First National (FXNC) - 2024 Q1 - Quarterly Report

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]