First National (FXNC) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This part provides the unaudited consolidated financial statements and management's discussion and analysis for First National Corporation Item 1. Financial Statements This section presents the unaudited consolidated financial statements of First National Corporation, including balance sheets, income statements, comprehensive income statements, cash flow statements, and statements of changes in shareholders' equity, along with detailed notes providing context and breakdowns of key financial items - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC guidance, and should be read in conjunction with the annual report on Form 10-K[18] Consolidated Balance Sheets This section presents the consolidated balance sheets, detailing assets, liabilities, and shareholders' equity at specific reporting dates | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (vs. Dec 31, 2024) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------------------- | | Total Assets | $2,041,441 | $2,010,281 | +$31,160 | | Cash and cash equivalents | $194,315 | $162,874 | +$31,441 | | Loans, net | $1,427,836 | $1,450,195 | -$22,359 | | Total Liabilities | $1,867,909 | $1,843,750 | +$24,159 | | Total Deposits | $1,803,166 | $1,803,778 | -$612 | | Total Shareholders' Equity | $173,532 | $166,531 | +$7,001 | Consolidated Statements of Income This section presents the consolidated statements of income, showing revenues, expenses, and net income for the reported periods | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Total interest and dividend income | $25,165 | $17,055 | +$8,110 | $49,186 | $33,389 | +$15,797 | | Total interest expense | $6,617 | $5,561 | +$1,056 | $13,187 | $11,045 | +$2,142 | | Net interest income | $18,548 | $11,494 | +$7,054 | $35,999 | $22,344 | +$13,655 | | Provision for credit losses | $911 | $400 | +$511 | $1,743 | $1,400 | +$343 | | Total noninterest income | $3,889 | $2,686 | +$1,203 | $7,500 | $6,733 | +$767 | | Total noninterest expense | $15,191 | $10,659 | +$4,532 | $33,526 | $20,546 | +$12,980 | | Net income | $5,051 | $2,442 | +$2,609 | $6,649 | $5,651 | +$998 | | Basic EPS | $0.56 | $0.39 | +$0.17 | $0.74 | $0.90 | -$0.16 | | Diluted EPS | $0.56 | $0.39 | +$0.17 | $0.74 | $0.90 | -$0.16 | Consolidated Statements of Comprehensive Income This section presents the consolidated statements of comprehensive income, including net income and other comprehensive income components | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Net income | $5,051 | $2,442 | +$2,609 | $6,649 | $5,651 | +$998 | | Total other comprehensive income (loss) | $971 | $475 | +$496 | $2,600 | -$336 | +$2,936 | | Total comprehensive income | $6,022 | $2,917 | +$3,105 | $9,249 | $5,315 | +$3,934 | Consolidated Statements of Cash Flows This section presents the consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Net cash provided by operating activities | $8,228 | $8,336 | -$108 | | Net cash provided by investing activities | $1,332 | $9,932 | -$8,600 | | Net cash provided by financing activities | $21,881 | $30,205 | -$8,324 | | Increase in cash and cash equivalents | $31,441 | $48,473 | -$17,032 | | Cash and Cash Equivalents, Ending | $194,315 | $135,634 | +$58,681 | Consolidated Statements of Changes in Shareholders' Equity This section presents the consolidated statements of changes in shareholders' equity, detailing movements in common stock, surplus, retained earnings, and other comprehensive loss | Metric (in thousands) | Balance, June 30, 2025 | Balance, June 30, 2024 | Change | | :-------------------------------- | :--------------------- | :--------------------- | :----- | | Common Stock | $11,236 | $7,851 | +$3,385 | | Surplus | $77,578 | $33,116 | +$44,462 | | Retained Earnings | $100,810 | $97,966 | +$2,844 | | Accumulated Other Comprehensive (Loss) | -$16,092 | -$19,042 | +$2,950 | | Total Shareholders' Equity | $173,532 | $119,891 | +$53,641 | Notes to Consolidated Financial Statements The notes provide critical context for the financial statements, detailing the impact of the Touchstone Bankshares acquisition on various financial line items and the application of accounting standards Note 1. General This note outlines the basis of financial statement preparation, significant events, and the expected impact of recent accounting pronouncements - The financial statements are prepared in accordance with GAAP for interim information and SEC guidance, not including all annual year-end footnotes[18] - The Company completed the acquisition of Touchstone Bankshares, Inc. on October 1, 2024, issuing 2,673,640 shares of common stock and incurring $2.0 million in merger costs during the six months ended June 30, 2025[21] - Recent accounting pronouncements (ASU 2024-03 and ASU 2023-09) are not expected to have a material impact on the Company's consolidated financial statements[23][24][25] Note 2. Securities This note details the Company's investment securities portfolio, including available-for-sale and held-to-maturity categories, and associated unrealized gains and losses | Security Type (in thousands) | June 30, 2025 Amortized Cost | June 30, 2025 Fair Value | Dec 31, 2024 Amortized Cost | Dec 31, 2024 Fair Value | | :-------------------------------- | :----------------------------- | :----------------------- | :-------------------------- | :-------------------------- | | Securities available for sale | $206,510 | $187,579 | $185,917 | $163,847 | | Securities held to maturity | $106,527 | $97,728 | $109,835 | $98,874 | | Total Securities | $313,037 | $285,307 | $295,752 | $262,721 | - At June 30, 2025, the Company had gross unrealized losses of $19.094 million on available-for-sale securities and $8.801 million on held-to-maturity securities, primarily due to current interest rates being above purchase rates[27][30] - 100% of the Company's investment portfolio was considered investment grade at June 30, 2025, with a weighted-average re-pricing term of 4.9 years[30] Note 3. Loans This note provides a breakdown of the loan portfolio by category, changes in loan balances, and aging of past due loans | Loan Category (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Real estate loans: Construction and land development | $78,169 | $84,480 | -$6,311 | | Real estate loans: Secured by 1-4 family residential | $544,162 | $547,167 | -$3,005 | | Real estate loans: Other real estate loans | $680,063 | $672,162 | +$7,901 | | Commercial and industrial loans | $120,700 | $141,333 | -$20,633 | | Consumer and other loans | $19,928 | $21,453 | -$1,525 | | Total loans | $1,443,022 | $1,466,595 | -$23,573 | | Allowance for credit losses | -$15,186 | -$16,400 | +$1,214 | | Loans, net | $1,427,836 | $1,450,195 | -$22,359 | - Total loans decreased by $23.573 million from December 31, 2024, to June 30, 2025, with significant decreases in commercial and industrial loans and construction and land development loans[42] | Loan Aging (in thousands) | June 30, 2025 Total Past Due | December 31, 2024 Total Past Due | | :-------------------------------- | :----------------------------- | :------------------------------- | | 30-59 Days Past Due | $3,520 | $2,436 | | 60-89 Days Past Due | $1,022 | $650 | | 90 Days or More Past Due | $3,332 | $365 | | Total Past Due | $7,874 | $3,451 | Note 4. Allowance for Credit Losses This note details the activity in the allowance for credit losses, including charge-offs, recoveries, and provisions, and information on nonaccrual loans | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Beginning Balance, Dec 31, 2024 (2023) | $16,400 | $11,974 | | Charge-offs | -$3,025 | -$934 | | Recoveries | $176 | $89 | | Provision for (recovery of) credit losses on loans | $1,635 | $1,424 | | Ending Balance, June 30, 2025 (2024) | $15,186 | $12,553 | - Nonaccrual loans totaled $6.796 million at June 30, 2025, an increase from $6.971 million at December 31, 2024[58] - No loans were modified due to borrowers experiencing financial difficulty during the six months ended June 30, 2025 and 2024[66] Note 5. Earnings per Common Share This note presents the calculation of basic and diluted earnings per common share for the reported periods | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income (in thousands) | $5,051 | $2,442 | $6,649 | $5,651 | | Weighted average shares outstanding – basic | 8,987,179 | 6,278,113 | 8,983,374 | 6,273,952 | | Basic EPS | $0.56 | $0.39 | $0.74 | $0.90 | | Diluted EPS | $0.56 | $0.39 | $0.74 | $0.90 | Note 6. Fair Value Measurements This note describes the Company's fair value measurements for assets and liabilities, categorized by input levels - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[74][75] | Asset/Liability (in thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :-------------------------------- | :----------------------- | :--------------------------- | | Securities available for sale | $187,579 | $163,847 | | Derivatives - cash flow hedges | $2,363 | $2,690 | | Total assets measured at fair value (recurring) | $189,942 | $166,537 | - Loans, net, had a carrying amount of $1,427.8 million and a fair value of $1,397.2 million at June 30, 2025, with fair value determined using Level 3 unobservable inputs[87] Note 7. Stock Compensation Plans This note provides details on the Company's stock incentive plan, restricted stock unit grants, and associated compensation expense - The Company's 2023 Stock Incentive Plan makes up to 325,000 shares of common stock available for awards[89] - During Q1 2025, 18,455 restricted stock units were granted to employees, with 15,061 units vested and 5,000 forfeited[93][94] | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total unrecognized pre-tax compensation expense (unvested RSUs) | $1,400 | $404 | | Compensation expense recognized (RSUs) | $445 | $202 | Note 8. Accumulated Other Comprehensive (Loss) This note details the components of accumulated other comprehensive loss, including unrealized gains/losses on securities and cash flow hedges | Metric (in thousands) | Balance at June 30, 2025 | Balance at June 30, 2024 | | :-------------------------------- | :----------------------- | :----------------------- | | Net Unrealized Gains (Losses) on Securities | -$17,958 | -$21,163 | | Change in Fair Value of Cash Flow Hedges | $1,866 | $2,121 | | Total Accumulated Other Comprehensive (Loss) | -$16,092 | -$19,042 | - The accumulated other comprehensive loss decreased by $2.95 million from June 30, 2024, to June 30, 2025, primarily due to unrealized holding gains on available-for-sale securities[95] Note 9. Revenue Recognition This note explains the Company's revenue recognition policies, distinguishing between in-scope and out-of-scope revenues under ASC Topic 606 - Most revenue from financial instruments (interest income, loan fees, etc.) is outside the scope of ASC Topic 606[96] | Noninterest Income (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Service charges on deposit accounts | $1,020 | $612 | $2,033 | $1,266 | | ATM and check card fees | $1,128 | $809 | $2,124 | $1,579 | | Wealth management fees | $867 | $879 | $1,765 | $1,762 | | Brokered mortgage fees | $183 | $32 | $293 | $70 | | Fees for other customer services | $230 | $178 | $488 | $373 | | Total in-scope of Topic 606 | $3,428 | $2,510 | $6,703 | $5,050 | | Total out-of-scope of Topic 606 | $461 | $176 | $797 | $1,683 | | Total noninterest income | $3,889 | $2,686 | $7,500 | $6,733 | Note 10. Derivative Financial Instruments This note describes the Company's use of interest rate swap agreements as cash flow hedges and their notional amounts - The Company uses interest rate swap agreements to convert variable rate junior subordinated debt into fixed rate debt, designated as cash flow hedges[105] | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Notional Amount (Interest rate swap contracts) | $9,000 | $9,000 | | Assets (Interest rate swap contracts) | $2,363 | $2,690 | Note 11. Acquisition This note provides details on the acquisition of Touchstone Bankshares, Inc., including purchase price, assets acquired, liabilities assumed, and merger costs - The Company acquired Touchstone Bankshares, Inc. on October 1, 2024, issuing 2.7 million shares of common stock for an aggregate consideration of $46.8 million[110] - The acquisition resulted in a preliminary bargain purchase gain of $2.9 million[110][113] | Acquisition Financials (in thousands) | Amount | | :-------------------------------- | :----- | | Total purchase price | $46,799 | | Fair value of total assets acquired | $664,326 | | Fair value of total liabilities assumed | $614,607 | | Fair value of net assets acquired | $49,719 | | Preliminary bargain purchase gain | $2,920 | - Merger costs totaled $2.0 million for the six months ended June 30, 2025[111] Note 12. Segment Reporting This note presents financial information for the Company's operating segments: Community Banking and Wealth Management Services - The Company operates in two segments: Community Banking (loans, deposits, fees) and Wealth Management Services (trustee, estate administration, investment management)[133] | Segment Net Income (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Community Banking | $6,056 | $5,084 | $4,751 | $2,173 | | Wealth Management | $593 | $567 | $300 | $269 | | Total Net Income | $6,649 | $5,651 | $5,051 | $2,442 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, results of operations, and liquidity, highlighting key performance drivers, the impact of the Touchstone acquisition, and future outlook - The discussion emphasizes the significant impact of the Touchstone acquisition on financial performance, including increased assets, liabilities, and operating expenses[137][145][149][155] - Forward-looking statements are subject to various risks and uncertainties, including general business and economic conditions, competition, and regulatory changes[137][139] Cautionary Statement Regarding Forward-Looking Statements This section highlights that forward-looking statements are subject to significant uncertainties, including merger benefits, economic conditions, and regulatory changes - Forward-looking statements are identified by words like "believes," "expects," "may," "will," and are subject to significant uncertainties including the realization of merger benefits, economic conditions, and regulatory changes[137][139] Executive Overview This section provides a high-level summary of First National Corporation's business, primary revenue sources, and the impact of the recent Touchstone acquisition - First National Corporation is the bank holding company for First Bank, offering loan, deposit, and wealth management products through 33 branch offices and three loan production offices in Virginia and North Carolina[142][146] - The primary revenue source is net interest income (70-90% of total revenue), supplemented by noninterest income from service charges, wealth management, and ATM/check card fees[143] - The acquisition of Touchstone Bankshares, Inc. on October 1, 2024, expanded the Company's presence and resulted in $2.0 million in merger costs for the six months ended June 30, 2025[145][147] Overview of Quarterly Financial Performance This section summarizes key financial performance metrics for the quarter and six-month periods, including net income, EPS, and returns on assets and equity | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Net income | $5.1 million | $2.4 million | +$2.7 million | | Diluted EPS | $0.56 | $0.39 | +$0.17 | | Return on average assets | 1.00% | 0.68% | +0.32% | | Return on average equity | 11.85% | 8.31% | +3.54% | | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Net income | $6.6 million | $5.7 million | +$0.9 million | | Diluted EPS | $0.74 | $0.90 | -$0.16 | | Return on average assets | 0.66% | 0.79% | -0.13% | | Return on average equity | 7.90% | 9.68% | -1.78% | - The increase in net income for both periods was primarily driven by higher net interest income after provision, partially offset by increased noninterest expenses due to the Touchstone merger[149][155] Non-GAAP Financial Measures This section defines and presents non-GAAP financial measures such as the efficiency ratio and net interest margin, used to assess operational performance - The efficiency ratio is a non-GAAP measure used to assess operational efficiency, calculated by dividing adjusted noninterest expense by tax-equivalent net interest income plus noninterest income[160] | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Efficiency ratio | 65.03% | 70.64% | 70.07% | 68.09% | | Net Interest Margin | 3.95% | 3.40% | 3.86% | 3.31% | - Net interest margin is calculated by dividing tax-equivalent net interest income by total average earning assets, with a 21% tax rate used for tax-equivalent adjustments[163] Critical Accounting Policies This section identifies critical accounting policies involving significant management judgments and estimates, particularly for credit losses and acquired loans - Critical accounting policies involve significant management judgments and estimates, especially for the allowance for credit losses on loans, loans acquired in business combinations, and goodwill[19] Lending Policies This section confirms that no material changes have occurred in the Company's lending policies since the last annual report - No material changes to the Company's lending policies have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[167] Results of Operations This section analyzes the Company's financial performance, focusing on net income, net interest income, provision for credit losses, noninterest income, and expenses - Net interest income is the primary source of earnings, influenced by changes in volume and mix of interest-earning assets and interest-bearing liabilities, and their respective yields and rates[168][169] - The Touchstone merger significantly impacted all aspects of the results of operations, leading to increased assets, liabilities, and associated income and expenses[175][176][179][180][191][193] Net Income This section details the Company's net income, diluted EPS, and returns on average assets and equity for the reported periods | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Net income | $5.1 million | $2.4 million | +$2.7 million | | Diluted EPS | $0.56 | $0.39 | +$0.17 | | Return on average assets | 1.00% | 0.68% | +0.32% | | Return on average equity | 11.85% | 8.31% | +3.54% | | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Net income | $6.6 million | $5.7 million | +$0.9 million | | Diluted EPS | $0.74 | $0.90 | -$0.16 | | Return on average assets | 0.66% | 0.79% | -0.13% | | Return on average equity | 7.90% | 9.68% | -1.78% | Net Interest Income This section analyzes the components of net interest income, including total interest income, interest expense, and net interest margin | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Net interest income | $18,548 | $11,494 | +$7,054 (61.4%) | | Total interest income | $25,165 | $17,055 | +$8,110 | | Total interest expense | $6,617 | $5,561 | +$1,056 | | Net interest margin | 3.95% | 3.40% | +0.55% | | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Net interest income | $36,000 | $22,344 | +$13,656 (61.1%) | | Total interest income | $49,186 | $33,389 | +$15,797 | | Total interest expense | $13,187 | $11,045 | +$2,142 | | Net interest margin | 3.86% | 3.31% | +0.55% | - The increase in interest income on loans was due to a 25-basis point increase in yield and a 47.2% increase in average balances for the three-month period, and a 21-basis point increase in yield and a 48.8% increase in average balances for the six-month period, primarily from the Touchstone merger[175][179] Provision for Credit Losses This section discusses the provision for credit losses and its drivers, including the impact of acquired loan balances and net charge-offs | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Provision for credit losses | $911 | $400 | +$511 | | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Provision for credit losses | $1,700 | $1,400 | +$300 | | Net charge-offs | $2,800 | $844 | +$1,956 | - The increase in provision for credit losses reflects the impact of higher pool loan balances acquired in the Touchstone merger and an increase in net charge-offs[187][188] Noninterest Income This section analyzes the various components of noninterest income, highlighting changes in service charges, fees, and other operating income | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Noninterest income | $3,900 | $2,700 | +$1,200 (44.8%) | | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Noninterest income | $7,500 | $6,700 | +$800 (11.4%) | - Increases were seen in service charges, ATM and check card fees, and brokered mortgage fees, partially offset by a decrease in other operating income for the six-month period due to a loan recovery in 2024[189][190] Noninterest Expense This section details the components of noninterest expense, explaining increases primarily due to the recent acquisition | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Noninterest expenses | $15,200 | $10,700 | +$4,500 (42.5%) | | Salaries and employee benefits | +$2,200 (37.6%) | | | | Other operating expense | +$1,200 (223.0%) | | | | Occupancy expense | +$396 (72.3%) | | | | Data processing expense | +$341 (209.2%) | | | | Amortization expense | +$436 | | | | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Noninterest expenses | $33,500 | $20,500 | +$13,000 (63.2%) | | Salaries and employee benefits | +$5,000 (42.8%) | | | | Other operating expense | +$2,200 (143.8%) | | | | Merger expenses | +$1,600 | | | | Occupancy expense | +$930 (85.9%) | | | | Amortization expense | +$874 | | | | Data processing expense | +$857 (209.5%) | | | | Equipment expense | +$800 (62.4%) | | | - Increases were primarily due to the Touchstone merger, leading to more employees, additional branches, increased customer transactions, duplicative system expenses, and core deposit intangible amortization[191][193] Income Taxes This section discusses income tax expense and the effective tax rate, explaining differences from the federal statutory rate | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Income tax expense | $1,300 | $605 | +$695 | | Effective tax rate | 20.3% | 21.8% | -1.5% | | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------- | | Income tax expense | $1,600 | $1,500 | +$100 | | Effective tax rate | 19.2% | 20.8% | -1.6% | - Differences from the U.S. federal income tax rate are primarily due to net permanent tax deductions, including tax-exempt interest income, income from bank-owned life insurance, and nondeductible merger expenses[194][196] Financial Condition This section provides an overview of the Company's financial position, including assets, liabilities, equity, and key balance sheet components - Total assets increased by $31.2 million (3.1% annualized) to $2.041 billion at June 30, 2025, from December 31, 2024[197] - Total shareholders' equity increased by $7.0 million, primarily due to a $3.9 million increase in retained earnings and a $2.6 million reduction in accumulated other comprehensive loss[199] General (Financial Condition Overview) This section provides a high-level overview of the Company's total assets, liabilities, and shareholders' equity at the reporting dates | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Total Assets | $2,041 | $2,010 | +$31 | | Total Liabilities | $1,868 | $1,844 | +$24 | | Total Shareholders' Equity | $174 | $167 | +$7 | Loans This section details the total loan portfolio, its composition, and changes in balances over the reported periods | Metric (in millions) | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :---------------- | :------------ | | Total Loans | $1,428 | $1,450 | $977 | | YoY Change (vs. June 30, 2024) | +$451 (46.1%) | | | | QoQ Change (vs. Dec 31, 2024) | -$22.4 (3.1% annualized) | | | - The loan portfolio is primarily comprised of loans secured by one-to-four family residential real estate (38%), commercial real estate (47%), and commercial and industrial loans (8%) at June 30, 2025[200] Asset Quality This section assesses the quality of the Company's assets, including non-performing assets, nonaccrual loans, and management's reserve adequacy | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Non-performing assets | $6.8 | $7.0 | | Nonaccrual loans | $6.8 | $7.1 | | OREO | $0 | $0.053 | | Other potential problem loans | $6.6 | $9.1 | - Non-performing assets represented 0.33% of total assets at June 30, 2025, a slight decrease from 0.35% at December 31, 2024[203] - Management believes the Bank has sufficient reserves to cover expected losses, with the provision for credit losses based on economic conditions, historical losses, and loan quality reports[208] Securities This section provides an overview of the Company's securities portfolio, including total balances and unrealized gains and losses | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Total Securities | $299.6 | $277.3 | +$22.3 (8%) | | Gross unrealized gains (AFS) | $0.163 | $0.062 | +$0.101 | | Gross unrealized losses (AFS) | -$19.1 | -$22.1 | +$3.0 | | Gross unrealized gains (HTM) | $0.002 | $0.008 | -$0.006 | | Gross unrealized losses (HTM) | -$8.8 | -$11.0 | +$2.2 | - The change in unrealized gains and losses was related to changes in market interest rates, not credit concerns[210] Deposits This section details the Company's total deposits, their composition, and changes in balances over the reported periods | Metric (in millions) | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :---------------- | :------------ | | Total Deposits | $1,803 | $1,804 | $1,266 | | QoQ Change (vs. Dec 31, 2024) | -$0.612 (0.03%) | | | | YoY Change (vs. June 30, 2024) | +$537.4 (42.5%) | | | - Deposit composition at June 30, 2025: noninterest-bearing (30%), savings and interest-bearing (50%), and time deposits (20%)[211] Subordinated Debt This section describes the Company's subordinated debt issuances, including those assumed from the Touchstone acquisition and any redemptions - The Company assumed two subordinated debt issuances from the Touchstone acquisition: an $8.0 million fixed-to-floating rate note due 2030 and a $10.0 million fixed-to-floating rate note due 2032[212] - A $500 thousand tranche of the $10.0 million issuance was paid off for $420 thousand, resulting in an $80 thousand gain on redemption during Q2 2025[212] Liquidity This section outlines the Company's liquidity sources and estimated uninsured customer deposits | Metric (in millions) | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :---------------- | :------------ | | Total liquidity sources | $800.2 | $758.0 | $553.3 | | Estimated uninsured customer deposits | $545.7 | $537.0 | $419.4 | | Estimated uninsured customer deposits (excl. municipal) | $451.9 | $445.5 | $324.5 | Capital Resources This section details the Company's capital adequacy ratios and its status as "well capitalized" under regulatory frameworks - The Bank meets all capital adequacy requirements, including the capital conservation buffer, with a Common Equity Tier 1 capital ratio of 11.81% (minimum 7.0%)[217][218] - The Bank qualifies as "well capitalized" under the prompt corrective action framework, exceeding the minimum requirements for Common Equity Tier 1, Tier 1, Total Capital, and Tier 1 Leverage ratios[219] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that quantitative and qualitative disclosures about market risk are not required for this filing - This section is not required for the current filing[227] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and states that there were no material changes to internal control over financial reporting during the last fiscal quarter - The Company's disclosure controls and procedures were effective as of June 30, 2025[228] - No material changes to internal control over financial reporting were identified during the last fiscal quarter[229][230] PART II – OTHER INFORMATION This part includes information on legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and exhibits Item 1. Legal Proceedings This section states that there are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company's business - No material pending legal proceedings exist, other than routine litigation[232] Item 1A. Risk Factors This section confirms that 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 - No material changes to the Company's risk factors were disclosed since the Annual Report on Form 10-K for the year ended December 31, 2024[233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[234] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report - No defaults upon senior securities to report[234] Item 4. Mine Safety Disclosures This section states that there were no mine safety disclosures to report - No mine safety disclosures to report[234] Item 5. Other Information This section reports that no directors or officers adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No directors or officers adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[234] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL-formatted financial statements - Exhibits include CEO and CFO certifications (Sections 302 and 1350) and XBRL-formatted financial statements[235]