National Bankshares(NKSH) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information Registrant Information This section provides basic identification, filing compliance, and classification details for National Bankshares, Inc - Registrant: National Bankshares, Inc. (NKSH)[2] - Filing Type: Quarterly Report (Form 10-Q) for the period ended June 30, 2025[2] - Filing Status: Complied with all Section 13 or 15(d) filing requirements and submitted all required Interactive Data Files[4] - Company Classification: Non-accelerated filer and Smaller reporting company[5] Registrant Details | Metric | Value | | :--- | :--- | | Common Stock Trading Symbol | NKSH | | Exchange Registered | Nasdaq Capital Market | | Outstanding Common Shares (as of Aug 13, 2025) | 6,366,001 | Table of Contents The table of contents outlines the structure of the Form 10-Q, dividing it into Part I and Part II - The report is structured into two main parts: Part I – Financial Information and Part II – Other Information[8] - Part I includes Financial Statements, Management's Discussion and Analysis, Quantitative and Qualitative Disclosures About Market Risk, and Controls and Procedures[8] - Part II covers Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, Mine Safety Disclosures, Other Information, and Exhibits[8] Part I – Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements and detailed notes for National Bankshares, Inc Consolidated Balance Sheets The Consolidated Balance Sheets show a decrease in total assets and deposits, while loans and stockholders' equity increased Key Balance Sheet Metrics | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (2025 vs 2024) | | :--- | :--- | :--- | :--- | | Total Assets | $1,806,610 | $1,811,635 | $(5,025) | | Total Loans, net | $1,000,275 | $977,688 | $22,587 | | Total Deposits | $1,627,675 | $1,644,752 | $(17,077) | | Total Stockholders' Equity | $168,736 | $156,409 | $12,327 | - Cash and cash equivalents decreased from $108,117 thousand at December 31, 2024, to $92,849 thousand at June 30, 2025[10] - Securities available for sale decreased from $601,898 thousand to $590,021 thousand[10] - Noninterest-bearing demand deposits increased by $16,339 thousand, while interest-bearing demand, savings, and time deposits all decreased[10] Consolidated Statements of Income (Loss) (Three Months) For Q2 2025, the company reported a significant turnaround from a net loss, driven by increased net interest income Q2 Income Statement Highlights | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (2025 vs 2024) | | :--- | :--- | :--- | :--- | | Total Interest Income | $18,537 | $17,095 | $1,442 | | Total Interest Expense | $7,546 | $8,418 | $(872) | | Net Interest Income | $10,991 | $8,677 | $2,314 | | Provision for Credit Losses | $36 | $1,302 | $(1,266) | | Total Noninterest Income | $2,279 | $2,267 | $12 | | Total Noninterest Expense | $10,583 | $10,127 | $456 | | Income (Loss) Before Income Tax | $2,651 | $(485) | $3,136 | | Net Income (Loss) | $2,289 | $(307) | $2,596 | | Basic Net Income (Loss) Per Common Share | $0.36 | $(0.05) | $0.41 | | Diluted Net Income (Loss) Per Common Share | $0.36 | $(0.05) | $0.41 | - Net interest income increased by $2,314 thousand, primarily due to higher interest and fees on loans and lower interest expense on deposits[12] - Provision for credit losses significantly decreased from $1,302 thousand in Q2 2024 to $36 thousand in Q2 2025[12] - Noninterest expense increased by $456 thousand, largely driven by conversion expenses offsetting the absence of merger-related expenses[12] Consolidated Statements of Comprehensive Income (Loss) (Three Months) Total comprehensive income improved substantially, driven by net income and a significant unrealized gain on securities Q2 Comprehensive Income Highlights | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (2025 vs 2024) | | :--- | :--- | :--- | :--- | | Net Income (Loss) | $2,289 | $(307) | $2,596 | | Unrealized holding gain (loss) on AFS securities, net of tax | $3,763 | $(150) | $3,913 | | Total Comprehensive Income (Loss) | $6,052 | $(457) | $6,509 | - The significant increase in total comprehensive income is largely attributable to a positive unrealized holding gain on available-for-sale securities in 2025[14] Consolidated Statements of Income (Six Months) For the six months ended June 30, 2025, net income increased substantially due to higher net interest income YTD Income Statement Highlights | Metric (in thousands, except per share) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (2025 vs 2024) | | :--- | :--- | :--- | :--- | | Total Interest Income | $36,734 | $33,101 | $3,633 | | Total Interest Expense | $15,493 | $16,194 | $(701) | | Net Interest Income | $21,241 | $16,907 | $4,334 | | Provision for Credit Losses | $312 | $1,292 | $(980) | | Total Noninterest Income | $4,839 | $4,482 | $357 | | Total Noninterest Expense | $19,215 | $17,889 | $1,326 | | Income Before Income Tax Expense | $6,553 | $2,208 | $4,345 | | Net Income | $5,525 | $1,867 | $3,658 | | Basic Net Income Per Common Share | $0.87 | $0.31 | $0.56 | | Diluted Net Income Per Common Share | $0.87 | $0.31 | $0.56 | - Net interest income increased by $4,334 thousand, driven by higher interest on loans and a decrease in total interest expense[16] - Provision for credit losses decreased significantly by $980 thousand, contributing to the improved net income[16] - Noninterest expense increased by $1,326 thousand, primarily due to higher salaries, occupancy costs, and conversion expenses[16] Consolidated Statements of Comprehensive Income (Loss) (Six Months) Total comprehensive income saw a substantial positive shift due to increased net income and a large unrealized gain on securities YTD Comprehensive Income Highlights | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (2025 vs 2024) | | :--- | :--- | :--- | :--- | | Net Income | $5,525 | $1,867 | $3,658 | | Unrealized holding gain (loss) on AFS securities, net of tax | $11,353 | $(3,488) | $14,841 | | Total Comprehensive Income (Loss) | $16,878 | $(1,621) | $18,499 | - The significant improvement in total comprehensive income is largely driven by a substantial unrealized holding gain on available-for-sale securities in 2025[18] Consolidated Statements of Changes in Stockholders' Equity (Three Months) Total stockholders' equity increased in Q2 2025, driven by net income and other comprehensive income Q2 Changes in Stockholders' Equity | Metric (in thousands) | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Balances at March 31 | $167,278 | $139,390 | | Net Income (Loss) | $2,289 | $(307) | | Cash Dividends ($0.73 per share) | $(4,645) | $(4,303) | | Other Comprehensive Income (Loss) | $3,763 | $(150) | | Stock Based Compensation | $51 | $33 | | Balances at June 30 | $168,736 | $148,962 | - Total stockholders' equity increased from $167,278 thousand at March 31, 2025, to $168,736 thousand at June 30, 2025[21] - The increase was driven by net income of $2,289 thousand and other comprehensive income of $3,763 thousand, partially offset by cash dividends[21] Consolidated Statements of Changes in Stockholders' Equity (Six Months) For the six months ended June 30, 2025, total stockholders' equity increased significantly due to net income and OCI YTD Changes in Stockholders' Equity | Metric (in thousands) | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Balances at December 31 | $156,409 | $140,522 | | Net Income | $5,525 | $1,867 | | Cash Dividends ($0.73 per share) | $(4,645) | $(4,303) | | Other Comprehensive Income (Loss) | $11,353 | $(3,488) | | Stock Based Compensation | $94 | $65 | | Balances at June 30 | $168,736 | $148,962 | - Total stockholders' equity increased from $156,409 thousand at December 31, 2024, to $168,736 thousand at June 30, 2025[23] - The increase was driven by net income of $5,525 thousand and a significant other comprehensive income of $11,353 thousand[23] Consolidated Statements of Cash Flows For the six months ended June 30, 2025, the Company experienced a net decrease in cash due to financing activities YTD Cash Flow Summary | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $4,633 | $882 | | Net Cash Provided by Investing Activities | $1,922 | $9,570 | | Net Cash (Used in) Provided by Financing Activities | $(21,823) | $1,829 | | Net Change in Cash and Cash Equivalents | $(15,268) | $12,281 | | Cash and Cash Equivalents at End of Period | $92,849 | $98,884 | - Operating activities generated $4,633 thousand in cash, a significant increase from the prior year[25] - Investing activities provided $1,922 thousand, a decrease from the prior year, mainly due to lower proceeds from securities[25] - Financing activities used $21,823 thousand, a reversal from the prior year, primarily due to a net change in time deposits and dividends paid[25] Notes to Consolidated Financial Statements (Unaudited) The Notes provide detailed explanations for the unaudited interim financial statements, covering key accounting policies and disclosures Note 1: General and Summary of Significant Accounting Policies This note outlines the Company's adherence to GAAP, use of estimates, key risks, and recently adopted accounting standards - The consolidated financial statements conform to GAAP and general practices within the banking industry, requiring management estimates[29][30] - The Company is monitoring risks such as inflation and U.S. monetary policy, which could impact financial condition[32] - ASU 2023-09 (Income Taxes) was effective January 1, 2025, and is not expected to materially impact financial statements[33] - ASU 2024-03 (Expense Disaggregation Disclosures) is effective for annual periods beginning after December 15, 2026[34][35] Note 2: Business Combination This note details the acquisition of Frontier Community Bank (FCB) on June 1, 2024, and its accounting treatment - On June 1, 2024, National Bankshares, Inc. acquired Frontier Community Bank (FCB), expanding its market presence[36] - The acquisition was accounted for as a business combination using the acquisition method, recording assets and liabilities at fair value[37] - The Company issued 464,855 shares of common stock and paid $2,050 thousand in cash consideration to former FCB shareholders[36][40] Acquisition Summary | Metric (in thousands) | Value | | :--- | :--- | | Total Purchase Price Consideration | $16,349 | | Fair Value of Net Assets Acquired | $11,475 | | Goodwill Recognized | $4,874 | Note 3: Loans and Allowance for Credit Losses This note provides a comprehensive overview of the Company's loan portfolio, credit quality, and allowance for credit losses Loans The loan portfolio increased from December 31, 2024, to June 30, 2025, with growth in consumer and commercial real estate Loan Portfolio Composition | Loan Category (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Real estate construction | $44,529 | $50,798 | $(6,269) | | Consumer real estate | $317,949 | $307,855 | $10,094 | | Commercial real estate | $494,755 | $478,078 | $16,677 | | Commercial non real estate | $51,383 | $51,844 | $(461) | | Public sector and IDA | $56,347 | $57,171 | $(824) | | Consumer non real estate | $46,172 | $42,867 | $3,305 | | Gross loans | $1,011,135 | $988,613 | $22,522 | | Loans, net of deferred fees and costs | $1,010,697 | $987,950 | $22,747 | Past Due and Nonaccrual Loans Past due loans increased, while nonaccrual loans slightly decreased from December 31, 2024, to June 30, 2025 Delinquency Status | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accruing Loans 30 – 89 Days Past Due | $5,053 | $2,949 | | Accruing Loans 90 or More Days Past Due | $21 | $548 | | Nonaccrual Loans | $2,111 | $2,222 | | Total Loans | $1,011,135 | $988,613 | - Commercial real estate owner-occupied loans represent the largest portion of nonaccrual loans[45] Allowance for Credit Losses on Loans ("ACLL") The Allowance for Credit Losses on Loans (ACLL) increased slightly from December 31, 2024, to June 30, 2025 ACLL Activity | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Balance, ACLL | $10,422 | $10,262 | | Charge-offs (Six Months) | $(253) | $(519) | | Recoveries (Six Months) | $91 | $270 | | Provision for Credit Losses (Six Months) | $322 | $1,242 | - As of June 30, 2025, $141 thousand of ACLL was individually evaluated, while $10,281 thousand was collectively evaluated[51] Collateral Dependent Loans As of June 30, 2025, the Company had three collateral-dependent loans totaling $8,906 thousand, all adequately collateralized - Three individually evaluated loans were collateral dependent as of June 30, 2025, and December 31, 2024[55] Collateral Dependent Loan Balances | Loan Category (in thousands) | June 30, 2025 Balance | December 31, 2024 Balance | | :--- | :--- | :--- | | Commercial Real Estate, owner occupied | $8,224 | $8,387 | | Commercial Real Estate, other | $682 | $872 | | Total Collateral Dependent Loans | $8,906 | $9,259 | - No related allowance was required for these collateral-dependent loans as they were adequately collateralized[55] Credit Quality The majority of loans were rated 'Pass' as of June 30, 2025, with a small portion in 'Special Mention' or 'Classified' - Loans are categorized into Pass, Special Mention, and Classified based on credit quality and potential weaknesses[57] Credit Quality by Risk Rating | Loan Category (in thousands) | June 30, 2025 Pass | June 30, 2025 Special Mention | June 30, 2025 Classified | June 30, 2025 Total | | :--- | :--- | :--- | :--- | :--- | | Total Loans | $999,511 | $6,460 | $5,164 | $1,011,135 | - Gross charge-offs for the six months ended June 30, 2025, totaled $253 thousand, primarily from consumer non-real estate loans[58] Loan Modifications to Borrowers Experiencing Financial Difficulty No loans were modified for borrowers experiencing financial difficulty during the first half of 2025 - No loans were modified for borrowers experiencing financial difficulty during the three and six months ended June 30, 2025[61] - During the six months ended June 30, 2024, two loans were modified for borrowers experiencing financial difficulty, totaling $6,403 thousand[61][62] - As of June 30, 2024, these modified loans were in current status and individually evaluated, with no subsequent payment defaults[62] Consumer Real Estate Loans In Process of Foreclosure As of June 30, 2025, the Company had no consumer real estate loans in the process of foreclosure - No consumer real estate loans were in the process of foreclosure as of June 30, 2025[63] - As of December 31, 2024, three consumer real estate loans totaling $37 thousand were in the process of foreclosure[63] ACL for Unfunded Commitments The Allowance for Credit Losses (ACL) on unfunded commitments slightly decreased from December 31, 2024 ACL on Unfunded Commitments | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Balance, ACL for Unfunded Commitments | $241 | $251 | | Recovery of Credit Losses (Six Months) | $(10) | $(15) | Note 4: Securities This note details the securities portfolio, which saw a decrease in fair value but a reduction in net unrealized losses Securities Available for Sale The fair value of securities available for sale decreased, with a notable reduction in gross unrealized losses AFS Securities Summary | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Amortized Cost | $654,249 | $680,496 | | Gross Unrealized Gains | $26 | $24 | | Gross Unrealized Losses | $(64,254) | $(78,622) | | Fair Value | $590,021 | $601,898 | - As of June 30, 2025, the Company had 537 securities with a fair value of $569,718 thousand in an unrealized loss position[67] - The Company does not intend to sell these securities and expects fair value to recover as they approach maturity[67][68] Maturity of Securities Available for Sale The maturity schedule for securities available for sale shows a significant portion maturing after five years AFS Securities Maturity Schedule | Maturity Period | Amortized Cost (in thousands) | Fair Value (in thousands) | | :--- | :--- | :--- | | Due in one year or less | $28,007 | $27,804 | | Due after one year through five years | $223,195 | $211,373 | | Due after five years through ten years | $230,691 | $199,529 | | Due after ten years | $172,356 | $151,315 | | Total | $654,249 | $590,021 | Realized Securities Gains and Losses There were no sales of securities, and consequently, no realized gains or losses during the first half of 2025 or 2024 - No sales of securities occurred during the six months ended June 30, 2025, and 2024[72] Restricted Stock The Company held $1,848 thousand in restricted stock due to membership requirements in the Federal Reserve and FHLB - Restricted stock held was $1,848 thousand as of June 30, 2025, and December 31, 2024[73] - These investments are required for membership in the Federal Reserve and FHLB, providing borrowing eligibility[73][74] - No impairment was determined for the FHLB stock as of June 30, 2025[74] Note 5: Defined Benefit Plan The Company's defined benefit plan generated net periodic benefit income for the first half of 2025 Net Periodic Benefit Income (Three Months) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Service cost | $248 | $261 | | Interest cost | $324 | $302 | | Expected return on plan assets | $(692) | $(608) | | Net periodic benefit income | $(120) | $(12) | Net Periodic Benefit Income (Six Months) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Service cost | $496 | $522 | | Interest cost | $648 | $604 | | Expected return on plan assets | $(1,385) | $(1,216) | | Net periodic benefit income | $(241) | $(24) | - Service cost is included in salaries and employee benefits, while other components are in other operating expense[76] Note 6: Fair Value Measurements This note details the Company's fair value measurements, categorizing financial instruments into a three-level hierarchy Financial Instruments Measured at Fair Value on a Recurring Basis Securities available for sale are measured at fair value on a recurring basis, primarily using Level 2 inputs - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[81] Recurring Fair Value Measurements | Asset (in thousands) | June 30, 2025 Balance | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | U.S. government agencies and corporations | $303,421 | $- | $303,421 | $- | | States and political subdivisions | $148,236 | $- | $148,236 | $- | | Mortgage-backed securities | $132,538 | $- | $132,538 | $- | | Corporate debt securities | $5,826 | $- | $5,826 | $- | | Total securities available for sale | $590,021 | $- | $590,021 | $- | - The Company's securities portfolio is valued using Level 2 inputs, relying on an independent third-party vendor[82] Financial Instruments Measured at Fair Value on a Non-Recurring Basis Loans held for sale are carried at the lower of cost or fair value, while collateral-dependent loans are measured for ACLL - Loans held for sale are measured at the lower of cost or fair value, with fair value based on Level 2 inputs[84] - Collateral-dependent loans are measured for ACLL based on the fair value of collateral, using appraisals (Level 2) or discounted appraisals (Level 3)[85][86] - As of June 30, 2025, three commercial real estate loans totaling $8,906 thousand were collateral dependent, valued using Level 2 appraisals[88] Fair Value Summary The fair value summary provides a comprehensive overview of the Company's financial instruments by level Fair Value of Financial Instruments | Financial Instrument (in thousands) | June 30, 2025 Carrying Amount | June 30, 2025 Estimated Fair Value (Level 1) | June 30, 2025 Estimated Fair Value (Level 2) | June 30, 2025 Estimated Fair Value (Level 3) | | :--- | :--- | :--- | :--- | :--- | | Cash and due from banks | $9,798 | $9,798 | $- | $- | | Interest-bearing deposits | $83,051 | $83,051 | $- | $- | | Securities available for sale | $590,021 | $- | $590,021 | $- | | Loans, net | $1,000,275 | $- | $- | $953,810 | | Deposits | $1,627,675 | $- | $1,299,117 | $327,378 | Note 7: Components of Accumulated Other Comprehensive Loss Accumulated other comprehensive loss improved significantly due to a substantial unrealized gain on securities Changes in AOCI | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Net Unrealized Loss on Securities | $(50,740) | $(62,093) | | Adjustments Related to Pension Benefits | $328 | $328 | | Accumulated Other Comprehensive Loss | $(50,412) | $(61,765) | - The change reflects an $11,353 thousand unrealized holding gain on available-for-sale securities (net of tax) for the six months ended June 30, 2025[92] Note 8: Revenue Recognition This note details revenue recognition policies for noninterest income streams under ASC Topic 606 Service Charges on Deposit Accounts Service charges on deposit accounts are recognized either over time for recurring services or at a point in time for transactions - Monthly service fees are recognized over the period service is provided[94] - Transactional fees (overdraft, ATM, wire transfer) are recognized at a point in time when the performance obligation is satisfied[94] Other Service Charges and Fees Other service charges are recognized either over time for recurring services or at a point in time for transactions - Safe deposit box rental fees are recognized on an annual basis upon receipt of payment[95] - Check ordering charges and ATM fees to other cardholders are transaction-based and recognized at a point in time[95] Credit and Debit Card Fees Credit and debit card fees are recognized when services are rendered and are presented net of associated expenses - Interchange fees and merchant services income are recognized when services are rendered or upon completion[96] - Credit and debit card fee income is presented net of associated expense, in compliance with Topic 606[96] Trust Income Trust income is recognized over time based on assets under management, with estate fees recognized upon closure - Fees from trust management and administration are recognized monthly, based on month-end market value of assets[97] - Estate management fees are recognized partially during administration and the remainder upon estate closure[98] Insurance and Investment Insurance commissions are recognized upon policy issuance, while investment commissions are recognized on trade date - Insurance commissions are recognized upon the issuance of the insurance policy[99] - Commissions from mutual funds, annuities, and other investments are recognized on trade date[100] - Periodic service fees (trailers) from mutual funds are recorded over time, usually monthly or quarterly[100] Noninterest Income Segregation Noninterest income is segregated into in-scope and out-of-scope categories for Topic 606, showing an overall increase Noninterest Income by Topic 606 Scope (Three Months) | Noninterest Income (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | In-scope of Topic 606 | $1,921 | $1,827 | | Out-of-scope of Topic 606 | $358 | $440 | | Total Noninterest Income | $2,279 | $2,267 | Noninterest Income by Topic 606 Scope (Six Months) | Noninterest Income (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | In-scope of Topic 606 | $4,053 | $3,725 | | Out-of-scope of Topic 606 | $786 | $757 | | Total Noninterest Income | $4,839 | $4,482 | Note 9: Leases This note details the Company's lease accounting under ASC Topic 842, including capitalization and maturity schedules Lease Accounting Policy The Company accounts for leases under ASC Topic 842, capitalizing operating and finance leases as right-of-use assets - Leases are categorized as short-term (not capitalized), operating, or finance leases[104] - Operating and finance leases are capitalized as right-of-use assets and lease liabilities[104] - The acquisition of FCB on June 1, 2024, added two long-term branch leases, increasing ROU assets and lease liabilities by $548 thousand[105] Lease Payments Short-term lease payments are expensed, while operating and finance lease payments are incorporated into lease liability calculations - Short-term lease payments are recognized as lease expense on a straight-line basis or in the period incurred[106] - Fixed operating and finance lease payments are included in the cash flows for lease liability determination[106] Options to Extend, Residual Value Guarantees, Restrictions and Covenants Lease extension options are included in liability calculations when reasonably certain, and agreements lack restrictive covenants - Lease extension options are included in lease liability calculations if reasonably certain of being exercised[107] - Lease agreements do not provide for residual value guarantees or contain restrictions/covenants impacting dividends[107] Lease Information Tables Lease liabilities and right-of-use assets increased from December 31, 2024, to June 30, 2025 Lease Balance Sheet Information | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Lease liability | $1,676 | $1,523 | | Right-of-use asset | $1,471 | $1,305 | | Weighted average remaining lease term (years) | 4.57 | 4.76 | | Weighted average discount rate | 3.91% | 3.87% | Lease Expense (Three Months) | Lease Expense (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Operating lease expense | $104 | $99 | | Short-term lease expense | $- | $6 | | Total lease expense | $104 | $105 | Lease Expense (Six Months) | Lease Expense (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Operating lease expense | $210 | $188 | | Short-term lease expense | $- | $11 | | Total lease expense | $210 | $199 | Maturity Schedule of Undiscounted Cash Flows The undiscounted cash flow maturity schedule indicates total future lease payments of $1,818 thousand Lease Liability Maturity | Period | Undiscounted Cash Flow (in thousands) | | :--- | :--- | | Twelve months ending June 30, 2026 | $431 | | Twelve months ending June 30, 2027 | $395 | | Twelve months ending June 30, 2028 | $381 | | Twelve months ending June 30, 2029 | $303 | | Twelve months ending June 30, 2030 | $180 | | Thereafter | $128 | | Total undiscounted cash flows | $1,818 | | Less: discount | $(142) | | Lease liability | $1,676 | Note 10: Stock Based Compensation This note describes the 2023 Stock Incentive Plan, under which RSAs and RSUs are granted to directors and executives Restricted Stock Awards Restricted stock awards and units are granted under the 2023 Stock Incentive Plan, with expense recognized over one year - The 2023 Stock Incentive Plan allows for grants of RSAs and RSUs, with a maximum of 120,000 shares available[110] - Stock-based compensation expense was $51 thousand for the three months and $94 thousand for the six months ended June 30, 2025[111] Nonvested Restricted Stock Activity | Metric | Shares | Weighted Average Grant-Date Fair Value | | :--- | :--- | :--- | | Nonvested at January 1, 2025 | 4,961 | $30.98 | | Granted | 2,630 | $26.59 | | Vested and released | (2,563) | $30.00 | | Nonvested at June 30, 2025 | 5,028 | $29.18 | Note 11: Net Income (Loss) Per Common Share This note presents the computation of basic and diluted net income (loss) per common share, showing a positive shift in 2025 EPS Calculation (Three Months) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Basic Net Income (Loss) Per Common Share | $0.36 | $(0.05) | | Diluted Net Income (Loss) Per Common Share | $0.36 | $(0.05) | | Weighted Average Common Shares Outstanding, Basic | 6,358,917 | 6,028,220 | | Weighted Average Common Shares Outstanding, Diluted | 6,361,582 | 6,028,220 | EPS Calculation (Six Months) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Basic Net Income Per Common Share | $0.87 | $0.31 | | Diluted Net Income Per Common Share | $0.87 | $0.31 | | Weighted Average Common Shares Outstanding, Basic | 6,358,665 | 5,958,953 | | Weighted Average Common Shares Outstanding, Diluted | 6,360,990 | 5,961,037 | - Dilutive shares are associated with RSAs; RSAs were anti-dilutive for the three months ended June 30, 2024[113] Note 12: Goodwill and Other Intangibles This note provides information on goodwill and core deposit intangible assets, which decreased due to amortization Goodwill and Intangible Assets | Intangible Asset (in thousands) | Beginning Balance | Additions | Period Adjustment | Accumulated Amortization | Ending Balance | | :--- | :--- | :--- | :--- | :--- | :--- | | Goodwill | $10,718 | $- | $- | $- | $10,718 | | Core deposit intangible | $1,863 | $- | $- | $(192) | $1,671 | - Core deposit intangible amortization expense was $95 thousand for the three months and $192 thousand for the six months ended June 30, 2025[114] Estimated Future Amortization Expense | Year Ending December 31 | Amortization Expense (in thousands) | | :--- | :--- | | 2025 | $181 | | 2026 | $331 | | 2027 | $290 | | 2028 | $248 | | 2029 | $207 | | 2030 | $165 | | Thereafter | $249 | | Total | $1,671 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and results of operations, highlighting key impacts and performance drivers Cautionary Statement Regarding Forward-Looking Statements This section warns readers about forward-looking statements, which are subject to significant risks and uncertainties - Forward-looking statements are based on management's views and assumptions and are subject to significant risks and uncertainties[117] - Key factors that could cause actual results to differ include inflation, interest rate changes, liquidity, and economic conditions[118][119] - Readers are cautioned not to place undue reliance on these statements and should consider the 'Risk Factors' in the Company's 2024 Form 10-K[118] Overview National Bankshares, Inc. is a financial holding company whose primary revenue source is The National Bank of Blacksburg - NBI is a financial holding company, organized in 1986, listed on Nasdaq Capital Market under 'NKSH'[120] - Wholly-owned subsidiaries are The National Bank of Blacksburg (NBB), the primary revenue source, and National Bankshares Financial Services, Inc[120] - NBB operates 28 office locations and one loan production office[120] Critical Accounting Policies The Company's critical accounting policies involve significant management judgments, particularly for the allowance for credit losses - Financial statements are based on GAAP, requiring management's difficult, subjective, and complex judgments[121][122] - Critical policies include the allowance for credit losses, goodwill, pension plan, and acquired loans[122] - These estimates are continuously evaluated and updated, with potential material impact if conditions differ from assumptions[122] Acquisition of Frontier Community Bank The acquisition of Frontier Community Bank (FCB) on June 1, 2024, significantly impacted the Company's consolidated results - The Company acquired Frontier Community Bank (FCB) on June 1, 2024[123] - FCB's balances and results of operations are included in the Company's consolidated results starting from June 1, 2024[123] Non-GAAP Financial Measures This section presents non-GAAP measures, including Net Interest Margin (FTE) and Efficiency Ratio, to provide supplemental insights Net Interest Margin The Net Interest Margin (FTE) improved for both the three and six months ended June 30, 2025, compared to the prior year - Net interest margin is calculated on a fully taxable equivalent (FTE) basis to measure profitability of interest-generating activities[125] Net Interest Margin (Three Months) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Interest Income, FTE (non-GAAP) | $11,235 | $8,920 | | Net Interest Margin (non-GAAP) | 2.56% | 2.13% | Net Interest Margin (Six Months) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Interest Income, FTE (non-GAAP) | $21,723 | $17,395 | | Net Interest Margin (non-GAAP) | 2.49% | 2.10% | Efficiency Ratio The efficiency ratio improved for both the three and six months ended June 30, 2025, indicating enhanced operational efficiency - The efficiency ratio measures operational efficiency by dividing adjusted noninterest expense by adjusted total income[128] Efficiency Ratio (Three Months) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Adjusted Noninterest Expense (non-GAAP) | $8,606 | $7,697 | | Total Income for Efficiency Ratio (non-GAAP) | $13,514 | $11,187 | | Efficiency Ratio (non-GAAP) | 63.68% | 68.80% | Efficiency Ratio (Six Months) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Adjusted Noninterest Expense (non-GAAP) | $17,192 | $14,975 | | Total Income for Efficiency Ratio (non-GAAP) | $26,562 | $21,877 | | Efficiency Ratio (non-GAAP) | 64.72% | 68.45% | Adjusted Return on Average Assets and Adjusted Return on Average Equity Adjusted return on average assets and equity significantly improved, reflecting enhanced profitability after exclusions - Adjusted return on average assets and equity are calculated by annualizing net income and dividing by average assets or equity[130] Adjusted Returns (Three Months) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Adjusted Net Income (non-GAAP) | $3,882 | $2,695 | | Adjusted Return on Average Assets (non-GAAP) | 0.77% | 0.46% | | Adjusted Return on Average Equity (non-GAAP) | 8.37% | 5.68% | Adjusted Returns (Six Months) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Adjusted Net Income (non-GAAP) | $6,957 | $5,219 | | Adjusted Return on Average Assets (non-GAAP) | 0.69% | 0.42% | | Adjusted Return on Average Equity (non-GAAP) | 7.69% | 5.22% | Performance Summary The Company's performance significantly improved, driven by the FCB acquisition, favorable interest rates, and a system conversion - Key drivers include the FCB acquisition, a favorable interest rate environment, and a system conversion completed in Q2 2025[133][134][135][136] Key Performance Indicators (Three Months) | Key Performance Indicator | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Income (Loss) | $2,289 | $(307) | | Return on average assets | 0.51% | (0.07)% | | Adjusted return on average assets | 0.77% | 0.46% | | Net interest margin | 2.56% | 2.13% | | Efficiency ratio | 63.68% | 68.80% | Key Performance Indicators (Six Months) | Key Performance Indicator | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Income | $5,525 | $1,867 | | Return on average assets | 0.61% | 0.22% | | Adjusted return on average assets | 0.69% | 0.42% | | Net interest margin | 2.49% | 2.10% | | Efficiency ratio | 64.72% | 68.45% | Net Interest Income Net interest income increased significantly, driven by higher yields on earning assets and lower costs of liabilities Net Interest Income Analysis (Three Months) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Interest Income | $18,781 | $17,338 | | Total Interest Expense | $7,546 | $8,418 | | Net Interest Income | $11,235 | $8,920 | | Net Interest Margin | 2.56% | 2.13% | Net Interest Income Analysis (Six Months) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Interest Income | $37,216 | $33,589 | | Total Interest Expense | $15,493 | $16,194 | | Net Interest Income | $21,723 | $17,395 | | Net Interest Margin | 2.49% | 2.10% | - The yield on earning assets increased, and the cost of interest-bearing liabilities decreased, improving the net interest margin[145] - Federal Reserve interest rate cuts reduced deposit pricing pressure and allowed adjustable-rate loans to reprice higher[145] Noninterest Income Total noninterest income increased, driven by higher service charges, trust income, and BOLI income Noninterest Income Analysis (Three Months) | Noninterest Income Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Service charges on deposits | $735 | $678 | $57 | | Credit and debit card fees, net | $366 | $423 | $(57) | | Trust income | $578 | $513 | $65 | | BOLI income | $297 | $269 | $28 | | Total noninterest income | $2,279 | $2,267 | $12 | Noninterest Income Analysis (Six Months) | Noninterest Income Category (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Service charges on deposits | $1,433 | $1,311 | $122 | | Credit and debit card fees, net | $783 | $797 | $(14) | | Trust income | $1,157 | $1,016 | $141 | | BOLI income | $589 | $527 | $62 | | Other income | $642 | $580 | $62 | | Total noninterest income | $4,839 | $4,482 | $357 | - Service charges on deposit accounts increased due to higher deposit levels[146] - Trust income increased due to higher assets under management[147] - BOLI income increased due to policies acquired from FCB[147] Noninterest Expense Total noninterest expense increased, driven by higher salaries, occupancy costs, and significant conversion expenses Noninterest Expense Analysis (Three Months) | Noninterest Expense Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $5,203 | $4,687 | $516 | | Occupancy, furniture and fixtures | $731 | $637 | $94 | | Data processing and ATM | $701 | $800 | $(99) | | Intangible asset amortization | $95 | $35 | $60 | | Professional services | $509 | $272 | $237 | | Merger-related expenses | $- | $2,257 | $(2,257) | | Conversion expenses | $1,977 | $173 | $1,804 | | Total noninterest expense | $10,583 | $10,127 | $456 | Noninterest Expense Analysis (Six Months) | Noninterest Expense Category (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $10,391 | $9,153 | $1,238 | | Occupancy, furniture and fixtures | $1,470 | $1,260 | $210 | | Data processing and ATM | $1,684 | $1,566 | $118 | | Intangible asset amortization | $192 | $35 | $157 | | Professional services | $808 | $512 | $296 | | Merger-related expenses | $- | $2,741 | $(2,741) | | Conversion expenses | $2,023 | $173 | $1,850 | | Total noninterest expense | $19,215 | $17,889 | $1,326 | - Salaries and employee benefits increased due to the addition of FCB employees[150] - Conversion expenses significantly increased due to payments to the former core system vendor and other related costs[154] - Cybersecurity expense decreased for the six months ended June 30, 2025, reflecting renegotiation of contracts[155] Income Tax The Company reported income tax expense, a significant change from an income tax benefit in the prior year's Q2 Income Tax Analysis (Three Months) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Income Tax Expense (Benefit) | $362 | $(178) | Income Tax Analysis (Six Months) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Income Tax Expense | $1,028 | $341 | | Effective Tax Rate | 15.69% | 15.44% | - The effective tax rate for 2024 was impacted by non-tax deductible merger-related expenses[156] Asset Quality The Company's asset quality indicators show a stable to improving trend, with a decrease in nonaccrual loans Asset Quality Indicators Key asset quality indicators show a decrease in nonaccrual loans and an improved ratio of ACLL to nonperforming loans Key Ratios | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Nonaccrual loans | $2,111 | $2,222 | | Loans past due 90 days or more, and still accruing | $21 | $548 | | ACLL to loans net of deferred fees and costs | 1.03% | 1.04% | | Net charge-off ratio | 0.03% | 0.03% | | Ratio of nonperforming loans to loans, net of deferred fees and costs | 0.21% | 0.22% | | Ratio of ACLL to nonperforming loans | 493.70% | 461.84% | Individually Evaluated Loans Individually evaluated loans totaled $10,849 thousand as of June 30, 2025, with a $141 thousand allocation for credit losses - Individually evaluated loans were $10,849 thousand as of June 30, 2025, resulting in an ACLL allocation of $141 thousand[160] - As of December 31, 2024, individually evaluated loans were $10,521 thousand, with an ACLL allocation of $80 thousand[161] - Three collateral-dependent loans were adequately collateralized and did not result in an individual allocation for either period[160][161] Collectively Evaluated Loans Collectively evaluated loans increased to $1,000,286 thousand with an ACLL of $10,281 thousand as of June 30, 2025 - Collectively evaluated loans totaled $1,000,286 thousand with an ACLL of $10,281 thousand as of June 30, 2025[162] - The ACLL for these loans is calculated using historical loss information, peer data, PD, and LGD, adjusted for forecasts and qualitative factors[163] Reasonable and Supportable Forecast The Company uses national unemployment forecasts for a 12-month period, which decreased the required ACLL level - A 12-month period is used for the reasonable and supportable forecast, reverting to historical losses on a straight-line basis[164] - The forecast for June 30, 2025, projects a slight increase in unemployment, leading to a decreased required ACLL[164] Qualitative Factors: Economic Economic qualitative factors, including bankruptcy filings and housing inventory, influenced the ACLL - Business and personal bankruptcy filings decreased, indicating a beneficial impact on credit risk[166] - Residential vacancy rates increased, resulting in a higher ACLL allocation[167][169] - Housing inventory also increased, leading to a higher ACLL allocation[169] Qualitative Factors: Asset Quality Indicators Accruing loans past due 30-89 days increased to 0.50% of total loans, primarily due to loans awaiting renewal - Accruing loans past due 30-89 days increased to 0.50% of total loans as of June 30, 2025, from 0.30% at December 31, 2024[170] - This increase is primarily attributed to certain loans awaiting renewal, which management expects to be approved[170] Qualitative Factors: Other Considerations Other qualitative factors include the interest rate environment, competition, and integration of FCB lenders - No ACLL allocation was included for interest rate changes as of June 30, 2025[172] - Competitive, legal, and regulatory environments remained similar to December 31, 2024[173] - An allocation was maintained to account for the integration of FCB lenders[174] - Total high-risk loans increased from December 31, 2024, impacting the required ACLL allocation[175] Unallocated Surplus The unallocated surplus in the ACLL decreased from $50 thousand at year-end to $10 thousand at June 30, 2025 - Unallocated surplus was $10 thousand (0.10% of calculated requirement) as of June 30, 2025[176] - This is a decrease from $50 thousand (0.49% of calculated requirement) at December 31, 2024[176] Conclusion Management believes the Allowance for Credit Losses on Loans (ACLL) is reasonable for the credit risk in the loan portfolio - Management believes the ACLL is reasonable for the credit risk in the loan portfolio as of June 30, 2025[177] - The conclusion is based on analysis of historical indicators, asset quality, and economic factors[177] ACL on Unfunded Commitments The Allowance for Credit Losses (ACL) on unfunded commitments decreased slightly to $241 thousand ACL on Unfunded Commitments | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ACL on Unfunded Commitments | $241 | $251 | | % of Unfunded Commitments | 0.14% | 0.14% | Provision for (Recovery of) Credit Losses The Company recorded a lower provision for credit losses on loans and a recovery on unfunded commitments for H1 2025 Provision for Credit Losses (Six Months) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Provision for credit losses on loans | $322 | $1,307 | | Recovery of credit losses on unfunded commitments | $10 | $15 | Provision for Credit Losses (Three Months) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Provision for credit losses on loans | $45 | $1,302 | | Recovery of credit losses on unfunded commitments | $9 | $- | - The Q2 2024 provision included $1,290 thousand for loans acquired on June 1, 2024[179] Loan Modifications The Company modified a significant number of loans for borrowers not experiencing financial difficulty during H1 2025 - The Company modified 173 loans totaling $17,750 thousand during Q2 2025, and 368 loans totaling $41,855 thousand during H1 2025[183] - These modifications were for borrowers not experiencing financial difficulty[183] - Loan modifications may include rate reductions, payment extensions, or changes in amortization terms[180] Key Assets and Liabilities This section analyzes changes in key assets and liabilities, highlighting the impact of organic growth and capital management Average Balances Year-to-date daily average balances show an increase in total assets, loans, and stockholders' equity YTD Average Balances | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Average Total Assets | $1,817,524 | $1,744,440 | $73,084 | | Average Interest-bearing deposits | $92,458 | $76,211 | $16,247 | | Average Securities available for sale, at fair value | $596,989 | $610,298 | $(13,309) | | Average Loans, net | $991,099 | $928,293 | $62,806 | | Average Total Deposits | $1,641,845 | $1,583,113 | $58,732 | | Average Stockholders' equity | $163,857 | $147,474 | $16,383 | Securities The fair value of securities decreased, but the net unrealized loss improved significantly, attributed to interest rate risk AFS Securities Summary | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Amortized cost | $654,249 | $680,496 | $(26,247) | | Unrealized loss, net | $(64,228) | $(78,598) | $14,370 | | Securities available for sale, at fair value | $590,021 | $601,898 | $(11,877) | - The unrealized loss is due to interest rate risk, not credit risk, and no ACL on securities was recorded[188] Loans Loans, net of deferred fees and costs, increased by 2.30% from year-end, driven by organic growth Loan Portfolio Composition | Loan Category (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Real estate construction | $44,529 | $50,798 | $(6,269) | | Consumer real estate | $317,949 | $307,855 | $10,094 | | Commercial real estate | $494,755 | $478,078 | $16,677 | | Commercial non real estate | $51,383 | $51,844 | $(461) | | Public sector and IDA | $56,347 | $57,171 | $(824) | | Consumer non real estate | $46,172 | $42,867 | $3,305 | | Loans, net of deferred fees and costs | $1,010,697 | $987,950 | $22,747 | - The increase in loans is a result of organic growth[189] Deposits Total deposits decreased by 1.04% from year-end, primarily due to decreases in interest-bearing accounts Deposit Composition | Deposit Category (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Noninterest-bearing demand deposits | $306,427 | $290,088 | $16,339 | | Interest-bearing demand deposits | $852,405 | $864,753 | $(12,348) | | Savings deposits | $140,285 | $143,109 | $(2,824) | | Time deposits | $328,558 | $346,802 | $(18,244) | | Total deposits | $1,627,675 | $1,644,752 | $(17,077) | - The Company's depositors are diverse, with no brokered deposits[190] - Approximately 24% of non-municipal deposits are uninsured, and municipal deposits have additional security from pledged bonds[190] Capital Resources Total stockholders' equity increased by 7.88% from year-end, and NBB remains well-capitalized Stockholders' Equity | Capital Component (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Common stock and additional paid in capital | $21,925 | $21,831 | $94 | | Retained earnings | $197,223 | $196,343 | $880 | | Accumulated other comprehensive loss | $(50,412) | $(61,765) | $11,353 | | Total stockholders' equity | $168,736 | $156,409 | $12,327 | - The increase in equity reflects improved unrealized losses on securities and net income[192] Regulatory Capital Ratios | Regulatory Capital Ratio | June 30, 2025 | December 31, 2024 | Regulatory Capital Minimum Ratios with Capital Conservation Buffer | | :--- | :--- | :--- | :--- | | Common Equity Tier I Capital Ratio | 16.13% | 15.28% | 7.00% | | Tier I Capital Ratio | 16.13% | 15.28% | 8.50% | | Total Capital Ratio | 17.02% | 16.14% | 10.50% | | Leverage Ratio | 10.49% | 10.25% | 4.00% | - NBB is considered well capitalized and exceeds all regulatory capital minimums[194][198] Liquidity The Company maintains sufficient liquidity through diverse sources and manages its loan-to-deposit ratio and investment strategy - Diverse liquidity sources include customer deposits, loan repayments, securities sales, and FHLB advances[195] - As of June 30, 2025, the Company had $292,916 thousand in FHLB borrowing capacity and $173,226 thousand in Federal Reserve discount window capacity[196] - The Company monitors liquidity needs, performs stress testing, and manages its loan-to-deposit ratio (62.09%)[199][200][201] Off-Balance Sheet Arrangements The Company extends lines of credit and sells mortgages on the secondary market, with mitigated risk - Off-balance sheet arrangements include lines of credit and letters of credit extended to customers[202] - The Company sells mortgages on the secondary market with recourse provisions, but considers the risk not significant[204] - In case of substantial draws, the Company can access lines of credit, raise deposits, or sell securities/loans[203][204] Contractual Obligations As of June 30, 2025, the Company had no finance lease, purchase obligations, or long-term debt - The Company had no finance lease or purchase obligations as of June 30, 2025[205] - The Company had no long-term debt as of June 30, 2025[205] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is marked as 'Not applicable,' indicating no material disclosures beyond what is already presented - This section is marked as 'Not applicable' by the Company[206] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025 - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[207] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[208] - The Company acknowledges that no control system can provide absolute assurance due to inherent limitations[209] Part II - OTHER INFORMATION Item 1. Legal Proceedings There are no pending or threatened legal proceedings that may materially impact the Company's financial condition - No pending or threatened legal proceedings are expected to materially impact the Company's financial condition[210] Item 1A. Risk Factors This section refers readers to the 'Risk Factors' previously disclosed in the Company's 2024 Form 10-K - Readers are referred to the 'Risk Factors' in Item 1A of the 2024 Form 10-K[211] - Additional risk factors are discussed under 'Cautionary Statement Regarding Forward-Looking Statements' in Part I, Item 2 of this Form 10-Q[211] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company reports that there were no unregistered sales of equity securities and no use of proceeds - No unregistered sales of equity securities occurred[212] - No use of proceeds from such sales[212] Item 3. Defaults Upon Senior Securities The Company reports that there were no defaults upon senior securities during the period - No defaults upon senior securities occurred[213] [Item 4. Mine Safety Disclosures](index=57&type=section&id=Item%204.%20Mine%20Safety%20D