First National (FXNC) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Earnings Overview Earnings Performance and CEO Commentary First National Corporation achieved record Q2 2025 earnings, with $0.56 basic and diluted EPS, due to net interest margin expansion and efficiency - First National Corporation reported record second quarter 2025 earnings[1] EPS Performance | Metric | Q2 2025 | Q1 2025 | YoY Change | QoQ Change | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Basic & Diluted EPS (GAAP) | $0.56 | $0.18 | +44% | +211% | | Adjusted Basic & Diluted EPS (non-GAAP) | $0.57 | $0.35 | - | +62.86% | - The CEO highlighted net interest margin expansion and improved efficiency from the Touchstone acquisition as key drivers for improved earnings, strong liquidity, and capital growth[2] Financial Performance Highlights Net Interest Income and Margin Net interest income increased to $18.5 million, driven by higher loan yields and accretion, with FTE net interest margin expanding to 3.95% Net Interest Income and Margin Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | QoQ Change | YoY Change | | :-------------------------------- | :------ | :------ | :------ | :--------- | :--------- | | Net Interest Income | $18.5M | $17.5M | $11.494M | +$1.0M | +$7.054M | | Net Interest Margin (FTE) | 3.95% | 3.77% | 3.40% | +18 bps | +55 bps | | Earning Asset Yields | 5.35% | 5.18% | 5.03% | +17 bps | +32 bps | | Acquisition Accounting Net Accretion Income | $907K | -$36K | - | +$943K | - | - The increase in earning asset yields was primarily driven by a $1.1 million increase in accretion on purchased loans[4] Noninterest Income Noninterest income rose 7.7% to $3.9 million in Q2 2025, primarily due to higher ATM and check card income and brokered mortgage fees Noninterest Income Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | QoQ Change | YoY Change | | :-------------------- | :------ | :------ | :------ | :--------- | :--------- | | Total Noninterest Income | $3.9M | $3.6M | $2.686M | +7.7% | +45.2% | | ATM and Check Card Fees | $1.128M | $0.996M | $0.809M | +13.25% | +39.43% | | Brokered Mortgage Fees | $0.183M | $0.110M | $0.032M | +66.36% | +471.88% | Noninterest Expense Total noninterest expense decreased by $3.1 million to $15.2 million in Q2 2025, mainly due to reduced merger-related expenses and lower salaries Noninterest Expense Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | QoQ Change | YoY Change | | :-------------------------------- | :------ | :------ | :------ | :--------- | :--------- | | Total Noninterest Expense | $15.2M | $18.3M | $10.659M | -$3.1M | +$4.541M | | Merger-Related Expenses | $92K | $1.9M | $0 | -$1.808M | +$92K | | Salaries and Employee Benefits | $8.033M | $8.689M | $5.839M | -$0.656M | +$2.194M | | Data Processing Expense | $0.504M | $0.762M | $0.163M | -$0.258M | +$0.341M | | Efficiency Ratio (non-GAAP) | 65.11% | 75.44% | 70.64% | -10.33 pp | -5.53 pp | - The decrease in noninterest expense was primarily driven by a $1.8 million decrease in pre-tax merger-related expenses and a $656 thousand decrease in salaries and employee benefits[7] - Operating expenses were reduced in Q2 2025 due to the conversion to a single core banking system in February 2025, eliminating the cost of operating two systems[7] Balance Sheet Analysis Total Assets Total assets reached $2.041 billion at June 30, 2025, a 40.1% year-over-year increase primarily from loans held for investment due to the Touchstone acquisition Total Assets Performance | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | QoQ Change | YoY Change | | :----------- | :----------- | :----------- | :----------- | :--------- | :--------- | | Total Assets | $2.041B | $2.033B | $1.458B | +0.4% | +40.1% | - The year-over-year increase in total assets was primarily driven by growth in loans held for investment (LHFI), mainly due to the Touchstone acquisition[9] Loans Held for Investment (LHFI) Net loans held for investment totaled $1.428 billion, a slight quarterly decrease but a significant 46.1% year-over-year increase, largely from the Touchstone acquisition Loans Held for Investment (LHFI) | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | QoQ Change | YoY Change | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | :--------- | | LHFI (net of allowance) | $1.428B | $1.436B | $0.977B | -0.5% | +46.1% | - Higher than average loan payoffs more than offset positive net production growth in the second quarter of 2025[10] Investments Total investments increased to $299.6 million, driven by securities purchases and an improvement in unrealized losses on available-for-sale (AFS) securities Investment Portfolio | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | QoQ Change | YoY Change | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | :--------- | | Total Investments | $299.6M | $273.7M | $270.4M | +9.5% | +10.8% | | AFS Securities | $187.6M | $161.0M | $144.8M | +16.5% | +29.6% | | Total Net Unrealized Losses (AFS) | -$18.9M | -$20.1M | -$21.9M | -$1.2M | -$3.0M | - The increase in AFS securities compared to the prior quarter was driven by securities purchases and a $3.1 million improvement in unrealized losses[11] Deposits Total deposits decreased slightly to $1.803 billion from the prior quarter but showed a substantial 42.5% year-over-year increase, largely from the Touchstone acquisition Deposit Balances | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | QoQ Change | YoY Change | | :------------------------ | :----------- | :----------- | :----------- | :--------- | :--------- | | Total Deposits | $1.803B | $1.825B | $1.266B | -1.2% | +42.5% | | Noninterest Bearing Deposits | $541.2M | $540.4M | $397.8M | +0.15% | +36.1% | | Noninterest Bearing Deposits as % of Total | 30% | - | - | - | - | - The decrease in deposit balances from the prior quarter is primarily due to a decrease in interest-bearing demand deposits[12] Borrowings Other borrowings increased to $25.0 million from zero in the prior quarter, consisting of Federal Home Loan Bank borrowings Other Borrowings | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :-------------- | :----------- | :----------- | :----------- | | Other Borrowings | $25.0M | $0 | $50.0M | - Other borrowings on June 30, 2025, were $25.0 million with the Federal Home Loan Bank, compared to no borrowings on March 31, 2025[13] Liquidity Position Available Liquidity Sources Available liquidity sources for the Bank decreased to $633.7 million at June 30, 2025, from $800.2 million in the prior quarter, but remained strong year-over-year Total Liquidity Sources | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | | Total Liquidity Sources | $633.7M | $800.2M | $533.3M | Uninsured Customer Deposits Estimated uninsured customer deposits slightly decreased to $545.7 million at June 30, 2025, with municipal deposits excluded, the amount was $451.9 million Uninsured Customer Deposits | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | | Estimated Uninsured Customer Deposits | $545.7M | $549.3M | $419.4M | | Uninsured Customer Deposits (Excl. Municipal) | $451.9M | $458.7M | $324.5M | Asset Quality Review Nonperforming Assets (NPAs) Nonperforming assets increased to $6.8 million, representing 0.33% of total assets, an increase from the prior quarter but a decrease from the prior year Nonperforming Assets | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | | Nonperforming Assets | $6.8M | $4.9M | $8.5M | | NPAs as % of Total Assets | 0.33% | 0.24% | 0.59% | Past Due Loans Loans past-due 30-89 days and still accruing interest decreased to $3.2 million, or 0.22% of total loans, showing an improvement from the prior quarter Past Due Loans | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | | Loans 30-89 Days Past Due, Accruing | $3.2M | $5.0M | $2.4M | | % of Total Loans | 0.22% | 0.35% | 0.24% | | Loans Over 90 Days Past Due, Accruing | $0 | $0 | $0 | Net Charge-offs Net charge-offs significantly decreased to $448 thousand in Q2 2025 from $2.4 million in the prior quarter Net Charge-offs | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------- | :------ | :------ | :------ | | Net Charge-offs | $448K | $2.4M | $482K | Allowance and Provision for Credit Losses The allowance for credit losses on loans increased to $15.2 million, or 1.05% of total loans, with provision for credit losses rising to $911 thousand Allowance for Credit Losses on Loans | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | | Allowance for Credit Losses on Loans | $15.2M | $14.7M | $12.6M | | % of Total Loans | 1.05% | 1.02% | 1.27% | | Allowance for Credit Losses to NPAs | 223.45% | 302.94% | 146.84% | Provision for Credit Losses | Metric | Q2 2025 | Q1 2025 | | :-------------------------------- | :------ | :------ | | Provision for Credit Losses | $911K | $832K | - The increase in provision for credit losses is primarily due to increased specific reserves on individually analyzed loans and an increase in the total amount of loan balances individually analyzed for impairment[20] Capital Adequacy Dividends and Capital Ratios The Company declared and paid cash dividends of $0.155 per common share, with capital ratios remaining strong and slightly increasing quarter-over-quarter Cash Dividends Declared | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------- | :------ | :------ | :------ | | Cash Dividends Declared | $0.155 | $0.155 | $0.15 | First National Corporation Capital Ratios | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :-------------------------- | :----------- | :----------- | :----------- | | Total Capital Ratio | 14.89% | 14.58% | 15.58% | | Tier 1 Capital Ratio | 12.37% | 12.07% | 13.85% | | Common Equity Tier 1 Capital Ratio | 11.74% | 11.44% | 12.97% | | Leverage Ratio | 8.99% | 8.78% | 9.88% | | Common Equity to Total Assets | 8.51% | 8.30% | 8.23% | | Tangible Common Equity to Tangible Assets | 7.73% | 7.50% | 8.03% | | Tangible Book Value Per Share | $17.40 | $16.81 | $18.59 | About First National Corporation Company Profile and Services First National Corporation is the parent company of First Bank, a community bank offering diverse loan and deposit products, wealth management, and title insurance services - First National Corporation (NASDAQ: FXNC) is the parent company of First Bank, a community bank founded in 1907 in Strasburg, Virginia[23] - The Bank provides loan and deposit products and services via its website, mobile banking, ATMs, three loan production offices, a customer service center, and thirty-three bank branch locations across Virginia and northern North Carolina[23] - First Bank also operates First Bank Wealth Management and owns First Bank Financial Services, Inc., which holds an interest in a title insurance services entity[23] Non-GAAP Financial Measures Explanation Purpose and Reconciliation The Company uses non-GAAP financial measures to provide additional insights into its performance, believing they enhance understanding for decision-making and comparisons - First National Corporation uses non-GAAP financial measures to provide useful information for financial and operational decision-making, evaluating trends, and comparing financial results to other institutions[24] - Non-GAAP measures are supplemental, not a substitute for GAAP, and may not be comparable to those reported by other financial institutions[25] - A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is included at the end of this release[25] Forward-Looking Statements Disclaimer and Risk Factors This report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially, requiring readers to consult SEC filings for detailed risk factors - The discussion includes forward-looking statements related to the Company's plans, objectives, expectations, and intentions[27] - There is no assurance that actual results, performance, or achievements will not differ materially from any future results expressed or implied by such statements[27] - Readers should refer to the risk factors and cautionary language in First National's Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and other SEC filings for details on factors that could affect expectations[27] Company Contacts Investor Relations Contact information for President and CEO, Scott C. Harvard, and Executive Vice President and CFO, Brad E. Schwartz, is provided for investor inquiries - Contacts for First National Corporation are Scott C. Harvard (President and CEO) and Brad E. Schwartz (Executive Vice President and CFO)[28] Supplemental Financial Tables Income Statement Summary This section provides a detailed unaudited income statement for the three and six months ended June 30, 2025, and comparable periods, outlining key financial figures Income Statement Highlights (in thousands) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------------------- | :------ | :------ | :------ | :------- | :------- | | Total Interest and Dividend Income | $25,165 | $24,022 | $17,055 | $49,187 | $33,389 | | Total Interest Expense | $6,617 | $6,571 | $5,561 | $13,188 | $11,045 | | Net Interest Income | $18,548 | $17,451 | $11,494 | $35,999 | $22,344 | | Provision for Credit Losses | $911 | $832 | $400 | $1,743 | $1,400 | | Total Noninterest Income | $3,889 | $3,611 | $2,686 | $7,500 | $6,733 | | Total Noninterest Expense | $15,191 | $18,335 | $10,659 | $33,526 | $20,546 | | Income Before Income Taxes | $6,335 | $1,895 | $3,121 | $8,230 | $7,131 | | Income Tax Expense | $1,284 | $297 | $679 | $1,581 | $1,480 | | Net Income | $5,051 | $1,598 | $2,442 | $6,649 | $5,651 | Per Share Data and Key Performance Ratios This table presents common share data, including basic and diluted EPS, weighted average shares, tangible book value, cash dividends, and key performance ratios Common Share and Per Common Share Data | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | YTD 2025 | YTD 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | :------- | :------- | | Earnings per common share, basic (GAAP) | $0.56 | $0.18 | $0.39 | $0.74 | $0.90 | | Adjusted earnings per common share, basic (non-GAAP) | $0.57 | $0.35 | $0.48 | $0.92 | $0.99 | | Weighted average shares, basic | 8,987,179 | 8,979,527 | 6,278,113 | 8,983,374| 6,273,952| | Tangible book value per share (non-GAAP) | $17.40 | $16.81 | $18.59 | $17.40 | $18.59 | | Cash dividends declared | $0.155 | $0.155 | $0.15 | $0.31 | $0.30 | Key Performance Ratios | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | YTD 2025 | YTD 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | :------- | :------- | | Return on average assets (GAAP) | 1.00% | 0.32% | 0.68% | 0.66% | 0.79% | | Adjusted return on average assets (non-GAAP) | 1.02% | 0.63% | 0.84% | 0.83% | 0.86% | | Return on average equity (GAAP) | 11.85% | 3.85% | 8.31% | 7.90% | 9.68% | | Adjusted return on average equity (non-GAAP) | 12.05% | 7.61% | 10.23% | 11.19% | 10.65% | | Net interest margin fully tax-equivalent (non-GAAP) | 3.95% | 3.77% | 3.40% | 3.86% | 3.31% | | Efficiency ratio (non-GAAP) | 65.11% | 75.44% | 70.64% | 70.01% | 68.09% | Balance Sheet Summary and Loan Data This table provides a detailed breakdown of the Company's balance sheet at various period ends, including assets, liabilities, shareholders' equity, and loan portfolio by type Balance Sheet (in thousands) | Metric | Jun 30, 2025 | Mar 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Total Assets | $2,041,441 | $2,033,346 | $2,010,281 | $1,450,716 | $1,457,528 | | Cash and Cash Equivalents | $194,315 | $206,032 | $162,874 | $126,516 | $135,635 | | Securities available for sale | $187,579 | $160,976 | $163,847 | $146,013 | $144,816 | | Loans, net of allowance | $1,428,251 | $1,435,895 | $1,450,604 | $982,016 | $977,423 | | Total Deposits | $1,803,166 | $1,824,976 | $1,803,778 | $1,253,255 | $1,265,796 | | Noninterest-bearing demand deposits | $541,204 | $540,387 | $520,153 | $383,400 | $397,770 | | Other borrowings | $25,000 | $0 | $0 | $50,000 | $50,000 | | Total Liabilities | $1,867,909 | $1,864,671 | $1,843,750 | $1,325,601 | $1,337,637 | | Total Shareholders' Equity | $173,532 | $168,675 | $166,531 | $125,115 | $119,891 | Total Loans by Type (in thousands) | Loan Type | Jun 30, 2025 | Mar 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Real estate loans: Construction and land development | $78,169 | $81,596 | $84,480 | $61,446 | $60,919 | | Real estate loans: Secured by 1-4 family residential | $544,577 | $550,183 | $547,576 | $351,004 | $346,976 | | Other real estate loans | $667,550 | $653,367 | $658,029 | $440,648 | $440,857 | | Commercial and industrial loans | $119,910 | $131,539 | $140,393 | $114,190 | $115,951 | | Total Loans | $1,443,437 | $1,450,630 | $1,467,004 | $994,720 | $989,976 | Average Balances, Yields and Rates Paid (Quarterly) This table provides average balances, interest income/expense, and corresponding yields/rates for earning assets and interest-bearing liabilities for the three months ended June 30, 2025, and comparable periods Average Balances, Yields and Rates Paid (Three Months Ended) | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | | Average Earning Assets | $1,893,133 | $1,888,428 | $1,370,072 | | Total Earning Asset Yield | 5.35% | 5.18% | 5.03% | | Average Interest Bearing Deposits | $1,267,963 | $1,284,224 | $863,448 | | Total Interest Bearing Deposit Rate | 1.92% | 1.91% | 2.24% | | Total Interest Bearing Liabilities | $1,298,823 | $1,314,751 | $927,727 | | Total Interest Bearing Liabilities Rate | 2.04% | 2.03% | 2.41% | | Net Interest Margin FTE | 3.95% | 3.77% | 3.40% | Average Balances, Yields and Rates Paid (Year-to-Date) This table presents average balances, interest income/expense, and corresponding yields/rates for earning assets and interest-bearing liabilities for the six months ended June 30, 2025, and the comparable period in 2024 Average Balances, Yields and Rates Paid (Six Months Ended) | Metric | Jun 30, 2025 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | | Average Earning Assets | $1,890,749 | $1,362,687 | | Total Earning Asset Yield | 5.27% | 4.95% | | Average Interest Bearing Deposits | $1,276,048 | $866,718 | | Total Interest Bearing Deposit Rate | 1.91% | 2.23% | | Total Interest Bearing Liabilities | $1,307,966 | $930,996 | | Total Interest Bearing Liabilities Rate | 2.03% | 2.39% | | Net Interest Margin FTE | 3.86% | 3.31% | Non-GAAP Reconciliations These tables provide detailed reconciliations of various non-GAAP financial measures, including adjusted operating net income, EPS, pre-provision pre-tax earnings, and tangible common equity, to their GAAP counterparts Adjusted Operating Net Income (in thousands) | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | YTD 2025 | YTD 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | :------- | :------- | | Net income (GAAP) | $5,051 | $1,598 | $2,442 | $6,649 | $5,651 | | Adjusted operating net income (non-GAAP) | $5,133 | $3,157 | $3,008 | $8,290 | $6,217 | Adjusted Pre-Provision, Pre-Tax Earnings (in thousands) | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | YTD 2025 | YTD 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | :------- | :------- | | Pre-provision, pre-tax earnings | $7,246 | $2,727 | $3,521 | $9,973 | $8,531 | | Adjusted pre-provision, pre-tax, earnings | $7,338 | $4,667 | $4,092 | $12,005 | $9,102 | Tangible Common Equity and Tangible Assets (in thousands) | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | YTD 2025 | YTD 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | :------- | :------- | | Total assets (GAAP) | $2,041,441 | $2,033,346 | $1,457,528 | $2,041,441 | $1,457,528 | | Tangible assets (Non-GAAP) | $2,024,309 | $2,015,772 | $1,454,390 | $2,024,309 | $1,454,390 | | Total shareholders' equity (GAAP) | $173,532 | $168,675 | $119,891 | $173,532 | $119,891 | | Tangible common equity (Non-GAAP) | $156,400 | $151,101 | $116,753 | $156,400 | $116,753 | | Tangible common equity to tangible assets ratio (non-GAAP) | 7.73% | 7.50% | 8.03% | 7.73% | 8.03% |