First National Corp 10-Q for FY2025 Q1
First National Corp (FXNC)
About this 10-Q
First National Corp filed this 10-Q on May 14, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.28M
- up 28.9% from $2.54M a year earlier
- Net income
- $1.6M
- down 50.2% from net income of $3.21M a year earlier
- Diluted EPS
- $0.18
- down 64.7% from $0.51 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | 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:
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
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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.
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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 6, 2025,
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Consolidated Balance Sheets as of March 31, 2025 (unaudited) and December 31, 2024 |
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Consolidated Statements of Income for the three months ended March 31, 2025 and 2024 (unaudited) |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 (unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NATIONAL CORPORATION
Consolidated Balance Sheets
(in thousands, except share and per share data)
| (unaudited) | ||||||||
| March 31, | December 31, | |||||||
| 2025 | 2024* | |||||||
| Assets | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-bearing deposits in banks | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Securities available for sale, at fair value | ||||||||
| Securities held to maturity, at amortized cost (net of allowance for credit losses, 2025, $; 2024, $) | ||||||||
| Restricted securities, at cost | ||||||||
| Loans held for sale | ||||||||
| Loans, net of allowance for credit losses, 2025, $; 2024, $ | ||||||||
| Other real estate owned, net of valuation allowance, 2025, $; 2024, $ | ||||||||
| Premises and equipment, net | ||||||||
| Accrued interest receivable | ||||||||
| Bank owned life insurance | ||||||||
| Goodwill | ||||||||
| Core deposit intangibles, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Liabilities | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing demand deposits | $ | $ | ||||||
| Savings and interest-bearing demand deposits | ||||||||
| Time deposits | ||||||||
| Total deposits | $ | $ | ||||||
| Subordinated debt, net of issuance cost | ||||||||
| Junior subordinated debt | ||||||||
| Accrued interest payable and other liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ Equity | ||||||||
| Preferred stock, par value $ per share; authorized shares; issued and outstanding | $ | $ | ||||||
| Common stock, par value $ per share; authorized shares; issued and outstanding, 2025, shares; 2024, shares | ||||||||
| Surplus | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss, net | ( | ) | ( | ) | ||||
| Total shareholders’ equity | $ | $ | ||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
*Derived from audited consolidated financial statements.
See Notes to Consolidated Financial Statements
Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
| Three Months Ended |
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| March 31, |
March 31, |
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| 2025 |
2024 |
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| Interest and Dividend Income |
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| Interest and fees on loans |
$ | $ | ||||||
| Interest on deposits in banks |
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| Interest on federal funds sold |
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| Interest and dividends on securities: |
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| Taxable interest |
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| Tax-exempt interest |
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| Dividends |
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| Total interest and dividend income |
$ | $ | ||||||
| Interest Expense |
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| Interest on deposits |
$ | $ | ||||||
| Interest on subordinated debt |
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| Interest on junior subordinated debt |
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| Interest on other borrowings |
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| Total interest expense |
$ | $ | ||||||
| Net interest income |
$ | $ | ||||||
| Provision for credit losses |
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| Net interest income after provision for credit losses |
$ | $ | ||||||
| Noninterest Income |
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| Service charges on deposit accounts |
$ | $ | ||||||
| ATM and check card fees |
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| Wealth management fees |
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| Fees for other customer services |
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| Brokered mortgage fees |
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| Income from bank owned life insurance |
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| Other operating income |
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| Total noninterest income |
$ | $ | ||||||
| Noninterest Expense |
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| Salaries and employee benefits |
$ | $ | ||||||
| Occupancy |
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| Equipment |
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| Marketing |
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| Supplies |
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| Legal and professional fees |
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| ATM and check card expense |
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| FDIC assessment |
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| Bank franchise tax |
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| Data processing expense |
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| Internet banking expense |
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| Amortization expense |
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| Net losses (gain) on disposal of premises and equipment |
( |
) | ||||||
| Merger expense |
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| Miscellaneous losses |
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| Other operating expense |
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| Total noninterest expense |
$ | $ | ||||||
See Notes to Consolidated Financial Statements
FIRST NATIONAL CORPORATION
Consolidated Statements of Income (Unaudited)
(Continued)
(in thousands, except per share data)
| Three Months Ended |
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| March 31, |
March 31, |
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| 2025 |
2024 |
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| Income before income taxes |
$ | $ | ||||||
| Income tax expense |
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| Net income |
$ | $ | ||||||
| Earnings per common share |
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| Basic |
$ | $ | ||||||
| Diluted |
$ | $ | ||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Net income | $ | $ | ||||||
| Other comprehensive income (loss), net of tax, | ||||||||
| Unrealized holding gains (losses) on available for sale securities, net of tax of $ and ($) for the three months ended March 31, 2025 and 2024, respectively | ( | ) | ||||||
| Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity, net of tax of $ and $ for the three months ended March 31, 2025 and 2024, respectively | ||||||||
| Change in fair value of cash flow hedges, net of tax ($) and $ for the three months ended March 31, 2025 and 2024, respectively | ( | ) | ||||||
| Total other comprehensive income (loss) | ( | ) | ||||||
| Total comprehensive income | $ | $ | ||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Three Months Ended |
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| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Cash Flows from Operating Activities |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation and amortization of premises and equipment |
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| Amortization of core deposit intangibles |
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| Amortization of debt issuance costs |
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| Origination of mortgage loans held for sale |
( |
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| Proceeds from sale of mortgage loans held for sale |
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| Provision for credit losses on loans |
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| (Recovery of) provision for credit losses on securities held to maturity |
( |
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| Provision for credit losses on unfunded commitments |
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| Net (gain) on sale of other real estate owned |
( |
) | ||||||
| Increase in cash value of bank owned life insurance |
( |
) | ( |
) | ||||
| Accretion of discounts and amortization of premiums on securities, net |
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| Accretion of premium on time deposits |
( |
) | ( |
) | ||||
| Amortization (accretion) of certain acquisition-related loan premiums (discounts), net |
( |
) | ||||||
| Stock-based compensation |
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| Excess tax benefits on stock-based compensation |
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| (Gain) loss on disposal of premises and equipment, net |
( |
) | ||||||
| Deferred income tax expense |
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| Changes in assets and liabilities: |
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| (Increase) in interest receivable |
( |
) | ( |
) | ||||
| Decrease (increase) in other assets |
( |
) | ||||||
| (Decrease) increase in accrued interest payable and other liabilities |
( |
) | ||||||
| Net cash provided by operating activities |
$ | $ | ||||||
| Cash Flows from Investing Activities |
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| Proceeds from maturities, calls, and principal payments of securities available for sale |
$ | $ | ||||||
| Proceeds from maturities, calls, and principal payments of securities held to maturity |
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| Purchases of restricted securities |
( |
) | ||||||
| Net (purchase) redemption of restricted securities |
( |
) | ||||||
| Purchase of premises and equipment |
( |
) | ( |
) | ||||
| Proceeds from sale of premises and equipment |
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| Proceeds from sale of other real estate owned |
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| Proceeds from cash value of bank owned life insurance |
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| Net decrease (increase) in loans |
( |
) | ||||||
| Net cash provided by investing activities |
$ | $ | ||||||
See Notes to Consolidated Financial Statements
FIRST NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(Continued)
(in thousands)
| Three Months Ended |
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| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Cash Flows from Financing Activities |
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| Net increase in demand deposits and savings accounts |
$ | $ | ||||||
| Net increase in time deposits |
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| Cash dividends paid on common stock, net of reinvestment |
( |
) | ( |
) | ||||
| Repurchase of common stock, stock incentive plan |
( |
) | ||||||
| Net cash provided by financing activities |
$ | $ | ||||||
| Increase in cash and cash equivalents |
$ | $ | ||||||
| Cash and Cash Equivalents |
||||||||
| Beginning |
$ | $ | ||||||
| Ending |
$ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information |
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| Cash payments for: |
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| Interest |
$ | $ | ||||||
| Income taxes |
$ | $ | ||||||
| Supplemental Disclosures of Noncash Investing and Financing Activities |
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| Unrealized gains (losses) on securities available for sale |
$ | $ | ( |
) | ||||
| Amortization of unrealized losses on securities transferred from available for sale to held to maturity |
$ | $ | ||||||
| Change in fair value of cash flow hedges |
$ | ( |
) | $ | ||||
| Issuance of common stock, dividend reinvestment plan |
$ | $ | ||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands, except share and per share data)
| Common Stock | Surplus | Retained Earnings | Accumulated Other Comprehensive (Loss) | Total | ||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||
| Cash dividends on common stock ($ per share) | ( | ) | ( | ) | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Issuance of shares common stock, dividend reinvestment plan | ||||||||||||||||||||
| Issuance of shares common stock, stock incentive plan | ( | ) | ||||||||||||||||||
| Repurchase of shares common stock, stock incentive plan | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Common Stock | Surplus | Retained Earnings | Accumulated Other Comprehensive (Loss) | Total | ||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive loss | ||||||||||||||||||||
| Cash dividends on common stock ($ per share) | ( | ) | ( | ) | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Issuance of shares common stock, dividend reinvestment plan | ||||||||||||||||||||
| Issuance of shares common stock, stock incentive plan | ( | ) | ||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements (Unaudited)
Note 1. General
Basis of Presentation
The accompanying unaudited consolidated financial statements of First National Corporation (the Company) and its subsidiary, First Bank (the Bank), have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for annual year-end financial statements. All significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications of a normal and recurring nature considered necessary to present fairly the financial positions at March 31, 2025 and December 31, 2024, the statements of income and comprehensive income for the three months ended March 31, 2025 and 2024, the cash flows for the three months ended March 31, 2025 and 2024, and the changes in shareholders’ equity for the three months ended March 31, 2025 and 2024. The statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2024. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. 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 shareholders' equity.
On October 1, 2024, the Company completed the acquisition of Touchstone Bankshares, Inc. (Touchstone) with and into the Company (the Merger). Immediately following the Merger, Touchstone Bank, the wholly owned subsidiary of Touchstone, was merged with and into First Bank. In connection with the transactions, the Company issued
Recent Accounting Pronouncements
In January 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-01, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date.” ASU 2025-01 amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance 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 2025-01 to have a material impact on its (consolidated) financial statements.
Recently Adopted Accounting Pronouncements
In March 2024, the FASB issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concepts Statements”. This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. ASU 2024-02 was effective for the Company on January 1, 2025. The Company does not expect the adoption of ASU 2024-02 to have a material impact on its (consolidated) financial statements
In March 2024, the FASB issued ASU 2024-01, “Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards”. This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. ASU 2024-01 was effective for the Company on January 1, 2025. The Company does not expect the adoption of ASU 2024-01 to have a material impact on its (consolidated) financial statements.
Notes to Consolidated Financial Statements (Unaudited)
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 was effective for the Company on January 1, 2025. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its (consolidated) financial statements.
Note 2. Securities
The Company invests in U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, and corporate debt securities. Amortized costs, gross unrealized gains and losses, allowance for credit losses, and fair values of debt securities at March 31, 2025 and December 31, 2024 were as follows (in thousands):
| March 31, 2025 | ||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value | Allowance for Credit Losses | ||||||||||||||||
| Securities available for sale: | ||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| U.S. agency and mortgage-backed securities | ( | ) | ||||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||||||
| Total securities available for sale | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Securities held to maturity: | ||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| U.S. agency and mortgage-backed securities | ( | ) | ||||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||||||
| Corporate debt securities | ( | ) | ( | ) | ||||||||||||||||
| Total securities held to maturity | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| Total securities | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value | Allowance for Credit Losses | ||||||||||||||||
| Securities available for sale: | ||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| U.S. agency and mortgage-backed securities | ( | ) | ||||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||||||
| Total securities available for sale | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Securities held to maturity: | ||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| U.S. agency and mortgage-backed securities | ( | ) | ||||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||||||
| Corporate debt securities | ( | ) | ( | ) | ||||||||||||||||
| Total securities held to maturity | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| Total securities | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
Notes to Consolidated Financial Statements (Unaudited)
Information pertaining to available for sale securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position is as follows (in thousands):
| March 31, 2025 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
| Fair Value | Unrealized (Loss) | Fair Value | Unrealized (Loss) | Fair Value | Unrealized (Loss) | |||||||||||||||||||
| Securities available for sale: | ||||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| U.S. agency and mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total securities available for sale | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
| Fair Value | Unrealized (Loss) | Fair Value | Unrealized (Loss) | Fair Value | Unrealized (Loss) | |||||||||||||||||||
| Securities available for sale: | ||||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| U.S. agency and mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total securities available for sale | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
The tables above provide information about available for sale securities that have been in an unrealized loss position for less than twelve consecutive months and securities that have been in an unrealized loss position for twelve consecutive months or more. Management evaluates securities to determine whether the impairment is due to credit-related factors or noncredit-related factors at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. 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. Presently, the Company does not intend to sell any of these securities, does not expect to be required to sell these securities, and expects to recover the entire amortized cost of all the securities.
Accrued interest receivable on securities available for sale and securities held to maturity totaled $
At March 31, 2025, there were out of available for sale U.S. Treasury securities,
The amortized cost and fair value of securities at March 31, 2025 by contractual maturity are shown below (in thousands). Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.
| Available for Sale | Held to Maturity | |||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
| Due within one year | $ | $ | $ | $ | ||||||||||||
| Due after one year through five years | ||||||||||||||||
| Due after five years through ten years | ||||||||||||||||
| Due after ten years | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Notes to Consolidated Financial Statements (Unaudited)
The composition of restricted securities at March 31, 2025 and December 31, 2024 was as follows (in thousands):
| March 31, 2025 | December 31, 2024 | |||||||
| Federal Home Loan Bank stock | $ | $ | ||||||
| Federal Reserve Bank stock | ||||||||
| Community Bankers’ Bank stock | ||||||||
| $ | $ | |||||||
The Company also holds limited partnership investments in Small Business Investment Companies (SBICs), which are included in other assets in the Consolidated Balance Sheets. The limited partnership investments are measured as equity investments without readily determinable fair values at their cost, less any impairment. The amounts included in other assets for the limited partnership investments were $
Credit Quality Indicators & Allowance for Credit Losses - HTM
The Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings from Moody's, S&P, and Egan-Jones. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held to maturity at March 31, 2025 and December 31, 2024, aggregated by credit quality indicators.
| U.S. Treasury securities | U.S. agency and mortgage-backed securities | Obligations of states and political subdivisions | Corporate debt securities | Total Held to Maturity Securities | ||||||||||||||||
| March 31, 2025 | ||||||||||||||||||||
| Aaa | $ | $ | $ | $ | $ | |||||||||||||||
| Aa1 / Aa2 / Aa3 | ||||||||||||||||||||
| Baa1 / Baa2 / Baa3 | ||||||||||||||||||||
| Not rated - Agency (1) | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Aaa | $ | $ | $ | $ | $ | |||||||||||||||
| Aa1 / Aa2 / Aa3 | ||||||||||||||||||||
| Baa1 / Baa2 / Baa3 | ||||||||||||||||||||
| Not rated - Agency (1) | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
(1) Generally considered not to have credit risk given the implied governmental guarantees associated with these agencies.
The following tables summarize the change in the allowance for credit losses on held to maturity securities for the three months ended March 31, 2025 and for the year ended December 31, 2024.
| U.S. Treasury securities | U.S. agency and mortgage-backed securities | Obligations of states and political subdivisions | Corporate debt securities | Total Held to Maturity Securities | ||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
| Provision for credit losses | ( | ) | ( | ) | ||||||||||||||||
| Charge-offs of securities | ||||||||||||||||||||
| Recoveries | ||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||
Notes to Consolidated Financial Statements (Unaudited)
| U.S. Treasury securities | U.S. agency and mortgage-backed securities | Obligations of states and political subdivisions | Corporate debt securities | Total Held to Maturity Securities | ||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| Provision for credit losses | ( | ) | ( | ) | ||||||||||||||||
| Charge-offs of securities | ||||||||||||||||||||
| Recoveries | ||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
At March 31, 2025, the Company had no securities held-to-maturity that were past due 30 days or more as to principal and interest payments. The Company had no securities held-to-maturity classified as nonaccrual as of March 31, 2025.
Note 3. Loans
Loans at March 31, 2025 and December 31, 2024 are summarized as follows (in thousands):
| March 31, 2025 | December 31, 2024 | |||||||
| Real estate loans: | ||||||||
| Construction and land development | $ | $ | ||||||
| Secured by 1-4 family residential | ||||||||
| Other real estate loans | ||||||||
| Commercial and industrial loans | ||||||||
| Consumer and other loans | ||||||||
| Total loans | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | $ | $ | ||||||
Net deferred loan fees included in the above loan categories were $
Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The principal balance of purchased loans is included in the allowance for credit losses calculation. The remaining net discount on purchased loans at March 31, 2025 was $
| March 31, 2025 | December 31, 2024 | |||||||
| Acquired Loans- | Acquired Loans- | |||||||
| Non-Purchased | Non-Purchased | |||||||
| (Dollars in thousands) | Credit Deteriorated | Credit Deteriorated | ||||||
| Outstanding principal balance | $ | $ | ||||||
| Carrying amount | ||||||||
| Real estate loans: | ||||||||
| Construction and land development | $ | $ | ||||||
| Secured by 1-4 family residential | ||||||||
| Other real estate loans | ||||||||
| Commercial and industrial loans | ||||||||
| Consumer and other loans | ||||||||
| Total acquired loans | $ | $ | ||||||
Risk characteristics of each loan portfolio class that are considered by the Company include:
| • | 1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral. |
| • | Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project. |
| • | Other real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project. |
Notes to Consolidated Financial Statements (Unaudited)
| • | Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability. Commercial and industrial loans also include purchased loans which could have been originated outside of the Company's market area. |
| • | Consumer and other loans carry risks associated with the continued creditworthiness of the borrower and the value of the collateral, if any. Consumer loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Consumer and other loans also include purchased consumer loans which could have been originated outside of the Company's market area. Other loans included in this category include loans to states and political subdivisions. |
The following tables provide a summary of loan classes and an aging of past due loans as of March 31, 2025 and December 31, 2024 (in thousands):
| March 31, 2025 | ||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | > 90 Days Past Due | Total Past Due | Current | Total Loans | Non-accrual Loans | 90 Days or More Past Due and Accruing | |||||||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Secured by 1-4 family residential | ||||||||||||||||||||||||||||||||
| Other real estate loans | ||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | > 90 Days Past Due | Total Past Due | Current | Total Loans | Non-accrual Loans | 90 Days or More Past Due and Accruing | |||||||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Secured by 1-4 family residential | ||||||||||||||||||||||||||||||||
| Other real estate loans | ||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Credit Quality Indicators
As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans. The Company utilizes a risk grading matrix to assign a rating to each of its loans. The loan ratings are summarized into the following categories: pass, special mention, substandard, doubtful, and loss. Pass rated loans include all risk rated credits other than those included in special mention, substandard, or doubtful. Loans classified as loss are charged-off. Loan officers assign risk grades to loans at origination and as renewals arise. The Bank’s Credit Administration department reviews risk grades for accuracy on a quarterly basis and as credit issues arise. In addition, a certain amount of loans are reviewed each year through the Company’s internal and external loan review process. A description of the general characteristics of the loan grading categories is as follows:
Pass – Loans classified as pass exhibit acceptable operating trends, balance sheet trends, and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower as agreed.
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The Company considers all doubtful loans to be impaired and places the loan on non-accrual status.
Loss – Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.
Notes to Consolidated Financial Statements (Unaudited)
The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of March 31, 2025 and December 31, 2024 (in thousands).
| March 31, 2025 | ||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | ||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving | Total | |||||||||||||||||||||||||
| Construction and land development | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total construction and land development | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Secured by 1-4 family residential | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total secured by 1-4 family residential | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Other real estate loans | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total other real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total consumer and other loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Notes to Consolidated Financial Statements (Unaudited)
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving | Total | |||||||||||||||||||||||||
| Construction and land development | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total construction and land development | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Secured by 1-4 family residential | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total secured by 1-4 family residential | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Other real estate loans | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total other real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total consumer and other loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Note 4. Allowance for Credit Losses
The following tables present, as of and during the periods ended March 31, 2025, December 31, 2024 and March 31, 2024, the activity in the Allowance for Credit Losses on Loans (ACLL) (previously Allowance for Loan Losses) by portfolio, and information about individually evaluated and collectively evaluated loans (in thousands):
| March 31, 2025 | ||||||||||||||||||||||||
| Construction and Land Development | Secured by 1-4 Family Residential | Other Real Estate | Commercial and Industrial | Consumer and Other Loans | Total | |||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||
| Beginning Balance, December 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision for (recovery of) credit losses on loans | ( | ) | ( | ) | ||||||||||||||||||||
| Ending Balance, March 31, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending Balance: | ||||||||||||||||||||||||
| Individually evaluated | ||||||||||||||||||||||||
| Collectively evaluated | ||||||||||||||||||||||||
| Loans: | ||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Individually evaluated | ||||||||||||||||||||||||
| Collectively evaluated | ||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| Construction and Land Development | Secured by 1-4 Family Residential | Other Real Estate | Commercial and Industrial | Consumer and Other Loans | Total | |||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||
| Beginning Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Initial Allowance on PCD Touchstone loans | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Initial Provision on Non-PCD Touchstone loans | ||||||||||||||||||||||||
| Provision for (recovery of) credit losses on loans | ( | ) | ( | ) | ||||||||||||||||||||
| Ending Balance, December 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending Balance: | ||||||||||||||||||||||||
| Individually evaluated for impairment | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||
| Loans: | ||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Individually evaluated for impairment | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||
Notes to Consolidated Financial Statements (Unaudited)
| March 31, 2024 | ||||||||||||||||||||||||
| Construction and Land Development | Secured by 1-4 Family Residential | Other Real Estate | Commercial and Industrial | Consumer and Other Loans | Total | |||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||
| Beginning Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision for (recovery of) credit losses on loans | ( | ) | ||||||||||||||||||||||
| Ending Balance, March 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Ending Balance: | ||||||||||||||||||||||||
| Individually evaluated for impairment | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||
| Loans: | ||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Individually evaluated for impairment | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||
Nonaccrual loans
The following is a summary of the Company's nonaccrual loans by major categories for the periods indicated (in thousands):
| March 31, 2025 | December 31, 2024 | |||||||||||||||||||||||
| Nonaccrual Loans with No Allowance | Nonaccrual loans with an Allowance | Total Nonaccrual Loans | Nonaccrual Loans with No Allowance | Nonaccrual loans with an Allowance | Total Nonaccrual Loans | |||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Secured by 1-4 family residential | ||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Notes to Consolidated Financial Statements (Unaudited)
Collateral-Dependent Loans
The Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, 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. The Company reevaluates the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:
| • | Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate. |
| • | Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage. | |
| • | Home equity lines of credit are generally secured by second mortgages on residential real estate property. | |
| • | Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral. |
The following table presents the amortized cost of collateral-dependent loans (in thousands):
| March 31, 2025 | December 31, 2024 | |||||||||||||||||||||||
| (Dollars in thousands) | Real Estate Secured | Non-Real Estate Secured | Total Collateral-Dependent Loans | Real Estate Secured | Non-Real Estate Secured | Total Collateral-Dependent Loans | ||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||
| Construction and land development | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Secured by 1-4 family residential | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
At March 31, 2025 and December 31, 2024 there were
Notes to Consolidated Financial Statements (Unaudited)
Modifications Made to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For combination real estate loans, multiple types of modifications may be made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, and interest rate reduction.
During the three months ended March 31, 2025 and 2024, there were
Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. For the three months ended March 31, 2025 and 2024, there were
Unfunded Commitments
The Company maintains a separate reserve for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheet. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described in Note 1, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.
For the three months ended March 31, 2025 the Company recorded a $
Notes to Consolidated Financial Statements (Unaudited)
Note 5. Earnings per Common Share
Basic earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.
The following table presents the computation of basic and diluted earnings per share for the three months ended March 31, 2025 and 2024 (dollars in thousands, except per share data):
| Three Months Ended | ||||||||
| March 31, 2025 | March 31, 2024 | |||||||
| (Numerator): | ||||||||
| Net income | $ | $ | ||||||
| (Denominator): | ||||||||
| Weighted average shares outstanding – basic | ||||||||
| Potentially dilutive common shares – restricted stock units | ||||||||
| Weighted average shares outstanding – diluted | ||||||||
| Income per common share | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
There were
Note 6. Fair Value Measurements
Determination of Fair Value
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurement and Disclosures” topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. 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, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
| Level 1 - | Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. |
| Level 2 - | Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |
| Level 3 - | Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires a significant management judgment or estimation. |
An instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Notes to Consolidated Financial Statements (Unaudited)
The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a recurring basis in the financial statements:
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).
Derivative asset/liability - cash flow hedges
Cash flow hedges are recorded at fair value on a recurring basis. The fair value of the Company's cash flow hedges is determined by a third-party vendor using the discounted cash flow method (Level 2).
The following tables present the balances of assets measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024 (in thousands).
| Fair Value Measurements at March 31, 2025 | ||||||||||||||||
| Description | Balance as of March 31, 2025 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Securities available for sale | ||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | ||||||||||||
| U.S. agency and mortgage-backed securities | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Total securities available for sale | $ | $ | $ | $ | ||||||||||||
| Derivatives - cash flow hedges | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurements at December 31, 2024 | ||||||||||||||||
| Description | Balance as of December 31, 2024 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Securities available for sale | ||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | ||||||||||||
| U.S. agency and mortgage-backed securities | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Total securities available for sale | $ | $ | $ | $ | ||||||||||||
| Derivatives - cash flow hedges | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
Certain assets 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 financial statements:
Collateral Dependent Loans with an ACLL
In accordance with ASC 326, the Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, 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. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. There was a no allowance for credit losses on collateral dependent loans at March 31, 2025 and December 31, 2024.
Other Real Estate Owned
Certain assets such as OREO are measured at fair value less cost to sell. Valuation of OREO is determined using current appraisals from independent parties, a Level 2 input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.
Notes to Consolidated Financial Statements (Unaudited)
There were no assets measured at fair value on a nonrecurring basis for the three months ended March 31, 2025. The following tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis during the period ended December 31, 2024 (dollars in thousands):
| Fair Value Measurements at December 31, 2024 | ||||||||||||||||
| Description | Balance as of December 31, 2024 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Other real estate owned | $ | $ | $ | $ | ||||||||||||
| Quantitative information about Level 3 Fair Value Measurements for December 31, 2024 | |||||||||||
| Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average) (1) | ||||||||
| Other real estate owned | $ | Property appraisals | Selling cost | % | |||||||
| (1) | Unobservable inputs were weighted by the relative fair value of the instruments. |
Notes to Consolidated Financial Statements (Unaudited)
Accounting guidance requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The carrying values and estimated fair values of the Company’s financial instruments at March 31, 2025 and December 31, 2024 are as follows (in thousands):
| Fair Value Measurements at March 31, 2025 Using | ||||||||||||||||||||
| Carrying Amount | Quoted Prices in Active Markets for Identical Assets Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | Fair Value | ||||||||||||||||
| Financial Assets | ||||||||||||||||||||
| Cash and interest-bearing deposits in banks | $ | $ | $ | $ | $ | |||||||||||||||
| Securities available for sale | ||||||||||||||||||||
| Securities held to maturity | ||||||||||||||||||||
| Restricted securities | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Bank owned life insurance | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Derivatives - cash flow hedges | ||||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||
| Deposits | $ | $ | $ | 1,462,583 | $ | 359,392 | $ | |||||||||||||
| Subordinated debt | 19,924 | |||||||||||||||||||
| Junior subordinated debt | 8,511 | |||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| Fair Value Measurements at December 31, 2024 Using | ||||||||||||||||||||
| Carrying Amount | Quoted Prices in Active Markets for Identical Assets Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | Fair Value | ||||||||||||||||
| Financial Assets | ||||||||||||||||||||
| Cash and interest-bearing deposits in banks | $ | $ | $ | $ | $ | |||||||||||||||
| Securities available for sale | ||||||||||||||||||||
| Securities held to maturity | ||||||||||||||||||||
| Restricted securities | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Bank owned life insurance | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Derivatives - cash flow hedges | ||||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Subordinated debt | ||||||||||||||||||||
| Junior subordinated debt | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
Notes to Consolidated Financial Statements (Unaudited)
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
Note 7. Stock Compensation Plans
On May 10, 2023, the Company’s shareholders approved the First National Corporation 2023 Stock Incentive Plan, which replaced the 2014 Stock Incentive Plan and makes available up to
Stock Awards
Whenever the Company deems it appropriate to grant a stock award, the recipient receives a specified number of unrestricted shares of employer stock. Stock awards may be made by the Company at its discretion without cash consideration and may be granted as settlement of a performance-based compensation award.
There was
Restricted Stock Units
Restricted stock units are an award of units that correspond in number and value to a specified number of shares of employer stock which the recipient receives according to a vesting plan and distribution schedule after achieving required performance milestones or upon remaining with the employer for a particular length of time. Each restricted stock unit that vests entitles the recipient to receive one share of common stock on a specified issuance date.
During the first quarter of 2025,
A summary of the activity for the Company’s restricted stock units for the period indicated is presented in the following table:
| Three Months Ended | ||||||||
| March 31, 2025 | ||||||||
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Unvested, beginning of year | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested, end of period | $ | |||||||
The total unrecognized pre-tax compensation expense related to unvested restricted stock unit awards, based on restricted stock unit awards outstanding at that time, was $
Notes to Consolidated Financial Statements (Unaudited)
Note 8. Accumulated Other Comprehensive (Loss)
Changes in each component of accumulated other comprehensive (loss) were as follows (in thousands):
| Net Unrealized Gains (Losses) on Securities | Change in Fair Value of Cash Flow Hedges | Accumulated Other Comprehensive (Loss) | ||||||||||
| Balance at December 31, 2023 | $ | ( | ) | $ | $ | ( | ) | |||||
| Unrealized holding losses (net of tax, ($)) | ( | ) | ( | ) | ||||||||
| Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity (net of tax of $) | ||||||||||||
| Change in fair value of cash flow hedge (net of tax, $) | ||||||||||||
| Change during period | ( | ) | ( | ) | ||||||||
| Balance at March 31, 2024 | $ | ( | ) | $ | $ | ( | ) | |||||
| Balance at December 31, 2024 | $ | ( | ) | $ | $ | ( | ) | |||||
| Unrealized holding gains (net of tax, $) | ||||||||||||
| Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity (net of tax of $) | ||||||||||||
| Change in fair value of cash flow hedge (net of tax, ($)) | ( | ) | ( | ) | ||||||||
| Change during period | ( | ) | ||||||||||
| Balance at March 31, 2025 | $ | ( | ) | $ | $ | ( | ) | |||||
Notes to Consolidated Financial Statements (Unaudited)
Note 9. Revenue Recognition
Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of ASC topic 606. Gains and losses on investment securities, derivatives, financial guarantees, and sales of financial instruments are similarly excluded from the scope. The guidance is applicable to noninterest revenue streams such as service charges on deposit accounts, ATM and check card fees, wealth management fees, and fees for other customer services. 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, 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. Overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time.
ATM and check card fees
ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. ATM fees are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Check card fees are primarily comprised of interchange fee income. Interchange fees are earned whenever the Company's debit cards are processed through card payment networks, such as Visa. The Company's performance obligation for interchange fee income is largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Wealth management fees
Wealth management fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company's performance obligation is generally satisfied over time and the resulting fees are primarily 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. Estate management fees are based upon the size of the estate. Revenue for estate management fees are recorded periodically, according to a fee schedule, and are based on the services that have been provided.
Brokered mortgage fees
Brokered mortgage fees are comprised of loan fee income earned from generating loans in the secondary market. Brokered mortgage fee income is recognized at loan closing.
Fees for other customer services
Fees for other customer services include fees for brokered loans, check ordering charges, merchant services income, safe deposit box rental fees, and other service charges. Check ordering charges are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Merchant services income mainly represent fees charged to merchants to process their debit and credit card transactions. The Company's performance obligation for merchant services income is largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. 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.
The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Accounting Standards Codification Topic 606, for the three months ended March 31, 2025 and 2024 (in thousands):
| Three Months Ended | ||||||||
| March 31, 2025 | March 31, 2024 | |||||||
| Noninterest Income | ||||||||
| Service charges on deposit accounts | $ | $ | ||||||
| ATM and check card fees | ||||||||
| Wealth management fees | ||||||||
| Brokered mortgage fees | ||||||||
| Fees for other customer services | ||||||||
| Noninterest income (in-scope of Topic 606) | $ | $ | ||||||
| Noninterest income (out-of-scope of Topic 606) | ||||||||
| Total noninterest income | $ | $ | ||||||
Notes to Consolidated Financial Statements (Unaudited)
Note 10. Derivative Financial Instruments
On April 21, 2020, the Company entered into
The Company entered into interest rate swaps to reduce interest rate risk and to manage interest expense. By entering into these agreements, the Company converted variable rate debt into fixed rate debt. Alternatively, the Company may enter into interest rate swap agreements to convert fixed rate debt into variable rate debt. Interest differentials paid or received under interest rate swap agreements are reflected as adjustments to interest expense. The Company designated the interest rate swaps as hedging instruments in qualifying cash flow hedges. Changes in fair value of these designated hedging instruments are reported as a component of other comprehensive (loss) income. Interest rate swaps designated as cash flow hedges are expected to be highly effective in offsetting the effect of changes in interest rates on the amount of variable rate interest payments, and the Company assesses the effectiveness of each hedging relationship quarterly. If the Company determines that a cash flow hedge is no longer highly effective, future changes in the fair value of the hedging instrument would be reported as earnings. As of March 31, 2025, the Company has designated cash flow hedges to manage its exposure to variability in cash flows on certain variable rate borrowings for periods that end between June 2034 and October 2036. The notional amounts of the interest rate swaps were not exchanged and do not represent exposure to credit loss. In the event of default by a counterparty, the risk in these transactions is the cost of replacing the agreements at current market rates.
All interest rate swaps were entered into with counterparties that met the Company's credit standards and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in these derivative contracts is not significant.
Unrealized gains or losses recorded in other comprehensive (loss) income related to cash flow hedges are reclassified into earnings in the same period(s) during which the hedged interest payments affect earnings. When a designated hedging instrument is terminated and the hedged interest payments remain probable of occurring, any remaining unrecognized gain or loss in other comprehensive (loss) income is reclassified into earnings in the period(s) during which the forecasted interest payments affect earnings. Amounts reclassified into earnings and interest receivable or payable under designated interest rate swaps are reported in interest expense. The Company does not expect any unrealized losses related to cash flow hedges to be reclassified into earnings in the next twelve months.
The following table summarizes key elements of the Company's derivative instruments at March 31, 2025 and December 31, 2024 (in thousands):
| March 31, 2025 | ||||||||||||||||
| Notional Amount | Assets | Liabilities | Collateral Pledged(1) | |||||||||||||
| Cash Flow Hedges | ||||||||||||||||
| Interest rate swap contracts | $ | $ | $ | $ | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| Notional Amount | Assets | Liabilities | Collateral Pledged(1) | |||||||||||||
| Cash Flow Hedges | ||||||||||||||||
| Interest rate swap contracts | $ | $ | $ | $ | ||||||||||||
| (1) | Collateral pledged may be comprised of cash or securities. |
Note 11. Acquisition
On October 1, 2024, the Company completed its previously announced acquisition of Touchstone, the holding company for Touchstone Bank headquartered in Prince George, Virginia. Under the terms of the merger agreement, at the effective time of the Merger, each outstanding share of Touchstone common stock was converted into
Following the Merger, the former branches of Touchstone Bank assumed in the Merger continued to operate in Virginia as Touchstone Bank, a division of First Bank, and, in North Carolina, as Touchstone Bank, a division of First Bank, Strasburg, Virginia, until the system integration was completed in February 2025. Following the system integration, the former branches of Touchstone Bank now operate in Virginia as First Bank and in North Carolina as First Bank of the Commonwealth. The combined company delivers banking services through thirty-three branch offices in Virginia and North Carolina and three loan production offices, in addition to a wide array of online banking services. The Company incurred merger costs totaling $
Note 12. Segment Reporting
The Company has reportable segments. Each reportable segment is a strategic business unit that offers different products and services. They are managed separately, because each segment appeals to different markets and, accordingly, require different technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report.
The reportable segments are:
| ● | Community Banking - The Community Banking segment involves making loans and generating deposits from individuals, businesses, and charitable organizations. Loan fee income, service charges from deposit accounts, and other non-interest-related fees, such as fees for debit cards and ATM usage and fees for brokered mortgage services, generates income for the Banking segment. |
| ● | Wealth Management Services – Wealth Management Services offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenue for this segment is generated from administration, service and custody fees, as well as, management fees which are derived from assets under management. Investment management services currently are offered through in-house and third-party managers. |
The Company's chief operating decision maker (CODM) is the President and Chief Operating Officer of the Bank. The CODM uses income, operating expenses and net income to evaluate income generated from the operating segments. Net income is used to monitor budget versus actual results and profitability. Financials of the operating segments are reviewed monthly to assess the performance of the segments.
Segment information for the three months ended March 31, 2025, and March 31, 2024, is shown in the following tables. Note that asset information is not reported below, as the assets of the Company are reported at the Bank level. Assets under management by Wealth Management Services were $
| As of the Three Months Ended March 31, 2025 | ||||||||||||
| (in thousands) | Community Banking | Wealth Management | Total | |||||||||
| Interest Income | $ | $ | $ | |||||||||
| Interest Expense | ||||||||||||
| Net interest income | $ | $ | $ | |||||||||
| Provision for credit losses | ||||||||||||
| Net interest income after provision for credit losses | $ | $ | $ | |||||||||
| Noninterest Income: | ||||||||||||
| Service charges on deposit accounts | $ | $ | $ | |||||||||
| ATM and check card fees | ||||||||||||
| Wealth management fees | ||||||||||||
| Other operating income | ||||||||||||
| Total noninterest income | $ | $ | $ | |||||||||
| Noninterest Expense | ||||||||||||
| Salaries and employee benefits | $ | $ | $ | |||||||||
| Occupancy | ||||||||||||
| Equipment | ||||||||||||
| Legal and professional fees | ||||||||||||
| Data processing expense | ||||||||||||
| Investment management | ||||||||||||
| Other operating expense | ||||||||||||
| Total noninterest expense | $ | $ | $ | |||||||||
| Income before income taxes | $ | $ | $ | |||||||||
| Income tax expense | ||||||||||||
| Net income | $ | $ | $ | |||||||||
| As of the Three Months Ended March 31, 2024 | ||||||||||||
| (in thousands) | Community Banking | Wealth Management | Total | |||||||||
| Interest Income | $ | $ | $ | |||||||||
| Interest Expense | ||||||||||||
| Net interest income | $ | $ | $ | |||||||||
| Provision for credit losses | ||||||||||||
| Net interest income after provision for credit losses | $ | $ | $ | |||||||||
| Noninterest Income: | ||||||||||||
| Service charges on deposit accounts | $ | $ | $ | |||||||||
| ATM and check card fees | ||||||||||||
| Wealth management fees | ||||||||||||
| Other operating income | ||||||||||||
| Total noninterest income | $ | $ | $ | |||||||||
| Noninterest Expense | ||||||||||||
| Salaries and employee benefits | $ | $ | $ | |||||||||
| Occupancy | ||||||||||||
| Equipment | ||||||||||||
| Legal and professional fees | ||||||||||||
| Data processing expense | ||||||||||||
| Investment management | ||||||||||||
| Other operating expense | ||||||||||||
| Total noninterest expense | $ | $ | $ | |||||||||
| Income before income taxes | $ | $ | $ | |||||||||
| Income tax expense | ||||||||||||
| Net income | $ | $ | $ | |||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
First National Corporation (the Company) makes forward-looking statements in this Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding profitability, liquidity, adequacy of capital, allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and the impact of the Company's acquisition (the Merger) of Touchstone Bankshares, Inc. (Touchstone), including the expected levels of merger related expenses to be incurred by the Company, the expected benefits of the Merger, and the potential impact of the Merger on the Company’s and First Bank’s (the Bank) liquidity and capital levels, as well as certain financial and other goals. 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 subject to significant uncertainties because they are based upon or are affected by factors including:
| • | the ability of the Company and the Bank to realize the anticipated benefits of the Merger; | |
| • | expected revenue synergies and cost savings from the Merger that may not be fully realized or realized within the expected time frame; | |
| • | revenues following the Merger that may be lower than expected; | |
| • |
general business conditions, as well as conditions within the financial markets; |
| • |
general economic conditions, including unemployment levels, inflation and slowdowns in economic growth; |
| • |
the Company’s branch and market expansions, technology initiatives and other strategic initiatives; |
| • |
the impact of competition from banks and non-banks, including financial technology companies (Fintech); |
| • |
the composition of the loan and deposit portfolio, including the types of accounts and customers, may change, which could impact the amount of net interest income and noninterest income in future periods, including revenue from service charges on deposits; |
| • |
limited availability of financing or inability to raise capital; |
| • |
reliance on third parties for key services; |
| • |
the Company’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses; |
| • |
the quality of the loan portfolio and the value of the collateral securing those loans; |
|
| • | prepayments of loans and securities could materially impact earnings through a reduction in interest income and fees on loans and interest income on securities; | |
| • | demand for loan products; | |
| • | deposit flows; |
| • |
the level of net charge-offs on loans and the adequacy of the allowance for credit losses; |
| • |
the concentration in loans secured by real estate may adversely affect earnings due to changes in the real estate markets; |
| • |
the value of securities held in the Company's investment portfolio; |
| • |
legislative or regulatory changes or actions, including the effects of changes in tax laws; |
| • |
changes in accounting principles, policies and guidelines and elections made by the Company thereunder; |
| • |
cyber threats, attacks or events; |
| • |
the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or the industry's reputation were to become damaged; |
| • |
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve Board, and the effect of those policies on interest rates and business in the Company's markets; |
| • |
changes in interest rates could have a negative impact on the value of the Company’s securities portfolio and its net interest income and an unfavorable impact on the Company’s customers’ ability to repay loans; |
|
| • | U.S. and global trade policies and tensions, including change in, or the imposition of, tariffs and/or trade barriers and the economic impacts, volatility and uncertainty resulting therefrom, and geopolitical instability; | |
| • | the economic impact of duties, tariffs, or other barriers or restrictions on trade, any retaliatory counter measures, or the volatility and uncertainty arising therefrom; | |
| • | geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad; and |
| • |
other factors identified in Item 1A. Risk Factors of the Company’s Form 10-K for the year ending December 31, 2024. |
Because of these and other uncertainties, actual results may be materially different from the results indicated by these forward-looking statements. In addition, past results of operations do not necessarily indicate future results. The following discussion and analysis of the financial condition at March 31, 2025 and statements of income of the Company for the three months ended March 31, 2025 and 2024 should be read in conjunction with the consolidated financial statements and related notes included in Part I, Item 1, of this Form 10-Q and in Part II, Item 8, of the Form 10-K for the period ending December 31, 2024. The statements of income for the three months ended March 31, 2025 may not be indicative of the results to be achieved for the year.
Executive Overview
The Company
First National Corporation (the Company) is the bank holding company of:
| • |
First Bank (the Bank). The Bank owns: |
| • |
First Bank Financial Services, Inc. |
| • |
Shen-Valley Land Holdings, LLC |
|
| • | McKenney Group, LLC |
| • |
First National (VA) Statutory Trust II (Trust II) |
| • |
First National (VA) Statutory Trust III (Trust III and, together with Trust II, the Trusts) |
First Bank Financial Services, Inc. owns an interest in an entity that provides title insurance services. Bank of Fincastle Services, Inc. is no longer an active operating entity. Shen-Valley Land Holdings, LLC was formed to hold other real estate owned and future office sites. McKenney Group, LLC owns an interest in an entity that provides insurance services. The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities and are not included in the Company’s consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities.
In March of 2025 two previously held subsidiaries of the Company, Bank of Fincastle Services, Inc. and ESF, LLC, were closed with no material impact to the financials related to the closures.
Products, Services, Customers and Locations
The Bank offers loan, deposit, and wealth management products and services. Loan products and services include consumer loans, residential mortgages, home equity loans, and commercial loans. Deposit products and services include checking accounts, treasury management solutions, savings accounts, money market accounts, certificates of deposit, and individual retirement accounts. Wealth management services include estate planning, investment management of assets, trustee under an agreement, trustee under a will, individual retirement accounts, and estate settlement. Customers include small and medium-sized businesses, individuals, estates, local governmental entities, and non-profit organizations. The Bank’s office locations are well-positioned in attractive markets along the Interstate 81, Interstate 66, and Interstate 64 corridors in the Shenandoah Valley, the Roanoke Valley, south-central regions of Virginia, the Richmond MSA, and northern North Carolina. Within this market area, there are diverse types of industry including medical and professional services, manufacturing, retail, warehousing, government, hospitality, and higher education. The Bank’s products and services are delivered through 33 bank branch offices, three loan production offices, and two customer service centers in retirement communities. For the location and general character of each of these offices, see Item 2 of the Company's Form 10-K for the year ended December 31, 2024. Many of the Bank’s services are also delivered through the Bank’s mobile banking platform, its website, www.fbvirginia.com, and a network of ATMs located throughout its market area.
Revenue Sources and Expense Factors
The primary source of revenue is from net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense and typically represents between 70% and 80% of the Company’s total revenue. Interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets. The Bank’s interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid. In addition to net interest income, noninterest income is the other source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits, fee income from wealth management services, and ATM and check card fees.
Primary expense categories are salaries and employee benefits, which comprised 47% of noninterest expenses for the three months ended March 31, 2025, followed by other operating expense, which comprised 12% of noninterest expenses. The provision for credit losses is also typically a primary expense of the Bank. The provision is determined by factors that include net charge-offs, asset quality, economic conditions, and loan growth. Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company’s control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses.
Acquisition of Touchstone Bankshares, Inc.
On October 1, 2024, the Company completed the acquisition of Touchstone. Immediately following the Merger with and into the Company, Touchstone Bank, the wholly owned subsidiary of Touchstone, was merged with and into First Bank. Following the Merger, the former branches of Touchstone Bank assumed in the Merger continued to operate in Virginia as Touchstone Bank, a division of First Bank, and, in North Carolina, as Touchstone Bank, a division of First Bank, Strasburg, Virginia, until the system integration was completed in February 2025. Following the system integration, the former branches of Touchstone Bank now operate in Virginia as First Bank and in North Carolina as First Bank of the Commonwealth. The combined company delivers banking services through thirty-three branch offices in Virginia and North Carolina and three loan production offices, in addition to a wide array of online banking services. The Company incurred merger costs totaling $1.9 million and $7.2 million for the three months ending March 31, 2025, and December 31, 2024, respectively.
Overview of Quarterly Financial Performance
Comparing the Three-Month Periods Ending March 31, 2025 and March 31, 2024
Net income decreased $1.6 million to $1.6 million, or $0.18 per diluted share, for the three months ended March 31, 2025, compared to $3.2 million, or $0.51 per diluted share, for the same period in 2024. Return on average assets was 0.31% and return on average equity was 3.67% for the first quarter of 2025, compared to 0.90% and 11.07%, respectively, for the same period in 2024.
The $1.6 million decrease in net income resulted from a $8.4 million increase in noninterest expenses, offset by a $6.8 million increase in net interest income after provision. Noninterest expense increased due to merger expenses of $1.9 million and additional operating expenses resulting from operating and staffing additional branches and duplicative expenses for data processing that were incurred until the system integration in February.
Net interest income increased by $6.6 million as total interest income increased by $7.7 million and was partially offset by a $1.1 million increase in total interest expense. Primarily as a result of the Touchstone merger, net interest income was positively impacted by a $527.3 million, or 38.7%, increase in average earning assets which was offset by a $380.5 million, or 47.6%, increase in interest bearing liabilities. Net interest income was also positively impacted by a 53-basis point increase in the net interest margin to 3.77%.
Provision for credit losses decreased by $168 thousand. For the first quarter of 2025, provision for credit losses totaled $832 thousand and was comprised of a $735 thousand provision for credit losses on loans, a $104 thousand provision for credit losses on unfunded commitments, and a $7 thousand recovery of credit losses on securities held-to-maturity. For the same period of 2024, the provision for credit losses totaled $1.0 million.
Noninterest income decreased by $436 thousand in the first quarter of 2025 primarily from a decrease in other operating income related to a loan recovery recognized in 2024, offset by some increases in services charges and ATM and check card fees.
Noninterest expenses increased by $8.4 million and were primarily attributable to a $2.8 million increase in salaries and employee benefits, a $1.9 million increase in merger expense, a $876 thousand in other operating expense, a $534 thousand increase in occupancy expense, a $516 thousand increase in data processing expense, a $438 thousand increase in amortization expense, and a $433 thousand increase in equipment expense. The increase is primarily driven by the Touchstone merger resulting in increased operating expenses due to operating additional branches, duplicative expenses incurred prior to system integration, and amortization expense due to time deposit accretion on time deposits acquired from Touchstone.
Non-GAAP Financial Measures
This report refers to the efficiency ratio, which is computed by dividing noninterest expense, excluding amortization of intangibles, net gains (loss) on disposal of premises and equipment, other real estate owned (income) expense, net, and merger related expenses, by the sum of net interest income on a tax-equivalent basis and noninterest income. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with GAAP and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. The methodology for determining this measurement may differ among companies. The Company, in referring to its net income, is referring to income under GAAP. The components of the efficiency ratio calculation are summarized in the following table (dollars in thousands).
| Efficiency Ratio |
||||||||
| Three Months Ended |
||||||||
| March 31, 2025 |
March 31, 2024 |
|||||||
| Noninterest expense |
$ | 18,335 | $ | 9,887 | ||||
| Add: other real estate owned income (expense), net |
8 | — | ||||||
| Subtract: amortization of intangibles |
(442 | ) | (4 | ) | ||||
| Subtract: loss on disposal of premises and equipment, net |
1 | (50 | ) | |||||
| Subtract: merger related expenses |
(1,940 | ) | — | |||||
| $ | 15,962 | $ | 9,833 | |||||
| Tax-equivalent net interest income |
$ | 17,547 | $ | 10,931 | ||||
| Noninterest income |
3,611 | 4,047 | ||||||
| $ | 21,158 | $ | 14,978 | |||||
| Efficiency ratio |
75.44 | % | 65.65 | % | ||||
This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for both 2025 and 2024 is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (in thousands).
| Reconciliation of Net Interest Income to Tax-Equivalent Net Interest Income |
||||||||
| Three Months Ended |
||||||||
| March 31, 2025 |
March 31, 2024 |
|||||||
| GAAP measures: |
||||||||
| Interest income – loans |
$ | 20,639 | $ | 13,484 | ||||
| Interest income – investments and other |
3,383 | 2,850 | ||||||
| Interest expense – deposits |
(6,038 | ) | (4,771 | ) | ||||
| Interest expense – subordinated debt |
(467 | ) | (69 | ) | ||||
| Interest expense – junior subordinated debt |
(66 | ) | (68 | ) | ||||
| Interest expense – other borrowings |
— | (576 | ) | |||||
| Total net interest income |
$ | 17,451 | $ | 10,850 | ||||
| Non-GAAP measures: |
||||||||
| Tax benefit realized on non-taxable interest income – loans |
$ | 16 | $ | — | ||||
| Tax benefit realized on non-taxable interest income – municipal securities |
80 | 81 | ||||||
| Total tax benefit realized on non-taxable interest income |
$ | 96 | $ | 81 | ||||
| Total tax-equivalent net interest income |
$ | 17,547 | $ | 10,931 | ||||
| Net Interest Margin |
||||||||
| Three Months Ended |
||||||||
| March 31, 2025 |
March 31, 2024 |
|||||||
| Tax-equivalent net interest income |
$ | 17,547 | $ | 10,931 | ||||
| Average earnings assets |
$ | 1,888,427 | $ | 1,361,172 | ||||
| Net Interest Margin |
3.77 | % | 3.24 | % | ||||
Results of Operations
General
Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on interest-earning assets, predominantly loans and securities, exceeds interest expense on interest-bearing liabilities, including deposits, subordinated debt, and junior subordinated debt. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, are the components that impact the level of net interest income. The net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets. The provision for credit losses, noninterest income, and noninterest expense are the other components that determine net income. Noninterest income and expense primarily consist of income from service charges on deposit accounts, revenue from wealth management services, ATM and check card income, revenue from other customer services, income from bank owned life insurance, and general and administrative expenses.
Net Income
Three Month Period Ended March 31, 2025
Net income decreased $1.6 million to $1.6 million, or $0.18 per diluted share, for the three months ended March 31, 2025, compared to $3.2 million, $0.51 per diluted share, for the same period in 2024. Return on average assets was 0.32% and return on average equity was 3.85% for the first quarter of 2025, compared to 0.90% and 11.07%, respectively, for the same period in 2024.
Net Interest Income
Three Month Period Ended March 31, 2025
Net interest income increased $6.6 million, or 61%, to $17.5 million for the first quarter of 2025 compared to the same period in the prior year. Total interest income increased by $7.7 million, which was partially offset by interest expense, which increased by $1.1 million. Net interest income was positively impacted by a 53-basis point increase in the net interest margin and a $527.3 million, or 38.7%, increase in average earning assets which was offset by a $380.5 million, or 47.6%, million increase in interest bearing liabilities.
The increase in total interest income was attributable to a $7.2 million, or 53%, increase in interest income and fees on loans. The increase in interest income on loans was attributable to a 15-basis point increase in yield and a 50% increase in average balances compared to the same period in the prior year due to the merger with Touchstone.
The increase in total interest expense was attributable to a $1.3 million increase in interest expense on deposits and a $398 thousand increase on interest on subordinated debt, offset by a $576 thousand decrease in interest expense on other borrowings. Although net interest margin was positively impacted by a 30-basis point decrease in the cost of interest-bearing deposits, the higher interest expense resulted from a 48% increase in average interest-bearing deposit balances. The decrease in the cost of deposits was impacted by a decrease in rates paid on deposits. The increase in deposits and subordinated debt was due to assumed liabilities from the Touchstone merger. The lower interest expense on other borrowings resulted from the payoff of $50.0 million of borrowings at the end of 2024.
The net interest margin was 3.77% for the first quarter of 2025 compared to 3.24% for the same period in the prior year as the increase in the yield on earning assets exceeded the increase in the cost of funds. When compared to the first quarter of 2025, the net interest margin increased by 53-basis points as the yield on earning assets continued to increase at a similar pace as in prior quarters, while the cost of funds decreased when compared to prior quarterly periods consistent with the federal funds rate cuts in late 2024.
The following tables show interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the periods indicated (dollars in thousands):
Average Balances, Income and Expenses, Yields and Rates (Taxable Equivalent Basis)
| Three Months Ended |
||||||||||||||||||||||||
| March 31, 2025 |
March 31, 2024 |
|||||||||||||||||||||||
| Average Balance | Interest Income/Expense | Yield/Rate | Average Balance | Interest Income/Expense | Yield/Rate | |||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Securities: |
||||||||||||||||||||||||
| Taxable |
$ | 219,815 | $ | 1,314 | 2.42 | % | $ | 233,003 | $ | 1,224 | 2.11 | % | ||||||||||||
| Tax-exempt (1) |
51,935 | 380 | 2.97 | % | 54,336 | 386 | 2.86 | % | ||||||||||||||||
| Restricted |
4,171 | 60 | 5.78 | % | 2,084 | 33 | 6.29 | % | ||||||||||||||||
| Total securities |
$ | 275,921 | $ | 1,754 | 2.58 | % | $ | 289,423 | $ | 1,643 | 2.31 | % | ||||||||||||
| Loans: (2) |
||||||||||||||||||||||||
| Taxable |
$ | 1,454,653 | $ | 20,575 | 5.74 | % | $ | 970,615 | $ | 13,484 | 5.59 | % | ||||||||||||
| Tax-exempt (1) |
4,798 | 79 | 6.62 | % | — | — | 0.00 | % | ||||||||||||||||
| Total loans |
$ | 1,459,451 | $ | 20,654 | 5.74 | % | $ | 970,615 | $ | 13,484 | 5.59 | % | ||||||||||||
| Federal funds sold |
3,527 | 39 | 4.53 | % | 8 | — | 0.00 | % | ||||||||||||||||
| Interest-bearing deposits with other institutions |
149,529 | 1,671 | 4.55 | % | 101,126 | 1,288 | 5.12 | % | ||||||||||||||||
| Total earning assets |
$ | 1,888,428 | $ | 24,118 | 5.18 | % | $ | 1,361,172 | $ | 16,415 | 4.86 | % | ||||||||||||
| Less: allowance for credit losses on loans |
(16,620 | ) | (11,981 | ) | ||||||||||||||||||||
| Total non-earning assets |
145,150 | 82,421 | ||||||||||||||||||||||
| Total assets |
$ | 2,016,958 | $ | 1,431,612 | ||||||||||||||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||||||||||
| Interest bearing deposits: |
||||||||||||||||||||||||
| Checking |
$ | 369,023 | $ | 1,232 | 1.35 | % | $ | 255,579 | $ | 702 | 1.11 | % | ||||||||||||
| Regular savings |
212,594 | 175 | 0.33 | % | 147,938 | 662 | 1.80 | % | ||||||||||||||||
| Money market accounts |
339,306 | 1,962 | 2.34 | % | 269,407 | 1,843 | 2.75 | % | ||||||||||||||||
| Time deposits |
363,301 | 2,669 | 2.98 | % | 197,065 | 1,564 | 3.19 | % | ||||||||||||||||
| Total interest-bearing deposits |
$ | 1,284,224 | $ | 6,038 | 1.91 | % | $ | 869,989 | $ | 4,771 | 2.21 | % | ||||||||||||
| Federal funds purchased |
1 | — | 0.00 | % | — | — | 0.00 | % | ||||||||||||||||
| Subordinated debt |
21,247 | 467 | 8.91 | % | 4,998 | 69 | 5.57 | % | ||||||||||||||||
| Junior subordinated debt |
9,279 | 66 | 2.88 | % | 9,279 | 68 | 2.92 | % | ||||||||||||||||
| Other borrowings |
— | — | 0.00 | % | 50,000 | 576 | 4.63 | % | ||||||||||||||||
| Total interest-bearing liabilities |
$ | 1,314,751 | $ | 6,571 | 2.03 | % | $ | 934,266 | $ | 5,484 | 2.36 | % | ||||||||||||
| Non-interest bearing liabilities |
||||||||||||||||||||||||
| Demand deposits |
524,908 | 375,445 | ||||||||||||||||||||||
| Other liabilities |
9,054 | 5,273 | ||||||||||||||||||||||
| Total liabilities |
$ | 1,848,713 | $ | 1,314,984 | ||||||||||||||||||||
| Shareholders’ equity |
168,245 | 116,628 | ||||||||||||||||||||||
| Total liabilities and Shareholders’ equity |
$ | 2,016,958 | $ | 1,431,612 | ||||||||||||||||||||
| Net interest income |
$ | 17,547 | $ | 10,931 | ||||||||||||||||||||
| Interest rate spread |
3.15 | % | 2.50 | % | ||||||||||||||||||||
| Cost of funds |
1.45 | % | 1.68 | % | ||||||||||||||||||||
| Interest expense as a percent of average earning assets |
1.41 | % | 1.62 | % | ||||||||||||||||||||
| Net interest margin |
3.77 | % | 3.24 | % | ||||||||||||||||||||
| (1) |
Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 21%. The tax-equivalent adjustment was $96 and $102 thousand for the three months ended March 31, 2025 and 2024, respectively. |
| (2) |
Loans on non-accrual status are reflected in the balances. |
Provision for Credit Losses
Three-Month Period Ended March 31, 2025
The provision for credit losses totaled $832 thousand for the three-month period ended March 31, 2025, compared to $1.0 million for the same period of the prior year. The provision was comprised of a $735 thousand provision for credit losses on loans, which was partially offset by a $7 thousand recovery of credit losses on held-to-maturity securities and a $104 thousand provision of credit losses on unfunded commitments. The calculated specific reserve decreased after previously individually analyzed loans were charged off during the quarter. As compared to the same period prior year, the decrease in provision for credit losses primarily reflects the impact of higher net charge-offs in the first quarter of 2025, lower pool loan balances coupled with a minor increase in the pooled loans reserve ratio, and changes in qualitative factor adjustments that decreased the reserve on the commercial and industrial loan pool.
Noninterest Income
Three-Month Period Ended March 31, 2025
Noninterest income decreased $436 thousand, or 11%, to $3.6 million for the first quarter of 2025, compared to the same period of 2024. The decrease resulted primarily from a decrease in other operating income of $1.3 million from a recovery recognized in 2024 on a loan that was acquired through a business combination in 2021. The decrease in other operating income was offset by an increase in service charges of $359 thousand and ATM and check card fees of $226 thousand.
Noninterest Expense
Three-Month Period Ended March 31, 2025
Noninterest expenses increased $8.4 million, or 85%, to $18.3 million for the three-month period ended March 31, 2025, compared to the same period one year ago. The increase was primarily attributable to $1.9 million in merger expenses, $2.8 million, or 48%, increase in salaries and employee benefits, a $876 thousand, or 119%, increase in other operating expense, $534 thousand, or 100%, increase in occupancy expense, a $516 thousand, or 210%, increase in data processing expense, and a $438 thousand increase in amortization expense. The increase in salaries and benefits reflects additional expenses due to an increase in the number of employees, increase in incentives, stock compensation expense, and salary and benefit increases from the prior quarter. Other operating expenses, occupancy expense, and data processing expense primarily increased due to duplicative expenses incurred prior to system integration. Amortization expense increased due to time deposit accretion on time deposits acquired from Touchstone.
Income Taxes
Three-Month Period Ended March 31, 2025
Income tax expense decreased $504 thousand to $297 thousand for the first quarter of 2025, compared to the same period one year ago. The effective tax rate for the first quarter of 2025 was 15.7% compared to 20.0% for the same period in 2024. The decreased effective tax rate for 2025 was the result of higher nontaxable income in 2025 compared to 2024. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the three months ended March 31, 2025, and 2024. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, and income from bank owned life insurance. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Financial Condition
General
Assets totaled $2.033 billion at March 31, 2025, which was an increase of $23.0 million or 4.6% (annualized) from December 31, 2024. The asset composition changed during the first three months of the year as interest-bearing deposits in banks increased by $40.6 million and loans, net of the allowance for credit losses, decreased by $15.0 million, while total securities decreased by $3.6 million.
Total liabilities increased by $20.9 million during the three-month period ended March 31, 2025, primarily from a $21.2 million or 4.7% (annualized) increase in total deposits from December 31, 2024. Composition of deposits as of March 31, 2025 did not change significantly as noninterest-bearing deposits, savings and interest-bearing deposits, and time deposits increased $20.2 million, decreased $1.5 million, and increased $2.5 million, respectively from December 31, 2024.
Total shareholders’ equity increased by $2.1 million during the first three months of 2025, primarily from a $1.6 million reduction in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was attributable to unrealized holding gains in the available-for-sale securities portfolio. The Bank's capital ratios continued to exceed the minimum capital requirements for regulatory purposes.
Loans
Loans totaled $1.435 billion at March 31, 2025, which was a $15.0 million or 4.1% (annualized) decrease from December 31, 2024, and a $475.5 million, or 49.5%, increase over March 31, 2024 The change in loans over the periods did not have a significant impact on the composition of the loan portfolio. The loan portfolio was primarily comprised of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, and commercial and industrial loans, which totaled 38%, 46%, and 9% of the loan portfolio, respectively, at March 31, 2025.
The loan portfolio includes loans that were acquired through business combinations and loans that were purchased through a third-party loan originator. Loans acquired through business combinations included unaccreted discounts, net of unamortized premiums totaling $14.5 million and $14.3 million, as of March 31, 2025 and December 31, 2024, respectively. Loans purchased from a third-party that originated and serviced loans to health care professionals totaled $17.8 million as of March 31, 2025, which included unamortized premiums totaling $5.4 million, compared to loans totaling $19.0 million as of December 31, 2024, which included unamortized premiums totaling $5.8 million.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances less the allowance for credit losses and any deferred fees or costs on originated loans. Interest income is accrued and credited to income based on the unpaid principal balance. Loan origination fees, net of certain origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Interest income includes amortization of premiums and accretion of discounts on purchased loans, recognized over the life of the loans.
A loan’s past due status is based on the contractual due date of the most delinquent payment due. Loans are generally placed on non-accrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. There were no loans greater than 90 days past due and still accruing at March 31, 2025 compared to $175 thousand for the same period in 2024. For those loans that are carried on non-accrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed. These policies are applied consistently across the loan portfolio.
All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. When a loan is returned to accrual status, interest income is recognized based on the new effective yield to maturity of the loan.
Any unsecured loan that is deemed uncollectible is charged-off in full. Any secured loan that is considered by management to be uncollectible is partially charged-off and carried at the fair value of the collateral less estimated selling costs. This charge-off policy applies to all loan segments.
Asset Quality
Management classifies non-performing assets as non-accrual loans and OREO. Non-performing assets totaled $4.9 million and $7.1 million at March 31, 2025 and December 31, 2024, representing approximately 0.24% and 0.35% of total assets, respectively. Nonaccrual loans totaled $4.9 million and $7.1 million at March 31, 2025 and December 31, 2024, respectively. There was no OREO at March 31, 2025 and December 31, 2024. OREO represents real property taken by the Bank when its customers do not meet the contractual obligation of their loans, either through foreclosure or through a deed in lieu thereof from the borrower and properties originally acquired for, or used in bank operations, but no longer intended to be used for that purpose. OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through brokerage channels. The Bank did not have any consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings were in process as of March 31, 2025. Loans past due 90 days or more and accruing interest totaled $0 and $175 thousand at March 31, 2025 and December 31, 2024, respectively.
On March 31, 2025 commercial and industrial loans and residential real estate loans comprised 55% and 44% of non-performing assets, respectively. Non-performing assets could increase due to other loans identified by management as potential problem loans. Other potential problem loans are defined as performing loans that possess certain risks, including the borrower’s ability to pay and the collateral value securing the loan, that management has identified that may result in the loans not being repaid in accordance with their terms. Other potential problem loans totaled $9.4 million and $9.1 million at March 31, 2025 and December 31, 2024, respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers’ ability to meet their debt requirements.
The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals. The finance company operated a program that historically provided credit support to the Company through, among other things, the repurchase of their loans and unamortized loan premiums when loans did not pay according to the loan agreements. The finance company no longer offers this credit support. On March 31, 2025, loans purchased from the finance company totaled $17.8 million, which was comprised of $12.4 million of loan balances and unamortized premiums totaling $5.4 million. As of March 31, 2025, $2.2 million of these loans were non-accrual including premiums totaling $773 thousand and thus were individually evaluated. Specific reserves on these individually evaluated loans totaled $1.6 million and were included in the Company’s allowance for credit losses on loans. The remaining $15.6 million of loans with premiums totaling $4.6 million were considered performing and were included in the calculation of the general reserve component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. On March 31, 2025, there was a total of 149 loans purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 5.9 years.
Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover expected losses inherent within the loan portfolio. For each period presented, the provision for credit losses charged to expense was based on management’s judgment after taking into consideration all factors connected with the collectability of the existing portfolio. Management considers economic conditions, historical losses, past due percentages, internally generated loan quality reports, and other relevant factors when evaluating the loan portfolio. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers. For further discussion regarding the allowance for credit losses, see “Critical Accounting Policies” above.
Securities
The securities portfolio plays a primary role in the management of the Company’s interest rate sensitivity and serves as a source of liquidity. The portfolio is used as needed to meet collateral requirements, such as those related to secure public deposits and balances with the Reserve Bank. The investment portfolio consists of held to maturity, available for sale, and restricted securities. Securities are classified as available for sale or held to maturity based on the Company’s investment strategy and management’s assessment of the intent and ability to hold the securities until maturity. Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Company has the ability at the time of purchase to hold the investment securities to maturity, they are classified as investment securities held to maturity and are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts using the interest method. Investment securities which the Company may not hold to maturity are classified as investment securities available for sale, as management has the intent and ability to hold such investment securities for an indefinite period of time, but not necessarily to maturity. Securities available for sale may be sold in response to changes in market interest rates, changes in prepayment risk, increases in loan demand, general liquidity needs and other similar factors and are carried at estimated fair value with any unrealized gain (or loss) in the value of the investment reported within the stockholders’ equity. Restricted securities, including Federal Home Loan Bank, Federal Reserve Bank, and Community Bankers’ Bank stock, are generally viewed as long-term investments because there is minimal market for the stock and are carried at cost.
On March 31, 2025 securities totaled $273.7 million, a decrease of $3.6 million, or 5% annualized, from $277.3 million at December 31, 2024. Investment securities are comprised of U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities. As of March 31, 2025, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $66 thousand and $62 thousand at March 31, 2025 and December 31, 2024, respectively. Gross unrealized losses in the available for sale portfolio totaled $20.1 million and $22.1 million at March 31, 2025 and December 31, 2024, respectively. Gross unrealized gains in the held to maturity portfolio totaled $5 thousand and $8 thousand at March 31, 2025 and December 31, 2024, respectively. Gross unrealized losses in the held to maturity portfolio totaled $9.4 million and $11.0 million at March 31, 2025 and December 31, 2024, respectively. The change in the unrealized gains and losses of investment securities from December 31, 2024 to March 31, 2025 was related to changes in market interest rates and was not related to credit concerns of the issuers.
Deposits
Deposits totaled $1.825 billion on March 31, 2025, which was a $21.2 million, or 4.7% (annualized), increase from December 31, 2024, and a $565.8 million, or 44.9%, increase from March 31, 2024. Noninterest-bearing deposits, savings and interest-bearing deposits, and time deposits, totaled 30%, 51%, and 20%, of total deposits, respectively on March 31, 2025, compared to 29%, 51%, and 20%, on December 31, 2024, and 31%, 54%, and 16%, on March 31, 2024. The composition of the deposit portfolio remained largely consistent with the prior period.
Liquidity
Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, unpledged securities held-to-maturity, at par, eligible to be pledged, and available lines of credit totaled $800.2 million on March 31, 2025, $758.0 million on December 31, 2024, and $554.8 million on March 31, 2024.
The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $549.3 million on March 31, 2025, $537.0 million on December 31, 2024, and $391.9 million on March 31, 2024. Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $458.7 million on March 31, 2025, $445.5 million on December 31, 2024, and $308.6 million on March 31, 2024.
Capital Resources
The adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to the size, composition, and quality of the Company’s asset and liability levels and consistent with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and absorb potential losses. The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement and is not obligated to report consolidated regulatory capital.
The Bank is subject to capital rules adopted by federal bank regulators that implemented the Basel III regulatory capital reforms adopted by the Basel Committee on Banking Supervision (the Basel Committee), and certain changes required by the Dodd-Frank Act.
The minimum capital level requirements applicable to the Bank under the final rules are as follows: a common equity Tier 1 capital ratio of 4.5%; a Tier 1 capital ratio of 6%; a total capital ratio of 8%; and a Tier 1 leverage ratio of 4% for all institutions. There is also a capital conservation buffer, which is 2.5% above the regulatory minimum capital requirements. If capital levels fall below the required minimum ratios plus the buffer, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. This results in the following minimum capital ratios required to exceed the buffer: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. Management believes, as of March 31, 2025 and December 31, 2024, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.
The following table shows the Bank’s regulatory capital ratios at March 31, 2025:
| Minimum Capital Requirement |
First Bank |
|||||||
| Total capital to risk-weighted assets |
8.00 | % | 12.44 | % | ||||
| Tier 1 capital to risk-weighted assets |
6.00 | % | 11.39 | % | ||||
| Common equity Tier 1 capital to risk-weighted assets |
4.50 | % | 11.39 | % | ||||
| Tier 1 capital to average assets |
4.00 | % | 8.28 | % | ||||
| Capital conservation buffer ratio(1) |
4.44 | % | ||||||
| (1) |
Calculated by subtracting the regulatory minimum capital ratio requirements from the Company’s actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital. The lowest of the three measures represents the Bank’s capital conservation buffer ratio. |
The prompt corrective action framework is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as “well capitalized:” a common equity Tier 1 capital ratio of 6.5%; a Tier 1 capital ratio of 8%; a total capital ratio of 10%; and a Tier 1 leverage ratio of 5%. The Bank met the requirements to qualify as "well capitalized" as of March 31, 2025 and December 31, 2024.
Contractual Obligations
There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Off-Balance Sheet Arrangements
The Company, through the Bank, is a party to credit related financial instruments with risk not reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit, which amounted to $289.9 million at March 31, 2025, and $214.7 million at March 31, 2024, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit evaluation of the customer.
Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are collateralized as deemed necessary and may or may not be drawn upon to the total extent to which the Bank is committed.
Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments if deemed necessary. At March 31, 2025 and December 31, 2024, the Bank had $15.7 million and $15.6 million in outstanding standby letters of credit, respectively.
On April 21, 2020, the Company entered into interest rate swap agreements related to its outstanding junior subordinated debt. The Company uses derivatives to manage exposure to interest rate risk through the use of interest rate swaps. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts.
The interest rate swaps qualified and are designated as cash flow hedges. The Company’s cash flow hedges effectively modify the Company’s exposure to interest rate risk by converting variable rates of interest on $9.0 million of the Company’s junior subordinated debt to fixed rates of interest. The cash flow hedges end and the junior subordinated debt matures between June 2034 and October 2036. The cash flow hedges’ total notional amount is $9.0 million. At March 31, 2025, the cash flow hedges had a fair value of $2.5 million, which is recorded in other assets. The net gain/loss on the cash flow hedges is recognized as a component of other comprehensive (loss) income and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. The Company’s derivative financial instruments are described more fully in Note 10 to the Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to provide assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods required by the SEC and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2025 was carried out under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based on and as of the date of such evaluation, the aforementioned officers concluded that the Company’s disclosure controls and procedures were effective.
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company is a party or to which the property of the Company is subject.
There were no material changes to the Company’s risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024.
The following documents are attached hereto as Exhibits:
| 10.1 | Employment Agreement, dated March 7, 2025, by and between First National Corporation and Brad E. Schwartz (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on March 10, 2025). |
| 31.1 |
Certification of Chief Executive Officer, Section 302 Certification. |
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| 31.2 |
Certification of Chief Financial Officer, Section 302 Certification. |
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| 32.1 |
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. |
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| 32.2 |
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. |
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| 101 |
The following materials from First National Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 formatted in Inline eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Shareholders’ Equity, and (vi) Notes to Consolidated Financial Statements. |
| 104 | The cover page from First National Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline XBRL (included with Exhibit 101). |
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.
| FIRST NATIONAL CORPORATION |
|
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| (Registrant) |
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| /s/ Scott C. Harvard |
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May 14, 2025 |
| Scott C. Harvard |
|
Date |
| President and Chief Executive Officer |
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| /s/ Brad E. Schwartz |
|
May 14, 2025 |
| Brad E. Schwartz |
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Date |
| Executive Vice President and Chief Financial Officer |
|
|
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
SECTION 302 CERTIFICATION
I, Scott C. Harvard, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of First National Corporation for the period ended March 31, 2025; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| May 14, 2025 |
|
/s/ Scott C. Harvard |
|
Date |
|
Scott C. Harvard |
|
|
|
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
SECTION 302 CERTIFICATION
I, Brad E. Schwartz, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of First National Corporation for the period ended March 31, 2025; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| May 14, 2025 |
|
/s/ Brad E. Schwartz |
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Date |
|
Brad E. Schwartz |
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Executive Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Form 10-Q of First National Corporation for the period ended March 31, 2025, I, Scott C. Harvard, President and Chief Executive Officer of First National Corporation, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
|
(1) |
such Form 10-Q for the period ended March 31, 2025, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
the information contained in such Form 10-Q for the period ended March 31, 2025, fairly presents, in all material respects, the financial condition and results of operations of First National Corporation. |
| May 14, 2025 |
|
/s/ Scott C. Harvard |
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Date |
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Scott C. Harvard |
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President and Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Form 10-Q of First National Corporation for the period ended March 31, 2025, I, Brad E. Schwartz, Executive Vice President and Chief Financial Officer of First National Corporation, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
|
(1) |
such Form 10-Q for the period ended March 31, 2025, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
the information contained in such Form 10-Q for the period ended March 31, 2025, fairly presents, in all material respects, the financial condition and results of operations of First National Corporation. |
| May 14, 2025 |
|
/s/ Brad E. Schwartz |
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Date |
|
Brad E. Schwartz |
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|
Executive Vice President and Chief Financial Officer |