Company Performance - First National Corp. reported quarterly earnings of $0.48 per share, exceeding the Zacks Consensus Estimate of $0.44 per share, but down from $0.56 per share a year ago [9] - The company posted revenues of $14.18 million for the quarter ended June 2024, surpassing the Zacks Consensus Estimate by 2.01%, and compared to year-ago revenues of $13.63 million [10] - Over the last four quarters, First National has surpassed consensus EPS estimates two times and topped consensus revenue estimates four times [1][10] Market Comparison - First National shares have declined approximately 19.1% since the beginning of the year, contrasting with the S&P 500's gain of 14% [2] - The current Zacks Rank for First National is 3 (Hold), indicating that shares are expected to perform in line with the market in the near future [6] Earnings Outlook - The consensus EPS estimate for the upcoming quarter is $0.45 on revenues of $13.9 million, and for the current fiscal year, it is $1.85 on revenues of $56.8 million [12] - The earnings surprise for the recent quarter was 9.09%, with a previous expectation of $0.43 per share and an actual result of $0.51 per share, delivering a surprise of 18.60% [4] Industry Context - First National operates within the Zacks Banks - Southeast industry, which is currently ranked in the top 12% of over 250 Zacks industries [7] - The performance of First National's stock may be influenced by the overall outlook for the banking industry [7]

Core Viewpoint - Kahn Swick & Foti, LLC is investigating the proposed merger between First National Corporation and Touchstone Bankshares, Inc. to assess the fairness and adequacy of the transaction for shareholders [2]. Group 1: Merger Details - The proposed merger involves Touchstone shareholders receiving 0.8122 shares of First National stock for each share of Touchstone stock they own [2]. Group 2: Legal Investigation - Kahn Swick & Foti, LLC, led by former Louisiana Attorney General Charles C. Foti, Jr., is seeking to determine the fairness of the merger process for the shareholders of First National Corporation [2].

Financial Performance - Net income for Q1 2024 decreased by $640 thousand, or 17%, to $3.2 million, compared to $3.8 million in Q1 2023, with diluted earnings per share at $0.51[127] - Net interest income decreased by $326 thousand, or 1%, impacted by a $3.1 million increase in total interest expense, while total interest income increased by $2.8 million[129] - Total noninterest income increased by $1.3 million, primarily due to a recovery on a loan acquired through a business combination in 2021[131] - Net income for Q1 2024 decreased by $640 thousand, or 17%, to $3.2 million, or $0.51 per diluted share, compared to $3.8 million, or $0.61 per diluted share, in Q1 2023[139] - Total noninterest income increased by $1.3 million, or 46%, to $4.0 million in Q1 2024, driven by higher operating income and wealth management fees[150] Credit Losses and Provisions - The provision for credit losses increased to $1.0 million in Q1 2024, compared to no provision in Q1 2023, with the allowance for credit losses on loans totaling $12.6 million, or 1.30% of total loans[130] - Provision for credit losses totaled $1.0 million in Q1 2024, compared to no provision in the same period last year, primarily due to net charge-offs of $362 thousand[149] - The provision for credit losses charged to expense was based on management's judgment considering economic conditions and historical losses[167] Expenses and Efficiency - Total noninterest expenses increased by $687 thousand, or 8%, primarily due to higher salaries and employee benefits[131] - Noninterest expenses increased by $687 thousand, or 8%, to $9.9 million in Q1 2024, mainly due to a $525 thousand increase in salaries and employee benefits[151] - The efficiency ratio for Q1 2024 was 65.65%, slightly higher than 65.49% in Q1 2023, indicating a marginal increase in operational efficiency[133] Assets and Liabilities - Total assets increased by $27.9 million, or 8% (annualized), to $1.4 billion as of March 31, 2024[154] - Total liabilities increased by $26.4 million, primarily from an $25.4 million increase in total deposits, which rose by 8% (annualized)[155] - Total shareholders' equity increased by $1.5 million, primarily due to a $2.3 million increase in retained earnings[156] - Loans totaled $973.0 million at March 31, 2024, reflecting a $3.5 million or 2% increase from December 31, 2023, and a $55.0 million or 6% increase from March 31, 2023[157] - Deposits reached $1.3 billion on March 31, 2024, marking a $25.4 million or 8% increase from December 31, 2023[172] Capital and Regulatory Compliance - The Bank's total capital to risk-weighted assets ratio was 14.45% as of March 31, 2024, exceeding the regulatory minimum requirements[178] - The capital conservation buffer ratio was 6.45% as of March 31, 2024, indicating a strong capital position relative to regulatory requirements[178] Acquisition and Future Plans - The Company entered into an agreement to acquire Touchstone Bankshares, Inc. for approximately $47.0 million in stock, expected to close in Q4 2024[126] - The Company expects to incur approximately $3.3 million in pre-tax merger-related expenses during 2024 related to the acquisition of Touchstone[126] Asset Quality - Non-performing assets amounted to $8.0 million at March 31, 2024, representing approximately 0.55% of total assets, compared to $6.8 million or 0.48% of total assets at December 31, 2023[164] - Other potential problem loans totaled $1.7 million at March 31, 2024, compared to $287 thousand at December 31, 2023[165] Interest Rates and Hedging - The Company has interest rate swaps with a total notional amount of $9.0 million, converting variable interest rates to fixed rates, with cash flow hedges maturing between June 2034 and October 2036[187] - As of March 31, 2024, the fair value of the cash flow hedges was $2.7 million, recorded in other assets[187] - The net gain/loss on cash flow hedges is recognized in other comprehensive (loss) income and reclassified into earnings during the same period as the hedged transactions affect earnings[187]

First National Corp. (FXNC) appears an attractive pick, as it has been recently upgraded to a Zacks Rank #1 (Strong Buy). This upgrade is essentially a reflection of an upward trend in earnings estimates -- one of the most powerful forces impacting stock prices.A company's changing earnings picture is at the core of the Zacks rating. The system tracks the Zacks Consensus Estimate -- the consensus measure of EPS estimates from the sell-side analysts covering the stock -- for the current and following years.T ...

[First Quarter 2024 Financial Results](index=1&type=section&id=First%20Quarter%202024%20Financial%20Results) [First Quarter 2024 Highlights](index=1&type=section&id=FIRST%20QUARTER%20HIGHLIGHTS) First National Corporation reported a solid first quarter for 2024, achieving net income of $3.2 million and a strategic acquisition of Touchstone Bankshares Quarterly Performance Summary | Metric | Value | | :--- | :--- | | Net Income | $3.2 million | | Diluted EPS | $0.51 | | Return on Average Assets | 0.90% | | Return on Average Equity | 11.07% | | Tangible Book Value per Share | $18.27 | - Deposits grew by **$25.4 million**, an 8% annualized increase, with stable noninterest-bearing deposits making up 31% of the total[8](index=8&type=chunk) - The company announced a significant expansion through an agreement to acquire Touchstone Bankshares, Inc[2](index=2&type=chunk)[8](index=8&type=chunk) [Financial Performance](index=1&type=section&id=Financial%20Performance) [Net Interest Income](index=1&type=section&id=NET%20INTEREST%20INCOME) Net interest income slightly increased to $10.9 million, driven by higher interest income on deposits offset by increased interest expense from deposit costs and new borrowings - Net interest income increased by **$41 thousand** to **$10.9 million** quarter-over-quarter[3](index=3&type=chunk) - Interest income on deposits in other banks rose by **$920 thousand** due to a **$73.7 million** increase in average balances[4](index=4&type=chunk) - Interest expense on deposits increased by **$539 thousand**, reflecting a 17-basis point rise in the cost of deposits[5](index=5&type=chunk) - A new **$50.0 million** borrowing from the Federal Reserve's Bank Term Funding Program contributed **$482 thousand** to interest expense[5](index=5&type=chunk) [Noninterest Income](index=1&type=section&id=NONINTEREST%20INCOME) Noninterest income significantly increased to $4.0 million, primarily due to a recovery on a charged-off loan Noninterest Income Breakdown | Category | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | **Total Noninterest Income** | **$4.0M** | **$3.0M** | **+$978k** | | Other Operating Income | - | - | +$1.2M | - The increase in other operating income was due to a recovery on a charged-off loan from a 2021 acquisition[6](index=6&type=chunk) [Noninterest Expense](index=2&type=section&id=NONINTEREST%20EXPENSE) Noninterest expense rose to $9.9 million, mainly due to an increase in salaries and employee benefits following a prior quarter's adjustment - Total noninterest expense increased by **$787 thousand** (9%) to **$9.9 million** quarter-over-quarter[9](index=9&type=chunk) - The primary driver was an **$872 thousand** increase in salaries and employee benefits, which was artificially low in Q4 2023 due to a one-time adjustment[9](index=9&type=chunk) [Asset Quality](index=2&type=section&id=ASSET%20QUALITY) [Overview](index=2&type=section&id=Asset%20Quality%20Overview) Asset quality showed mixed results with decreased past-due loans but increased nonperforming assets, while net charge-offs significantly declined Asset Quality Metrics | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Past Due Loans / Total Loans | 0.25% | 0.31% | 0.20% | | NPAs / Total Assets | 0.55% | 0.48% | 0.13% | | Net Charge-offs (Q1) | $362k | $2.7M (Q4) | $915k | | ACL on Loans / Total Loans | 1.30% | 1.24% | 0.95% | [Past Due Loans](index=2&type=section&id=Past%20Due%20Loans) Loans past due 30 days or more decreased to $2.5 million, with a significant reduction in those past due 90 days or more - Loans past due 30+ days decreased from **$3.0 million** to **$2.5 million** quarter-over-quarter[11](index=11&type=chunk) [Nonperforming Assets (NPAs)](index=2&type=section&id=Nonperforming%20Assets) Nonperforming assets increased to $8.0 million, primarily driven by a rise in nonaccrual commercial and industrial loans - NPAs rose by **$1.2 million** to **$8.0 million** in Q1 2024, mainly due to an increase in nonaccrual commercial and industrial loans[12](index=12&type=chunk) [Net Charge-offs](index=2&type=section&id=Net%20Charge-offs) Net charge-offs substantially decreased to $362 thousand in Q1 2024, a significant reduction from the previous quarter - Net charge-offs dropped to **$362 thousand** in Q1 2024 from **$2.7 million** in Q4 2023[13](index=13&type=chunk) [Provision for Credit Losses](index=2&type=section&id=Provision%20for%20Credit%20Losses) The provision for credit losses significantly decreased to $1.0 million in Q1 2024 compared to the prior quarter - The provision for credit losses was **$1.0 million** in Q1 2024, compared to **$6.0 million** in Q4 2023[14](index=14&type=chunk) [Allowance for Credit Losses (ACL)](index=2&type=section&id=Allowance%20for%20Credit%20Losses) The total allowance for credit losses on loans increased to $12.6 million, reflecting a strengthening of reserves [ACL on Loans](index=2&type=section&id=Allowance%20for%20Credit%20Losses%20on%20Loans) The allowance for credit losses on loans increased to $12.6 million, or 1.30% of total loans, driven by higher specific reserves ACL on Loans | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | ACL on Loans | $12.6M | $12.0M | | ACL as % of Total Loans | 1.30% | 1.24% | [ACL on Unfunded Commitments](index=3&type=section&id=Allowance%20for%20Credit%20Losses%20on%20Unfunded%20Commitments) The allowance for credit losses on unfunded commitments remained stable at $413 thousand with no new provision recorded - The allowance for credit losses on unfunded commitments remained stable at **$413 thousand**, with no provision recorded in Q1 2024[18](index=18&type=chunk) [ACL on HTM Securities](index=4&type=section&id=Allowance%20for%20Credit%20Losses%20on%20Securities%20HTM) The allowance for credit losses on held-to-maturity securities slightly increased to $116 thousand with a minor provision - The allowance for credit losses on securities increased to **$116 thousand** from **$107 thousand**, with a **$9 thousand** provision in Q1 2024[19](index=19&type=chunk) [Balance Sheet and Capital Management](index=4&type=section&id=Balance%20Sheet%20and%20Capital%20Management) [Liquidity](index=4&type=section&id=LIQUIDITY) The Bank's liquidity position remains strong with increased available sources, though uninsured customer deposits also rose Liquidity Metrics | Liquidity Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Available Liquidity Sources | $554.8M | $512.7M | | Estimated Uninsured Deposits | $391.9M | $368.2M | [Balance Sheet Analysis](index=4&type=section&id=BALANCE%20SHEET) Total assets grew to $1.4 billion, driven by increased interest-bearing deposits, while loans and deposits also saw modest growth - Total assets increased by **$27.9 million** to **$1.4 billion** in Q1 2024[22](index=22&type=chunk) - Total loans grew by **$3.5 million** (2% annualized) to **$973.0 million**[23](index=23&type=chunk) - Total deposits increased by **$25.4 million** (8% annualized) to **$1.3 billion**[25](index=25&type=chunk) - Total investments decreased by **$27.6 million** to **$273.5 million**, with net unrealized losses on the AFS portfolio increasing to **$22.2 million**[24](index=24&type=chunk) [Capital Ratios and Dividends](index=4&type=section&id=Capital%20Ratios%20and%20Dividends) The company's capital ratios remained well above regulatory requirements, and the quarterly cash dividend was maintained Capital Ratios | Capital Ratio | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Capital Ratio | 14.45% | 14.05% | | Tier 1 Capital Ratio | 13.20% | 12.82% | | Leverage Ratio | 9.19% | 9.31% | | Tangible Common Equity / Tangible Assets | 7.94% | 7.99% | - The company declared and paid a cash dividend of **$0.15 per common share**, consistent with the prior quarter and the same quarter last year[28](index=28&type=chunk) [Supplementary Information](index=6&type=section&id=Supplementary%20Information) [Non-GAAP Financial Measures](index=6&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) The company uses non-GAAP financial measures to provide additional insights into performance, cautioning they are supplemental and not GAAP substitutes - The report uses non-GAAP measures including the efficiency ratio and tangible common equity to tangible assets to provide useful information for decision-making[29](index=29&type=chunk) - These non-GAAP measures are considered supplemental and may not be comparable to those of other financial institutions[30](index=30&type=chunk) [About the Company](index=6&type=section&id=ABOUT%20FIRST%20NATIONAL%20CORPORATION) First National Corporation is the bank holding company for First Bank, a community bank operating through 20 branches, digital platforms, and a wealth management division - First National Corporation is the parent company of First Bank, which was founded in 1907[31](index=31&type=chunk) - The bank operates 20 branch offices, a loan production office, and a wealth management division[31](index=31&type=chunk) [Forward-Looking Statements](index=6&type=section&id=FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements subject to inherent risks and uncertainties that could cause actual results to differ materially - The report includes forward-looking statements subject to risks and uncertainties that could cause material differences in actual results[32](index=32&type=chunk) [Consolidated Financial Tables](index=7&type=section&id=Consolidated%20Financial%20Tables) [Quarterly Performance Summary](index=7&type=section&id=Quarterly%20Performance%20Summary) This section provides detailed unaudited financial data for the five most recent quarters, including income statements, balance sheets, and key ratios Quarterly Performance Summary (in thousands, except per share data) | (in thousands, except per share data) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | **Income Statement** | | | | | Net Interest Income | $10,850 | $10,809 | $11,176 | | Provision for Credit Losses | $1,000 | $5,950 | $0 | | Noninterest Income | $4,047 | $3,069 | $2,778 | | Noninterest Expense | $9,887 | $9,100 | $9,200 | | **Net Income (Loss)** | **$3,209** | **($851)** | **$3,849** | | **Per Share Data** | | | | | EPS, diluted | $0.51 | ($0.14) | $0.61 | | Tangible Book Value | $18.27 | $18.06 | $17.30 | | **Key Ratios** | | | | | Return on Average Assets | 0.90% | (0.25%) | 1.15% | | Net Interest Margin | 3.24% | 3.35% | 3.60% | | **Balance Sheet (Period End)** | | | | | Total Assets | $1,447,195 | $1,419,295 | $1,372,332 | | Total Loans, Net | $960,371 | $957,456 | $909,250 | | Total Deposits | $1,259,137 | $1,233,726 | $1,241,525 | | Total Shareholders' Equity | $117,816 | $116,271 | $111,811 |

First National Corp. (FXNC) came out with quarterly earnings of $0.51 per share, beating the Zacks Consensus Estimate of $0.43 per share. This compares to earnings of $0.61 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 18.60%. A quarter ago, it was expected that this company would post earnings of $0.48 per share when it actually produced a loss of $0.14, delivering a surprise of -129.17%.Over the last four quarters, the com ...

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use a variety of methods, including tried-and-true v ...

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) First National Corporation, a Virginia-based bank holding company, operates through First Bank, providing diverse financial services across Virginia - First National Corporation is a bank holding company whose primary operating subsidiary is First Bank, a commercial bank chartered under Virginia law[18](index=18&type=chunk) - The Bank offers a full suite of loan (consumer, mortgage, commercial), deposit (checking, savings, treasury management), and wealth management products and services[21](index=21&type=chunk) - The Bank's primary market includes attractive areas along the I-81, I-66, and I-64 corridors in Virginia, serving diverse industries through 20 branch offices and digital platforms[21](index=21&type=chunk) - As of June 30, 2023, the Bank ranked third in its market area with an **11.13% share of total deposits**[23](index=23&type=chunk) - At December 31, 2023, the company employed **224 full-time equivalent employees**[25](index=25&type=chunk) Capital Ratio (First Bank) | Capital Ratio (First Bank) | December 31, 2023 | | :--- | :--- | | Total capital to risk-weighted assets | 14.05% | | Tier 1 capital to risk-weighted assets | 12.82% | | Common equity Tier 1 capital to risk-weighted assets | 12.82% | | Tier 1 capital to average assets | 9.31% | | Capital conservation buffer ratio | 6.05% | [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces key risks including economic downturns, interest rate fluctuations, intense competition, cybersecurity threats, reliance on third-party vendors, and extensive regulatory changes - The company's business is directly affected by general economic conditions, with a deterioration potentially leading to increased loan delinquencies, problem assets, and reduced demand for services[66](index=66&type=chunk) - A significant concentration in loans secured by real estate, especially commercial real estate, exposes the company to risks from downturns in the real estate market[70](index=70&type=chunk)[72](index=72&type=chunk) - Profitability is substantially dependent on the net interest margin, which is vulnerable to fluctuations in interest rates. Rising rates in 2022 and 2023 increased unrealized losses in the investment portfolio[87](index=87&type=chunk)[88](index=88&type=chunk) - The company relies on third-party vendors for key components of its business infrastructure, such as data processing and online banking, creating inherent operational risks[100](index=100&type=chunk) - Cybersecurity breaches pose a significant threat, potentially compromising confidential information and exposing the company to liability and reputational damage[97](index=97&type=chunk) - The company is subject to extensive state and federal regulation, and changes in laws or their interpretation could adversely affect business operations and increase costs[117](index=117&type=chunk)[124](index=124&type=chunk) - The company relies on dividends from its subsidiary, First Bank, for substantially all of its revenue, and these dividends are subject to regulatory restrictions[133](index=133&type=chunk) [Unresolved Staff Comments](index=31&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - Not applicable[141](index=141&type=chunk) [Cybersecurity](index=32&type=section&id=Item%201C.%20Cybersecurity) The company's cybersecurity risk management is overseen by the Chief Risk Officer and the Audit Committee, following the NIST Framework with layered defenses and regular assessments - The cybersecurity program is managed by the Chief Risk Officer, who reports to the CEO and periodically to the Board's Audit Committee[143](index=143&type=chunk) - The information security program is structured around the National Institute of Standards and Technology (NIST) Cybersecurity Framework[144](index=144&type=chunk) - The company employs a layered defensive strategy, including preventative and detective tools, employee training, and regular assessments of infrastructure and systems[145](index=145&type=chunk) - The Audit Committee of the Board of Directors is responsible for overseeing the information security and technology governance programs, receiving quarterly reports from the Chief Risk Officer[149](index=149&type=chunk) [Properties](index=33&type=section&id=Item%202.%20Properties) The company's headquarters is in Strasburg, Virginia, with First Bank operating 20 branches and other facilities, all in good condition - The Company's headquarters is at 112 West King Street, Strasburg, Virginia[151](index=151&type=chunk) - As of December 31, 2023, the Bank operated **20 branches**, a loan production office, and two customer service centers[151](index=151&type=chunk) [Legal Proceedings](index=33&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no material pending legal proceedings to which it or its property is subject - There are no material pending legal proceedings to which the Company is a party or to which its property is subject[152](index=152&type=chunk) [Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[152](index=152&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'FXNC', with 802 shareholders of record, and repurchased 37,532 shares in 2023 - The company's common stock is traded on the Nasdaq Capital Market under the symbol **\"FXNC\"**[155](index=155&type=chunk) - As of March 19, 2024, there were **802 shareholders of record** and approximately 1,143 beneficial owners[155](index=155&type=chunk) - The company repurchased **37,532 shares** of common stock at a weighted average price of **$15.14** during 2023 under a repurchase plan that expired at year-end[157](index=157&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income declined in 2023 due to increased credit loss provisions, lower net interest income, and higher expenses, while assets grew and capital remained strong despite asset quality deterioration Financial Performance Summary | Metric | 2023 | 2022 | | :--- | :--- | :--- | | **Net Income** | $9.6 million | $16.8 million | | **Diluted EPS** | $1.53 | $2.68 | | **Return on Average Assets** | 0.71% | 1.19% | | **Return on Average Equity** | 8.59% | 15.87% | | **Net Interest Margin** | 3.41% | 3.44% | - The **$7.2 million decrease in net income** was driven by a **$4.3 million increase in provision for credit losses**, a **$2.2 million decrease in net interest income**, and a **$1.6 million increase in noninterest expense**[167](index=167&type=chunk) - The provision for credit losses increased to **$6.2 million** in 2023 from **$1.9 million** in 2022, with net charge-offs rising to **$3.6 million**, including **$2.5 million** related to a purchased third-party loan portfolio[169](index=169&type=chunk)[225](index=225&type=chunk)[259](index=259&type=chunk) - Total assets increased by **$49.9 million to $1.42 billion**, while total deposits decreased slightly by **$7.6 million to $1.23 billion**[233](index=233&type=chunk)[234](index=234&type=chunk) - Non-performing assets increased to **$6.8 million (0.48% of total assets)** at year-end 2023, up from **$2.9 million (0.21% of total assets)** in 2022[246](index=246&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) Net interest income decreased by 5% in 2023 due to higher interest expense, while credit loss provisions surged, noninterest income fell, and noninterest expenses rose - Net interest income decreased by **$2.2 million (5%)** as the increase in cost of funds (interest expense up **$10.5 million**) exceeded the increase in yield on earning assets (interest income up **$8.3 million**)[216](index=216&type=chunk) - The provision for credit losses increased by **$4.3 million to $6.2 million**, comprised of a **$6.0 million** provision for loans, a **$260 thousand** provision for unfunded commitments, and a small recovery for securities[224](index=224&type=chunk) - Noninterest income decreased by **$866 thousand (7%)**, primarily because 2022 results included a **$2.9 million gain** on the sale of an investment, partially offset by a **$2.0 million loss** on securities sales in that same year[228](index=228&type=chunk) - Noninterest expense increased by **$1.6 million (5%)**, with notable increases in salaries and benefits (+$330 thousand), legal and professional fees (+$233 thousand), and ATM/check card expense (+$208 thousand)[230](index=230&type=chunk) [Financial Condition](index=53&type=section&id=Financial%20Condition) Total assets grew to $1.42 billion driven by loan growth, but asset quality weakened, leading to increased credit loss allowances, while deposits shifted and capital remained strong - Total loans increased by **$48.9 million to $969.4 million**, with growth in other real estate (+$28.8 million) and residential real estate (+$12.9 million) loans[241](index=241&type=chunk) - Non-performing assets rose to **$6.8 million**, or **0.70% of total loans**, compared to **$2.7 million**, or **0.29%**, in the prior year, largely attributed to purchased commercial and industrial loans[246](index=246&type=chunk)[259](index=259&type=chunk) - The allowance for credit losses on loans increased to **$12.0 million (1.24% of total loans)** from **$7.4 million (0.81% of total loans)** at year-end 2022[250](index=250&type=chunk) - The securities portfolio decreased by **$14.8 million to $303.2 million** and held gross unrealized losses of **$31.5 million** at year-end[260](index=260&type=chunk) - Total deposits decreased by **$7.6 million**, with noninterest-bearing demand deposits falling by **$48.1 million** while time deposits grew by **$55.5 million**[234](index=234&type=chunk)[269](index=269&type=chunk) - The Bank remained well-capitalized, with a Total risk-based capital ratio of **14.05%** and a Tier 1 leverage ratio of **9.31%** at December 31, 2023[292](index=292&type=chunk)[298](index=298&type=chunk) [Financial Statements and Supplementary Data](index=44&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The audited financial statements for 2023 and 2022 reflect the CECL adoption, with total assets of $1.42 billion and net income of $9.6 million, and note a subsequent acquisition agreement - The company adopted the new credit loss accounting standard, ASU 2016-13 (CECL), on January 1, 2023, resulting in a **$2.2 million increase** to the allowance for credit losses on loans and a net decrease to retained earnings of **$2.0 million**[310](index=310&type=chunk)[374](index=374&type=chunk) Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | $1,419,295 | $1,369,383 | | Loans, net | $957,456 | $913,077 | | Total Deposits | $1,233,726 | $1,241,332 | | **Total Liabilities** | $1,303,024 | $1,261,023 | | **Total Shareholders' Equity** | $116,271 | $108,360 | Consolidated Income Statement Summary (in thousands) | Account | Year Ended Dec 31, 2023 (in thousands) | Year Ended Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $43,413 | $45,575 | | Provision for Credit Losses | $6,150 | $1,850 | | **Net Income** | **$9,624** | **$16,797** | - Subsequent Event: On March 25, 2024, the Company entered into an agreement to acquire Touchstone Bankshares, Inc. for approximately **$47.0 million** in stock; Touchstone had total assets of **$658.7 million** as of December 31, 2023[535](index=535&type=chunk)[536](index=536&type=chunk) [Controls and Procedures](index=91&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2023[542](index=542&type=chunk) - There were no changes in the Company's internal control over financial reporting during the fourth quarter of 2023 that have materially affected, or are reasonably likely to materially affect, internal controls[543](index=543&type=chunk) Part III [Directors, Executive Compensation, and Corporate Governance](index=92&type=section&id=Items%2010-14) Information on directors, executive compensation, corporate governance, and related matters is incorporated by reference from the 2024 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's Proxy Statement for the 2024 Annual Meeting of Shareholders[548](index=548&type=chunk)[549](index=549&type=chunk)[550](index=550&type=chunk)[551](index=551&type=chunk)[552](index=552&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=93&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, including governance documents, material contracts, and required certifications - This section contains a list of all exhibits filed with the Form 10-K, including governance documents, material contracts, and required certifications[556](index=556&type=chunk)

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