First National Corporation Reports Record Second Quarter 2025 Earnings
STRASBURG, Va., July 30, 2025 (GLOBE NEWSWIRE) -- First National Corporation (the "Company" or "First National") (NASDAQ:FXNC), the bank holding company of First Bank (the "Bank"), reported earnings for the quarter ended June 30, 2025 of $5.05 million and basic and diluted earnings per common share of $0.56. Excluding acquisition-related items, adjusted earnings(1) (non-GAAP) for the second quarter of 2025 were $5.1 million and adjusted basic and diluted earnings(1) per common share were $0.57.
"We are extremely pleased with our performance in the second quarter as we begin to realize the value of our recently completed acquisition of the Touchstone franchise. Earnings improved over the prior quarter and the previous year due to net interest margin expansion and our improved efficiency as a combined company. While growth was muted due to higher than average loan payoff volumes and our focus on managing deposit pricing, this discipline delivered on improved earnings, strong liquidity and capital growth," said Scott Harvard, President and Chief Executive Officer of First National.
FINANCIAL HIGHLIGHTS FOR SECOND QUARTER 2025
Earnings per share of $0.56 per share, up 211% from the previous period and up 44% from one year prior
Return on average assets of 1.00% compared to 0.32% in the previous period and 0.68% one year prior
Return on average equity of 11.85% compared to 3.85% in the previous period and 8.31% one year prior
Net interest margin fully taxable equivalent ("FTE")(1) of 3.95%, up 16.2% from 3.40% one year prior
Efficiency ratio(1) improved to 65.11% from 75.44% in the previous period and 70.64% one year prior
Net loans held for investment of $1.428 billion, up 46.1% from one year prior
Total deposits of $1.803 billion, up 42.5% from one year prior
Noninterest bearing deposits of $541.2 million, up 36.1% from one year prior
Noninterest bearing deposits comprised 30% of total deposits at June 30, 2025
NET INTEREST INCOME
For the second quarter of 2025, the Company's net interest margin (FTE)(1) was 3.95%, up from 3.77% for the first quarter of 2025 and up from 3.40% in the second quarter of 2024. The Company's net interest margin (FTE)(1) for the second quarter of 2025 includes the impact of acquisition accounting fair value adjustments. Net accretion income related to acquisition accounting was $907 thousand, or an 18-basis point incremental increase to the net interest margin for the second quarter ended June 30, 2025, compared to the net amortization expense of $36 thousand or a 1-basis point incremental decrease to the net interest margin for the first quarter ended March 31, 2025. The impact of accretion and amortization for the periods presented are reflected in the following table (dollars in thousands):
Loan Accretion(Amortization)
Deposit Accretion
Borrowings (Amortization)
Total
For the quarter ended March 31, 2025
$
(194
)
$
443
$
(285
)
$
(36
)
For the quarter ended June 30, 2025
930
163
(186
)
907
Earning asset yields for the second quarter of 2025 increased 17 basis points to 5.35% compared to the first quarter of 2025, driven primarily by the $1.1 million increase in accretion on purchased loans. Loan accretion increased in the second quarter after several large loans with purchase accounting premiums were paid off in the first quarter, resulting in the accelerated amortization of those premiums. Deposit accretion decreased from the prior quarter consistent with the accelerated accretion schedule of acquired deposits. For the second quarter of 2025, net interest income was $18.5 million, an increase of $1.0 million from $17.5 million in the first quarter of 2025 due to increases in loan yields and net accretion income combined with a $15.9 million decrease in average interest-bearing liabilities.
NONINTEREST INCOME
Non-interest income increased $278 thousand to $3.9 million for the second quarter of 2025 from $3.6 million in the prior quarter. Non-interest income increased 7.7% in the second quarter primarily due to increases in ATM and check card income as well as brokered mortgage fees.
NONINTEREST EXPENSE
Noninterest expense decreased $3.1 million to $15.2 million for the second quarter of 2025 from $18.3 million in the prior quarter, primarily driven by a $1.8 million decrease in pre-tax merger-related expenses, $656 thousand decrease in salaries and employee benefit expenses, $448 thousand decrease in other operating expenses, and $258 thousand decrease in data processes expense. The decrease in salaries and benefits reflects reduced expenses related to incentives, stock compensation expense, and other salary and benefits. The decrease in other operating expenses is driven by $294 thousand of fraud losses recognized in the first quarter and a reduction in internet banking expenses of $296 thousand. In the first quarter of 2025 the Bank was operating two core banking systems which added to our expense structure. The conversion to one system occurred in February of 2025, which was a driver of reduced operating expenses in the second quarter of 2025.
Adjusted operating noninterest expense(1), which excludes merger-related costs ($92 thousand in the second quarter of 2025 and $1.9 million in the first quarter of 2025) and amortization of intangible assets ($441 thousand in the second quarter of 2025 and $442 thousand in the first quarter of 2025), decreased $1.3 million to $14.7 million for the second quarter of 2025 from $16.0 million in the prior quarter, due to decreases in salary and employee benefits expense, fraud losses, data processing, and internet banking expenses.
BALANCE SHEET
At June 30, 2025, total assets were $2.041 billion, an increase of $8.1 million or 0.4% from March 31, 2025, and an increase of $583.9 million or 40.1% from June 30, 2024. Total assets were consistent with the prior quarter and the increase from the prior year was primarily driven by growth in loans held for investment ("LHFI") (net of deferred fees and costs), primarily due to the Touchstone acquisition.
At June 30, 2025, LHFI net of allowance totaled $1.428 billion, a decrease of $7.6 million from $1.436 billion or 0.5% at March 31, 2025, and an increase of $450.8 million or 46.1% from June 30, 2024. LHFI was consistent with the prior quarter and increased from the prior year primarily due to the Touchstone acquisition, as well as organic loan growth. Higher than average loan payoffs more than offset positive net production growth in the second quarter of 2025.
At June 30, 2025, total investments were $299.6 million, an increase of $25.9 million or 9.5% from March 31, 2025, and an increase of $29.2 million or 10.8% from June 30, 2024. Available for sale ("AFS") securities totaled $187.6 million at June 30, 2025, and $161.0 million at March 31, 2025, and $144.8 million at June 30, 2024. The increases compared to the prior quarter was driven by securities purchases and a $3.1 million improvement in unrealized losses. Total net unrealized losses on the AFS securities portfolio were $18.9 million at June 30, 2025, compared to $20.1 million at March 31, 2025, and $21.9 million at June 30, 2024. Held to maturity securities are carried at amortized cost and totaled $106.4 million at June 30, 2025, $108.3 million at March 31, 2025, and $123.5 million at June 30, 2024.
At June 30, 2025, total deposits were $1.803 billion, a decrease of $21.8 million or 1.2% from the prior quarter, and an increase of $537.4 million or 42.5% from June 30, 2024. The decreases in deposit balances from the prior quarter is primarily due to a decrease in interest-bearing demand deposits and the increase from prior year is primarily due to the addition of the Touchstone acquired deposits. Non-interest-bearing demand deposits increased slightly and time deposits decreased slightly in the second quarter of 2025.
There were $25.0 million in other borrowings with the Federal Home Loan Bank on June 30, 2025 compared to no borrowings on March 31, 2025. Other borrowings totaled $50.0 million on June 30, 2024, and were comprised of funds borrowed from the Federal Reserve Bank through their Bank Term Funding Program which were repaid during the fourth quarter of 2024.
LIQUIDITY
Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, unpledged securities held-to-maturity, at par, eligible to be pledged, and available lines of credit totaled $633.7 million on June 30, 2025, $800.2 million on March 31, 2025, and $533.3 million on June 30, 2024.
The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $545.7 million on June 30, 2025, $549.3 million on March 31, 2025, and $419.4 million on June 30, 2024. Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $451.9 million on June 30, 2025, $458.7 million on March 31, 2025, and $324.5 million on June 30, 2024.
ASSET QUALITY
Nonperforming Assets
Management classifies non-performing assets ("NPAs") as non-accrual loans and other real estate owned ("OREO"). NPAs as a percentage of total assets increased to 0.33% on June 30, 2025, compared to 0.24% on March 31, 2025, and decreased from 0.59% on June 30, 2024.
NPAs increased by $1.9 million to $6.8 million on June 30, 2025, compared to $4.9 million on March 31, 2025, and $8.5 million on June 30, 2024.
Past Due Loans
There were no loans past due over 90 days or more and still accruing interest on June 30, 2025, consistent with $0 on March 31, 2025, and $0 on June 30, 2024. Loans past-due 30-89 days and still accruing interest decreased to $3.2 million, or 0.22% of total loans on June 30, 2025, compared to $5.0 million, or 0.35% of total loans on March 31, 2025, and $2.4 million, or 0.24%, of total loans on June 30, 2024.
Net Charge-offs
Net charge-offs totaled $448 thousand in the second quarter of 2025, compared to $2.4 million in the first quarter of 2025, and $482 thousand in the second quarter of 2024.
Allowance and Provision for Credit Losses
The allowance for credit losses on loans totaled $15.2 million, or 1.05% of total loans on June 30, 2025, compared to $14.7 million, or 1.02% of total loans on March 31, 2025, and $12.6 million, or 1.27% of total loans on June 30, 2024. The allowance for credit losses to NPAs decreased to 223.45% on June 30, 2025 compared to 302.94% on March 31, 2025, but increased from 146.84% on June 30, 2024.
The Company recorded a $911 thousand provision for credit losses in the second quarter of 2025, compared to a $832 thousand provision for credit losses for the first quarter of 2025. The second quarter provision was comprised of a $900 thousand provision for credit losses on loans, a $1 thousand provision for credit losses on unfunded commitments and a $10 thousand provision for credit losses on held-to-maturity securities. The increase in provision for credit losses is primarily due to the calculated specific reserves on individually analyzed loans that were increased during the quarter in tandem with an increase in the total amount of loan balances individually analyzed for impairment.
CAPITAL
During the second quarter of 2025, the Company declared and paid cash dividends of $0.155 per common share, compared to $0.155 in the first quarter of 2025 and $0.15 in the second quarter of 2024.
The following table provides capital ratios and values for the periods ended:
First National Corporation (3)
Jun 30, 2025
Mar 31, 2025
Jun 30, 2024
Total capital ratio (2)
14.89
%
14.58
%
15.58
%
Tier 1 capital ratio (2)
12.37
%
12.07
%
13.85
%
Common equity Tier 1 capital ratio (2)
11.74
%
11.44
%
12.97
%
Leverage ratio (2)
8.99
%
8.78
%
9.88
%
Common equity to total assets
8.51
%
8.30
%
8.23
%
Tangible common equity to tangible assets (1)
7.73
%
7.50
%
8.03
%
Tangible book value per share (1)
$
17.40
$
16.81
$
18.59
First Bank
Jun 30, 2025
Mar 31, 2025
Jun 30, 2024
Total capital ratio (2)
12.89
%
12.44
%
14.13
%
Tier 1 capital ratio (2)
11.81
%
11.39
%
12.88
%
Common equity Tier 1 capital ratio (2)
11.81
%
11.39
%
12.88
%
Leverage ratio (2)
8.56
%
8.28
%
9.17
%
Common equity to total assets
8.45
%
8.15
%
7.99
%
Tangible common equity to tangible assets (1)
7.68
%
7.35
%
7.79
%
ABOUT FIRST NATIONAL CORPORATION
First National Corporation (NASDAQ:FXNC) is the parent company and bank holding company of First Bank, a community bank that first opened for business in 1907 in Strasburg, Virginia. The Bank offers loan and deposit products and services through its website, www.fbvirginia.com, its mobile banking platform, a network of ATMs located throughout its market area, three loan production offices, a customer service center in a retirement community, and thirty-three bank branch office locations located throughout the Shenandoah Valley, the south-central regions of Virginia, the Roanoke Valley, the Richmond MSA, and in northern North Carolina. In addition to providing traditional banking services, the Bank operates a wealth management division under the name First Bank Wealth Management. First Bank also owns First Bank Financial Services, Inc., which owns an interest in an entity that provides title insurance services.
NON-GAAP FINANCIAL MEASURES
In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), the Company uses certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends, and comparing financial results to other financial institutions. The non-GAAP financial measures presented in this document include adjusted operating net income, adjusted operating non-interest expense, adjusted basic and diluted earnings per share, adjusted return on average assets, adjusted return on average equity, pre-provision pre-tax earnings, adjusted pre-provision pre-tax earnings, fully taxable equivalent interest income, the net interest margin, the efficiency ratio, tangible book value per share, and tangible common equity to tangible assets.
The Company believes certain non-GAAP financial measures enhance the understanding of its business and performance. Non-GAAP financial measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is included at the end of this release.
FORWARD-LOOKING STATEMENTS
Certain information contained in this discussion may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to the Company's plans, objectives, expectations and intentions and other statements that are not historical facts, and other statements identified by words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," and "projects," as well as similar expression. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties. For details on factors that could affect expectations, future events, or results, see the risk factors and other cautionary language included in First National's Annual Report on Form 10-K for the year ended December 31, 2024, most recent Quarterly Report on Form 10-Q and other filings with the Securities and Exchange Commission (the "SEC").
CONTACTS
Scott C. Harvard
Brad E. Schwartz
President and CEO
Executive Vice President and CFO
(540) 465-9121
(540) 465-9121
FIRST NATIONAL CORPORATIONPerformance Summary(in thousands)(unaudited)
For the Three Months Ended
For the Six Months Ended
Jun 30, 2025
Mar 31, 2025
Jun 30, 2024
Jun 30,2025
Jun 30,2024
Income Statement
Interest and dividend income
Interest and fees on loans
$
21,594
$
20,637
$
14,004
$
42,231
$
27,488
Interest on deposits in banks
1,891
1,671
1,579
3,562
2,867
Interest on federal funds sold
—
40
—
40
—
Taxable interest on securities
1,313
1,314
1,134
2,627
2,358
Tax-exempt interest on securities
298
300
306
598
611
Dividends
69
60
32
129
65
Total interest and dividend income
$
25,165
$
24,022
$
17,055
$
49,187
$
33,389
Interest expense
Interest on deposits
$
6,080
$
6,038
$
4,820
$
12,118
$
9,591
Interest on subordinated debt
468
467
69
935
138
Interest on junior subordinated debt
66
66
66
132
134
Interest on other borrowings
3
—
606
3
1,182
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
Net interest income after provision for credit losses
$
17,637
$
16,619
$
11,094
$
34,256
$
20,944
Noninterest income
Service charges on deposit accounts
$
1,020
$
1,013
$
612
$
2,033
$
1,266
ATM and check card fees
1,128
996
809
2,124
1,579
Wealth management fees
867
898
879
1,765
1,762
Fees for other customer services
230
258
178
488
373
Brokered mortgage fees
183
110
32
293
70
Income from bank owned life insurance
231
246
149
477
300
Net gain on subdebt payoff
80
—
—
80
—
Other operating income
150
90
27
240
1,383
Total noninterest income
$
3,889
$
3,611
$
2,686
$
7,500
$
6,733
Noninterest expense
Salaries and employee benefits
$
8,033
$
8,689
$
5,839
$
16,722
$
11,710
Occupancy
944
1,069
548
2,013
1,083
Equipment
1,057
1,025
691
2,082
1,282
Marketing
286
220
273
506
468
Supplies
198
217
115
415
231
Legal and professional fees
593
522
1,124
1,115
1,576
ATM and check card expense
537
439
368
976
729
FDIC assessment
315
414
203
729
380
Bank franchise tax
348
317
261
665
523
Data processing expense
504
762
163
1,266
409
Amortization expense
441
442
5
883
9
Other real estate owned expense (income), net
(3
)
(8
)
—
(11
)
—
Net loss on disposal of premises and equipment
7
—
—
7
49
Merger expense
92
1,940
—
2,032
—
Other operating expense
1,839
2,287
1,069
4,126
2,097
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
FIRST NATIONAL CORPORATIONPerformance Summary(in thousands, except share and per share data)(unaudited)
As of or For the Three Months Ended
For the Six Months Ended
Jun 30, 2025
Mar 31, 2025
Jun 30, 2024
Jun 30, 2025
Jun 30, 2024
Common Share and Per Common Share Data
Earnings (loss) per common share, basic
$
0.56
$
0.18
$
0.39
$
0.74
$
0.90
Adjusted earnings (loss) per common share, basic (1)
$
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
Earnings (loss) per common share, diluted
$
0.56
$
0.18
$
0.39
$
0.74
$
0.90
Adjusted earnings (loss) per common share, diluted (1)
$
0.57
$
0.35
0.48
$
0.92
$
0.99
Weighted average shares, diluted
9,001,972
9,005,923
6,289,405
9,003,969
6,285,970
Shares outstanding at period end
8,989,138
8,986,696
6,280,406
8,989,138
6,280,406
Tangible book value per share at period end (1)
$
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
Return on average assets (4)
1.00
%
0.32
%
0.68
%
0.66
%
0.79
%
Adjusted return on average assets (1)(4)
1.02
%
0.63
%
0.84
%
0.83
%
0.86
%
Return on average equity (4)
11.85
%
3.85
%
8.31
%
7.90
%
9.68
%
Adjusted return on average equity (1)(4)
12.05
%
7.61
%
10.23
%
11.19
%
10.65
%
Net interest margin (4)
3.93
%
3.75
%
3.37
%
3.84
%
3.30
%
Net interest margin fully tax-equivalent (1)(4)
3.95
%
3.77
%
3.40
%
3.86
%
3.31
%
Efficiency ratio (1)
65.11
%
75.44
%
70.64
%
70.01
%
68.09
%
Average Balances
Average assets
$
2,019,344
$
2,016,958
$
1,448,478
$
2,020,425
$
1,438,219
Average earning assets
1,893,133
1,888,428
1,370,072
1,890,749
1,362,687
Average noninterest deposits to total average deposits
29.88
%
29.01
%
31.44
%
29.49
%
30.70
%
Average shareholders' equity
$
170,920
$
168,245
118,255
$
169,713
117,388
Asset Quality
Allowance for credit losses on loans to nonperforming assets
223.45
%
302.94
%
146.84
%
223.45
%
146.84
%
Allowance for credit losses on loans to period end loans
1.05
%
1.02
%
1.27
%
1.05
%
1.27
%
Nonperforming assets to period end loans
0.47
%
0.34
%
0.86
%
0.47
%
0.86
%
Loan charge-offs
$
535
$
2,490
$
521
$
3,025
$
934
Loan recoveries
87
89
39
176
90
Net charge-offs
448
2,401
482
2,849
844
Non-accrual loans
6,796
4,864
8,549
6,796
8,549
Other real estate owned, net
—
—
—
—
