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):

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:

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”).

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