsidiaries; the National Bank of Blacksburg ("NBB") and National Bankshares Financial Services, Inc. ("NBFS"). NBB is a community bank and does business as National Bank from 28 office locations and one loan production office. NBB is the source of nearly all of the Company’s revenue. NBFS does business as National Bankshares Investment Services and National Bankshares Insurance Services.

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

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

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

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.

Pension Plan

Pension obligations are determined through actuarial calculations based upon significant assumptions, including the IRS mortality table, an effective interest rate of 5.35% for 2026 and 5.32% for 2025, a discount rate of 5.25% for 2026 and 5.50% for 2025, anticipated

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rate of compensation increases of 4% for both 2026 and 2025, and an expected long-term rate of return of 7.50% for 2026 and 2025. Actual outcomes could vary from the assumptions and result in underaccrual or overaccrual of pension obligations.

For information on the Company's critical accounting policies, please refer to the Company’s 2025 Form 10-K, Note 1: Summary of Significant Accounting Policies.

Performance Summary

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

The following table presents the Company’s key performance indicators for the periods indicated:


	Three Months Ended June 30,
	2026			2025
Net Income	$	5,029		$	2,289
Return on average assets		1.10	%		0.51	%
Adjusted return on average assets (1)		1.09	%		0.77	%
Return on average equity		10.66	%		5.50	%
Adjusted return on average equity (1)		10.64	%		8.37	%
Basic net income income per common share	$	0.79		$	0.36
Diluted net income income per common share(2)	$	0.79		$	0.36
Net interest margin (1)		3.00	%		2.56	%
Efficiency ratio (1)		58.40	%		63.83	%


	Six Months Ended June 30,
Summary Key Performance Indicators	2026			2025
Net Income	$	10,010		$	5,525
Return on average assets		1.10	%		0.61	%
Adjusted return on average assets (1)		1.09	%		0.69	%
Return on average equity		10.76	%		6.80	%
Adjusted return on average equity (1)		10.65	%		7.69	%
Basic net income per common share	$	1.57		$	0.87
Diluted net income per common share(2)	$	1.57		$	0.87
Net interest margin (1)		2.99	%		2.48	%
Efficiency ratio (1)		59.17	%		64.87	%

(1)

See “Non-GAAP Financial Measures” below.

(2)

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

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

Non-GAAP Financial Measures

This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP. Details on non-GAAP measures follow.

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Net Interest Margin

The Company uses the net interest margin (non-GAAP) to measure profitability of interest generating activities, as a percentage of total interest-earning assets. The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis. The portion of interest income that is nontaxable is grossed up to the tax equivalent by adding the tax benefit based on a tax rate of 21%. Annualized FTE net interest income is divided by total average earning assets to calculate the net interest margin. The following tables present the reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, for the periods indicated:


	Three Months Ended June 30,
Net Interest Margin, FTE	2026			2025
Interest income (GAAP)	$	19,454		$	18,536
Add: FTE adjustment		249			213
Interest income, FTE (non-GAAP)		19,703			18,749
Interest expense (GAAP)		6,404			7,546
Net interest income, FTE (non-GAAP)	$	13,299		$	11,203
Average balance of interest-earning assets	$	1,777,146		$	1,758,449
Net interest margin		3.00	%		2.56	%


	Six Months Ended June 30,
Net Interest Margin, FTE	2026			2025
Interest income (GAAP)	$	38,395		$	36,734
Add: FTE adjustment		506			421
Interest income, FTE (non-GAAP)		38,901			37,155
Interest expense (GAAP)		12,722			15,493
Net interest income, FTE (non-GAAP)	$	26,179		$	21,662
Average balance of interest-earning assets	$	1,763,611		$	1,762,525
Net interest margin (non-GAAP)		2.99	%		2.48	%

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.


	Three Months Ended June 30,
Efficiency Ratio	2026			2025
Noninterest expense (GAAP)	$	9,302		$	10,582
Less: core system conversion expense		-			(1,977	)
Adjusted noninterest expense (non-GAAP)	$	9,302		$	8,605
Noninterest income (GAAP)	$	2,646		$	2,279
Less: gain on sale of equity investment		(6,566	)		-
Less: loss on sale of securities, net		6,549			-
Adjusted noninterest income (non-GAAP)		2,629			2,279
Net interest income, FTE (non-GAAP)		13,299			11,203
Total income for efficiency ratio (non-GAAP)	$	15,928		$	13,482
Efficiency ratio		58.40	%		63.83	%

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	Six Months Ended June 30,
Efficiency Ratio	2026			2025
Noninterest expense (GAAP)	$	18,630		$	19,215
Less: core system conversion expense		-			(2,023	)
Adjusted noninterest expense (non-GAAP)	$	18,630		$	17,192
Noninterest income (GAAP)	$	5,325		$	4,839
Less: gain on sale of equity investment		(6,566	)		-
Less: loss on sale of securities, net		6,549			-
Adjusted noninterest income (non-GAAP)		5,308			4,839
Net interest income, FTE (non-GAAP)		26,179			21,662
Total income for efficiency ratio (non-GAAP)	$	31,487		$	26,501
Efficiency ratio (non-GAAP)		59.17	%		64.87	%

Adjusted Return on Average Assets and Adjusted Return on Average Equity

The adjusted return on average assets (non-GAAP) and adjusted return on average equity (non-GAAP) are measures of profitability, calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively. Significant income or expenses that are unusual or not expected to recur during the year are not annualized, in order to reduce distortion within the ratios. The tables below present the reconciliation of adjusted annualized net income, which is not a measurement under GAAP, for the periods indicated.


	Three Months Ended June 30,
Annualized Net Income for Ratio Calculation	2026			2025
Net income per GAAP	$	5,029		$	2,289
Less: items not annualized:
Partnership loss net of tax of $8 for the peiod ended June 30, 2025		-			31
Gain on sale of equity investment, net of tax of ($1,379) for the period ended June 30, 2026		(5,187	)		-
Loss on sale of securities, net, net of tax of $1,375 for the period ended June 30, 2026		5,174			-
Core system conversion expense, net of tax of $415 for the period ended June 30, 2025		-			1,562
Total non-annualized items		(13	)		1,593
Adjusted net income	$	5,016		$	3,882
Adjusted net income, annualized	$	20,119		$	15,571
Add: total non-annualized items		13			(1,593	)
Annualized net income for ratio calculation (non-GAAP)	$	20,132		$	13,978
Return on average assets (GAAP)		1.10	%		0.51	%
Adjusted return on average assets (non-GAAP)		1.09	%		0.77	%
Return on average equity (GAAP)		10.66	%		5.50	%
Adjusted return on average equity (non-GAAP)		10.64	%		8.37	%

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	Six Months Ended June 30,
Annualized Net Income for Ratio Calculation	2026			2025
Net income per GAAP	$	10,010		$	5,525
Less items not annualized:
Partnership income net of tax of ($49) and ($44) for the periods ended June 30, 2026 and 2025, respectively		(184	)		(166	)
Gain on sale of equity investment, net of tax of ($1,379) for the period ended June 30, 2026		(5,187	)		-
Loss on sale of securities, net, net of tax of $1,375 for the period ended June 30, 2026		5,174			-
Core system conversion expense, net of tax of $425 for the period ended June 30, 2025		-			1,598
Total non-annualized items		(197	)		1,432
Adjusted net income	$	9,813		$	6,957
Adjusted net income, annualized	$	19,789		$	14,029
Add: total non-annualized items		197			(1,432	)
Annualized net income for ratio calculation (non-GAAP)	$	19,986		$	12,597
Return on average assets (GAAP)		1.10	%		0.61	%
Adjusted return on average assets (non-GAAP)		1.09	%		0.69	%
Return on average equity (GAAP)		10.76	%		6.80	%
Adjusted return on average equity (non-GAAP)		10.65	%		7.69	%

Net Interest Income

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


	Three Months Ended June 30,
	2026							2025
($ in thousands)	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans (1)(2)(3)(4)(5)	$	1,007,549	$	14,226		5.66	%	$	1,008,401	$	13,618		5.42	%
Taxable securities (5)		636,331		4,439		2.80	%		596,497		3,725		2.50	%
Nontaxable securities (1)(5)		62,388		433		2.78	%		62,847		426		2.72	%
Federal funds sold		-		-		-			197		2		4.07	%
Interest-bearing deposits		70,878		605		3.42	%		90,507		978		4.33	%
Total interest-earning assets	$	1,777,146	$	19,703		4.45	%	$	1,758,449	$	18,749		4.28	%
Interest-bearing liabilities:
Interest-bearing demand deposits	$	869,047	$	3,803		1.76	%	$	853,516	$	4,440		2.09	%
Savings deposits		141,382		53		0.15	%		143,470		48		0.13	%
Time deposits(6)		311,990		2,541		3.27	%		330,906		3,058		3.71	%
Borrowings		769		7		3.65	%		-		-		-
Total interest-bearing liabilities	$	1,323,188	$	6,404		1.94	%	$	1,327,892	$	7,546		2.28	%
Net interest income and interest rate spread			$	13,299		2.51	%			$	11,203		2.00	%
Net interest margin						3.00	%						2.56	%

(1)

Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.

(2)

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

(3)

Nonaccrual loans are included in average balances for yield computations.

(4)

Includes loans held for sale.

(5)

Daily averages are shown at amortized cost.

(6)

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

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	Six Months Ended June 30,
	2026							2025
($ in thousands)	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans (1)(2)(3)(4)(5)	$	1,001,538	$	28,337		5.71	%	$	1,001,763	$	26,696		5.37	%
Taxable securities (5)		638,179		8,672		2.74	%		605,170		7,585		2.53	%
Nontaxable securities (1)(5)		62,444		863		2.79	%		62,905		852		2.73	%
Federal funds sold		-		-		-			229		5		4.40	%
Interest-bearing deposits		61,450		1,029		3.38	%		92,458		2,017		4.40	%
Total interest-earning assets	$	1,763,611	$	38,901		4.45	%	$	1,762,525	$	37,155		4.25	%
Interest-bearing liabilities:
Interest-bearing demand deposits	$	862,165	$	7,438		1.74	%	$	862,213	$	9,023		2.11	%
Savings deposits		142,904		105		0.15	%		143,727		101		0.14	%
Time deposits(6)		313,860		5,172		3.32	%		336,085		6,369		3.82	%
Borrowings		387		7		3.65	%		-		-		-
Total interest-bearing liabilities	$	1,319,316	$	12,722		1.94	%	$	1,342,025	$	15,493		2.33	%
Net interest income and interest rate spread			$	26,179		2.51	%			$	21,662		1.92	%
Net interest margin						2.99	%						2.48	%

(1)

Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.

(2)

Included in interest income are loan fees of $371 and $199 for the six months ended June 30, 2026 and 2025, respectively. Also included in interest income is accretion of discounts on acquired loans of $594 and $615 for the six months ended June 30, 2026 and 2025, respectively.

(3)

Nonaccrual loans are included in average balances for yield computations.

(4)

Includes loans held for sale.

(5)

Daily averages are shown at amortized cost.

(6)

Included in interest expense is amortization of premium on acquired time deposits of $34 and $101 for the six months ended June 30, 2026 and 2025, respectively.

When the three and six months ended June 30, 2026 and 2025 are compared, improvement in the net interest margin stemmed from higher yields on loans and securities and lower cost of time deposits and interest bearing demand deposits, somewhat offset by lower yield on interest-bearing deposit assets. The Federal Reserve's interest rate cuts between September 2024 and December 2025 immediately reduced expense for deposits with pricing based on the prime interest rate. Current interest rates are still at a level that will allow improved interest income as loans continue to reach repricing dates.

Noninterest Income


	Three Months Ended June 30,					Change
	2026			2025		Dollars			Percent
Service charges on deposits	$	690		$	734	$	(44	)		(5.99	)%
Other service charges and fees		69			73		(4	)		(5.48	)%
Credit and debit card fees, net		544			366		178			48.63	%
Trust income		667			578		89			15.40	%
BOLI income		306			297		9			3.03	%
Gain on sale of mortgage loans		75			54		21			38.89	%
Other income		278			177		101			57.06	%
Gain on sale of equity investment		6,566			-		6,566		NM
Loss on sale of securities, net		(6,549	)		-		(6,549	)	NM
Total noninterest income	$	2,646		$	2,279	$	367			16.10	%

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	Six Months Ended June 30,					Change
	2026			2025		Dollars			Percent
Service charges on deposits	$	1,339		$	1,433	$	(94	)		(6.56	)%
Other service charges and fees		211			156		55			35.26	%
Credit and debit card fees, net		1,001			783		218			27.84	%
Trust income		1,251			1,157		94			8.12	%
BOLI income		607			589		18			3.06	%
Gain on sale of mortgage loans		94			79		15			18.99	%
Other income		805			642		163			25.39	%
Gain on sale of equity investment		6,566			-		6,566		NM
Loss on sale of securities, net		(6,549	)		-		(6,549	)	NM
Total noninterest income	$	5,325		$	4,839	$	486			10.04	%

When the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, noninterest income increased. Other service charges and fees increased when the six months ended June 30, 2026 are compared with the comparable periods of 2025, primarily due to a change in recognition method for safe deposit box rent.

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

Trust income increased when the three and six months ended June 30, 2026 are compared with the comparable period of 2025 due to higher estate fee income in 2026.

Gain on sale of mortgage loans increased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, due to higher volume.

Other income increased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025, due to higher commissions on securities sales and income from equity investments.

During the second quarter of 2026, the Company recorded a gain on the sale of its equity interest in a community-bank insurance consortium. The Company also executed a plan to partially reposition the securities portfolio to enhance profitability and manage interest rate risk. Improvement in earnings as a result of the repositioning is expected to earn back the loss on sale of securities within 1.8 years, and will continue to add value after the recovery period.

Noninterest Expense


	Three Months Ended June 30,				Change
	2026		2025		Dollars			Percent
Salaries and employee benefits	$	5,788	$	5,211	$	577			11.07	%
Occupancy, furniture and fixtures		838		731		107			14.64	%
Data processing		965		617		348			56.40	%
FDIC assessment		207		210		(3	)		(1.43	)%
Intangible asset amortization		84		95		(11	)		(11.58	)%
Franchise taxes		351		358		(7	)		(1.96	)%
Professional services		358		509		(151	)		(29.67	)%
Core system conversion expense		-		1,977		(1,977	)	NM
Other operating expenses		711		874		(163	)		(18.65	)%
Total noninterest expense	$	9,302	$	10,582	$	(1,280	)		(12.10	)%


	Six Months Ended June 30,				Change
	2026		2025		Dollars			Percent
Salaries and employee benefits	$	11,622	$	10,391	$	1,231			11.85	%
Occupancy, furniture and fixtures		1,722		1,470		252			17.14	%
Data processing		1,893		1,600		293			18.31	%
FDIC assessment		414		417		(3	)		(0.72	)%
Intangible asset amortization		171		192		(21	)		(10.94	)%
Franchise taxes		701		731		(30	)		(4.10	)%
Professional services		731		808		(77	)		(9.53	)%
Core system conversion expense		-		2,023		(2,023	)	NM
Other operating expenses		1,376		1,583		(207	)		(13.08	)%
Total noninterest expense	$	18,630	$	19,215	$	(585	)		(3.04	)%

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Total noninterest expense decreased when the three and six months ended June 30, 2026 are compared with the comparable periods of 2025. During 2025, the Company recorded specific expense for the core system conversion, as well as associated marketing and mailing expense included in other noninterest expense.

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

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

Data processing expense increased when three and six months ended June 30, 2026 are compared with the comparable periods of 2025 due to higher maintenance and communications infrastructure expense, as well as expenses to manage cybersecurity risk. The cost of these measures was $151 for the three months ended June 30, 2026 and $100 for the three months ended June 30, 2025. For the six months ended June 30, 2026, total cybersecurity expense was $283 compared with $141 for the six months ended June 30, 2025. The Company places high priority on cybersecurity.

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

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

Income Tax

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

Asset Quality

Key indicators of the Company’s asset quality are presented in the following table.


	June 30,			December 31,
	2026			2025
Nonaccrual loans	$	335		$	188
Loans past due 90 days or more, and still accruing		243			881
ACLL to loans net of deferred fees and costs		0.99	%		0.99	%
Year-to-date net charge-offs as a percentage of average loans(1)		0.02	%		0.03	%
Ratio of nonperforming loans to loans, net of deferred fees and costs		0.03	%		0.02	%
Ratio of ACLL to nonperforming loans		2999.10	%		5261.70	%

(1)

Net charge-offs are annualized through the period indicated.

For information on the Company’s policies on the ACLL, please refer to the Company’s 2025 Form 10-K, Note 1: Summary of Significant Accounting Policies.

The Company’s risk analysis as of June 30, 2026 determined an ACLL of $10,047, or 0.99% of loans net of deferred fees and costs. This compares with an allowance of $9,892 as of December 31, 2025, or 0.99% of loans. To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of loans evaluated collectively.

Individually Evaluated Loans

Individually evaluated loans were $10,030 as of June 30, 2026 and $8,802 as of December 31, 2025. As of both reporting dates, two individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $138 as of June 30, 2026 and $106 as of December 31, 2025.

Collectively Evaluated Loans

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

Collectively evaluated loans are divided into classes based upon risk characteristics. Utilizing historical loss information and peer data, the Company calculates probability of default ("PD") and loss given default ("LGD") for each class, which is adjusted for a reasonable and supportable forecast. Cash flow projections based on each loan’s contractual terms are modified by the adjusted PD and LGD for its class. Loan classes are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.

Reasonable and Supportable Forecast

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

Qualitative Factors: Economic

The Company sources economic data pertinent to its market from the most recently available publications, including business and personal bankruptcy filings, the residential vacancy rate and the inventory of new and existing homes.

Higher bankruptcy filings indicate heightened credit risk and increase the ACLL, while lower bankruptcy filings have a beneficial impact on credit risk. Compared with data available as of December 31, 2025, business bankruptcy filings increased and personal bankruptcies filings decreased.

Residential vacancy rates and housing inventory are used to measure the housing market. The housing market directly or indirectly affects all loan classes. Higher vacancy and inventory levels increase credit risk. The residential vacancy rate available as of June 30, 2026 decreased compared to the data incorporated into the December 31, 2025 calculation, resulting in a lower allocation. Housing inventory increased when June 30, 2026 is compared with December 31, 2025, resulting in a higher allocation.

Qualitative Factors: Asset Quality Indicators

Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. Accruing loans past due 30-89 days were 0.30% of total loans as of June 30, 2026, a decrease from 0.35% as of December 31, 2025.

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

Lending policies, loan review procedures and management’s experience influence credit risk. Policies and procedures remain similar to those at December 31, 2025.

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, 2025.

The Company considers changes in experience and leadership of lending and credit risk management. During the second quarter of 2026, the Company's Chief Lending Officer announced his resignation and the Company promoted a seasoned lender to the position. The new CLO's long tenure and alignment with the Company's credit risk appetite and lending culture do not indicate a measurable increase in credit risk. However, due to the unexpected nature of the change, the Company determined an allocation was appropriate to recognize uncertainty. The Company removed an allocation associated with lending staff obtained through a 2024 acquisition.

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

Conclusion

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

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ACL on Unfunded Commitments

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

Provision for (Recovery of) Credit Losses

The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance. The adequacy of the ACLL is reviewed quarterly and adjustments are made as determined necessary. The Company recorded a provision for credit losses on loans of $260 and a recovery credit losses on unfunded commitments of $16 for the six months ended June 30, 2026, compared with a provision for credit losses on loans of $322 and a recovery of $10 for unfunded commitments for the six months ended June 30, 2025. For the three month period ended June 30, 2026, the Company recorded a provision for credit losses on loans of $323 and a recovery of credit losses on unfunded commitments of $6. For the three months ended June 30, 2025, the Company recorded a provision for credit losses on loans of $45 and a recovery of credit losses on unfunded commitments of $9.

Loan Modifications

In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons. Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements. Modifications to consumer loans generally involve short-term payment extensions to accommodate specific, temporary circumstances. Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants.

The Company reviews 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 2: Loans and Allowance for Credit Losses in Part I, Item 1 of this report for more information on loans modified for borrowers experiencing financial difficulty.

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

Key Assets and Liabilities

NBI’s key assets and liabilities and their change from December 31, 2025 are shown in the following table.


	June 30,		December 31,		Change
	2026		2025		Dollars			Percent
Interest-bearing deposits	$	45,709	$	50,831	$	(5,122	)		(10.08	)%
Securities available for sale, at fair value		652,660		654,377		(1,717	)		(0.26	)%
Loans, net		1,004,607		989,418		15,189			1.54	%
Total assets		1,832,700		1,824,506		8,194			0.45	%
Deposits		1,629,456		1,626,933		2,523			0.16	%

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Average Balances

Year-to-date daily averages for the major balance sheet categories are as follows:


	June 30,		December 31,		Change
	2026		2025		Dollars			Percent
Assets
Interest-bearing deposits	$	61,450	$	76,223	$	(14,773	)		(19.38	)%
Securities available for sale, at fair value		648,555		603,869		44,686			7.40	%
Loans, net		991,431		995,531		(4,100	)		(0.41	)%
Total assets		1,830,367		1,809,631		20,736			1.15	%
Liabilities and stockholders’ equity
Noninterest-bearing demand deposits	$	311,382	$	305,115	$	6,267			2.05	%
Interest-bearing demand deposits		862,165		842,479		19,686			2.34	%
Savings deposits		142,904		142,547		357			0.25	%
Time deposits		313,860		328,286		(14,426	)		(4.39	)%
Stockholders’ equity		187,664		170,428		17,236			10.11	%

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

Securities

The Company's securities are designated as available for sale and as such, are reported at fair value. The following table presents information on securities available for sale as of the dates indicated:


	June 30,			December 31,			Change
	2026			2025			Dollars			Percent
Amortized cost	$	702,023		$	706,229		$	(4,206	)		(0.60	)%
Unrealized loss, net		(49,363	)		(51,852	)		2,489			4.80	%
Securities available for sale, at fair value	$	652,660		$	654,377		$	(1,717	)		(0.26	)%

The Company repositioned a portion of the securities portfolio during the second quarter of 2026, selling securities with an amortized cost of $131,866 and weighted average yield of 1.80%, resulting in a loss of $6,549. The Company invested the proceeds in securities totalling $127,327 with a weighted average yield of 5.26%.

The unrealized loss in the Company’s investment portfolio is due to interest rate risk. The fair value of bonds moves inversely to interest rate changes and expectations of interest rate changes. The Company’s analysis of the securities portfolio determined no identifiable credit risk as of June 30, 2026 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies of the Company's 2025 Form 10-K and Note 4: Securities in Part I, Item 1 of this report for additional information on the securities portfolio.

Loans


	June 30,			December 31,			Change
	2026			2025			Dollars			Percent
Real estate construction	$	72,220		$	40,694		$	31,526			77.47	%
Consumer real estate		330,204			328,653			1,551			0.47	%
Commercial real estate		456,181			467,783			(11,602	)		(2.48	)%
Commercial non real estate		49,616			52,018			(2,402	)		(4.62	)%
Public sector and IDA		62,124			63,677			(1,553	)		(2.44	)%
Consumer non real estate		45,067			47,101			(2,034	)		(4.32	)%
Less: deferred fees and costs		(758	)		(616	)		(142	)		(23.05	)%
Loans, net of deferred fees and costs	$	1,014,654		$	999,310		$	15,344			1.54	%

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

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Deposits


	June 30,		December 31,		Change
	2026		2025		Dollars			Percent
Noninterest-bearing demand deposits	$	313,453	$	313,022	$	431			0.14	%
Interest-bearing demand deposits		861,560		853,756		7,804			0.91	%
Savings deposits		139,593		142,645		(3,052	)		(2.14	)%
Time deposits		314,850		317,510		(2,660	)		(0.84	)%
Total deposits	$	1,629,456	$	1,626,933	$	2,523			0.16	%

The Company continues to focus on providing new deposit products that provide additional functionality and marketing opportunity, enabled by the core system conversion completed in 2025. During the first half of 2026, the Company implemented a treasury management suite for commercial and municipal deposit customers and a new account opening platform, with additional product releases planned throughout 2026. The Company’s depositors within its market area are diverse, including individuals, businesses and municipalities. The Company does not have any brokered deposits. Depositors are insured up to the FDIC maximum of $250 thousand. Municipal deposits, which account for approximately 22% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 27% are uninsured.

Capital Resources


	June 30,			December 31,			Change
	2026			2025			Dollars		Percent
Common stock and additional paid in capital	$	22,149		$	22,024		$	125		0.57	%
Retained earnings		207,789			202,558			5,231		2.58	%
Accumulated other comprehensive loss		(37,707	)		(39,674	)		1,967		4.96	%
Total stockholders’ equity	$	192,231		$	184,908		$	7,323		3.96	%

The increase in stockholders’ equity reflects an improvement in the unrealized losses on securities available for sale, primarily due to the sale of securities discussed previously, and net income during the period.

The Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $5 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements. NBB is subject to various capital requirements administered by banking agencies, including an additional capital conservation buffer in order to make capital distributions or discretionary bonus payments. Risk-based capital ratios are calculated in compliance with OCC rules based on the Basel III Capital Rules. Capital ratios for NBB are shown in the following tables:


	June 30, 2026			December 31, 2025			Regulatory Capital Minimum Ratios			Regulatory Capital Minimum Ratios with Capital Conservation Buffer
Common Equity Tier I Capital Ratio		16.52	%		16.16	%		4.50	%		7.00	%
Tier I Capital Ratio		16.52	%		16.16	%		6.00	%		8.50	%
Total Capital Ratio		17.38	%		17.02	%		8.00	%		10.50	%
Leverage Ratio		10.54	%		10.42	%		4.00	%		4.00	%

Liquidity

Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost. Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits. The Company has diverse liquidity sources, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing, short-term borrowing, and FHLB advances.

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

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The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters. Portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased/decreased liquidity from public funds deposits or discount window borrowings results in increased/decreased liquidity from pledging requirements. The Company monitors public funds pledging requirements and unpledged available for sale securities accessible for liquidity needs.

Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve Bank discount window. As of June 30, 2026, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve Bank discount window.

The Company monitors factors that may increase its liquidity needs. Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments and loan growth. As of June 30, 2026, 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 June 30, 2026, 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 June 30, 2026, the loan to deposit ratio was 62.27%. The investment strategy takes into consideration the term of the investment, and securities in the available for sale portfolio are laddered based upon projected funding needs.

As of June 30, 2026, 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 June 30, 2026, the Company has no material commitments for long-term debt for capital expenditures.

Off-Balance Sheet Arrangements

In the normal course of business, NBB extends lines of credit to its customers. Depending on their needs, customers may draw upon lines of credit at any time in any amount up to a pre-approved limit. The Bank also issues two types of standby letters of credit to customers: financial standby letters of credit that guarantee payments to facilitate customer purchases and performance letters of credit that guarantee payment if the customer fails to complete a specific obligation. 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 borrowing capacity, raising additional deposits, or selling securities available for sale 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.

Contractual Obligations

The Company had no finance lease or purchase obligations and no long-term debt at June 30, 2026.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2026 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the three months ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.

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Part II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending or threatened legal proceedings to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject that, in the opinion of management, may materially impact the financial condition of the Company.

Item 1A. Risk Factors

Please refer to the “Risk Factors” previously disclosed in Item 1A of the Company's 2025 Form 10-K and the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” in Part I. Item 2 of this Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)

None.

(b)

None.

(c)

During the fiscal quarter ended June 30, 2026, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).

Item 6. Exhibits

Index of Exhibits


Exhibit No.	Description
2(i)	Agreement and Plan of Merger, dated as of January 23, 2024, by and among National Bankshares, Inc., The National Bank of Blacksburg and Frontier Community Bank	(incorporated herein by reference to Exhibit 2.1 of the Form 8-K filed on January 24, 2024)
3(i)	Amended and Restated Articles of Incorporation of National Bankshares, Inc.	(incorporated herein by reference to Exhibit 3.1 of the Form 8-K filed on March 16, 2006)
3(ii)	Amended and Restated Bylaws of National Bankshares, Inc.	(incorporated herein by reference to Exhibit 3.2 of the Form 8-K filed on July 10, 2024)
4	Specimen copy of certificate for National Bankshares, Inc. common stock	(incorporated herein by reference to Exhibit 4(a) of the Annual Report on Form 10-K for fiscal year ended December 31, 1993)
+31(i)	Section 302 Certification of Chief Executive Officer	Filed herewith
+31(ii)	Section 302 Certification of Chief Financial Officer	Filed herewith
+32(i)	18 U.S.C. Section 1350 Certification of Chief Executive Officer	Filed herewith
+32(ii)	18 U.S.C. Section 1350 Certification of Chief Financial Officer	Filed herewith
+101	The following materials from National Bankshares, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2026 are formatted in iXBRL (Inline Extensible Business Reporting Language), furnished herewith: (i) Consolidated Balance Sheets at June 30, 2026 and December 31, 2025; (ii) Consolidated Statements of Income for the three and six months ended June 30, 2026 and 2025; (iii) Consolidated Statements of Comprehensive Income for the three and six months ended	Filed herewith

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	June 30, 2026 and 2025; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2026 and 2025; (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025; and (vi) Notes to Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)	Filed herewith

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NATIONAL BANKSHARES, INC.


Date: August 12, 2026		/s/ Lara Ramsey
		By: Lara Ramsey
		Chief Executive Officer
		(Principal Executive Officer)



Date: August 12, 2026		/s/ Lora M. Jones
		By: Lora M. Jones
		Treasurer and
		Chief Financial Officer
		(Principal Financial Officer)
		(Principal Accounting Officer)