First National Corporation Reports Record Third Quarter 2025 Earnings
STRASBURG, Va., Oct. 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 September 30, 2025, of $5.55 million and basic and diluted earnings per common share of $0.62.
“We are pleased to report another record quarter of financial performance as earnings improved over the prior quarter and the previous year, with earnings per share of $0.62 for the third quarter. We closed the Touchstone acquisition one year ago and we are pleased with the results as we expand into these new markets. While loan growth remains muted due to higher-than-expected loan payoff volumes, we have recently added additional experienced bankers in our Richmond, Roanoke, and Staunton markets as we continue to build out our production teams. The balance sheet remains strong with ample liquidity and capital to support future growth,” said Scott Harvard, President and Chief Executive Officer of First National.
FINANCIAL HIGHLIGHTS FOR THIRD QUARTER 2025
NET INTEREST INCOME
For the third quarter of 2025, the Company’s net interest margin (FTE) (1) was 3.84%, compared to 3.95% for the second quarter of 2025 and 3.43% in the third quarter of 2024. The Company’s net interest margin (FTE) (1) for the third quarter of 2025 includes the impact of acquisition accounting fair value adjustments. Net accretion income related to acquisition accounting was $43 thousand, with no incremental increase to the net interest margin for the third quarter ended September 30, 2025, compared to the net accretion income of $907 thousand or an 18-basis point incremental increase to the net interest margin for the second quarter ended June 30, 2025. Excluding the impact of merger accounting the net interest margin would have improved in the third quarter of 2025 compared to the previous period. The impact of accretion and amortization for the periods presented are reflected in the following table (dollars in thousands):
Earning asset yields for the third quarter of 2025 decreased 9 basis points to 5.26% compared to the second quarter of 2025, driven primarily by the $849 thousand decrease in accretion on purchased loans. Loan accretion decreased in the third quarter due to the payoff of several large loans, resulting in the accelerated amortization of purchase accounting premiums. Deposit accretion decreased from the prior quarter consistent with the accelerated accretion schedule of acquired deposits. For the third quarter of 2025, net interest income was $18.3 million, a decrease of $253 thousand from $18.5 million in the second quarter of 2025 due to decreases in net accretion income combined with a $11.8 million increase in average interest-bearing liabilities.
ALLOWANCE AND PROVISION FOR CREDIT LOSSES
The Company recorded a $193 thousand provision for credit losses in the third quarter of 2025, compared to a $911 thousand provision for credit losses for the second quarter of 2025. The third quarter provision was comprised of a $200 thousand provision for credit losses on loans, an $8 thousand provision for credit losses on unfunded commitments and a $15 thousand recovery of credit losses on held-to-maturity securities. Net charge-offs totaled $939 thousand in the third quarter of 2025, compared to $448 thousand in the second quarter of 2025, and $1.6 million in the third quarter of 2024.
The allowance for credit losses on loans totaled $14.4 million, or 1.01% of total loans on September 30, 2025, compared to $15.2 million, or 1.05% of total loans on June 30, 2025, and $12.7 million, or 1.28% of total loans on September 30, 2024. The decrease in allowance for credit losses from the prior period is primarily due to declines in specific reserves on individually analyzed loans. The individually analyzed loans charged off during the third quarter were significantly reserved for in previous periods. The allowance for credit losses to NPA coverage increased to 253% on September 30, 2025, compared to 223% on June 30, 2025, and to 212% on September 30, 2024.
NONINTEREST INCOME AND EXPENSE
Non-interest income increased $611 thousand to $4.5 million for the third quarter of 2025 from $3.9 million in the prior quarter. Non-interest income increased 7.9% in the third quarter primarily due to increases in ATM and check card income, fees for other customer services, and bargain purchase gains. As a result of the Touchstone acquisition, a preliminary bargain purchase gain was recorded; however, additional adjustments can be made during the measurement period that could result in changes to the associated gain recorded. The $304 thousand bargain purchase gain resulted from a higher-than-expected tax refund related to the final Touchstone tax filing.
Adjusted noninterest income (1), which excludes bargain purchase gain ($304 thousand in the third quarter of 2025 and $0 in the second quarter of 2025), increased $307 thousand to $4.2 million for the third quarter of 2025 from $3.9 million in the prior quarter, due to increases in ATM and check card income and fees for other customer services.
Noninterest expense increased $592 thousand to $15.8 million for the third quarter of 2025 from $15.2 million in the prior quarter, primarily driven by a $454 thousand increase in salaries and employee benefit expenses, a $84 thousand increase in other operating expenses, and an $81 thousand increase in occupancy expense. Employee benefit expense increased due to additional stock compensation and health insurance expenses and occupancy expense increased due to increases in lease expense. The company is in the process of closing several non-branch leased facilities acquired in the Touchstone merger in the next year to reduce occupancy expense.
Adjusted operating noninterest expense (1), which excludes merger-related costs ($0 in the third quarter of 2025 and $92 thousand in the second quarter of 2025) and amortization of intangible assets ($442 thousand in the third quarter of 2025 and $441 thousand in the second quarter of 2025), increased $683 thousand to $15.3 million for the third quarter of 2025 from $14.7 million in the prior quarter, due to increases in salary and employee benefits expense, occupancy expense, and other operating expense.
BALANCE SHEET
On September 30, 2025, total assets were $2.031 billion, a decrease of $10.7 million or 0.5% from June 30, 2025, and an increase of $580.0 million or 40.0% from September 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), due to the Touchstone acquisition.
On September 30, 2025, LHFI net of allowance totaled $1.419 billion, a decrease of $9.5 million or 0.7% from $1.428 billion on June 30, 2025, and an increase of $436.7 million or 44.5% from September 30, 2024. LHFI was consistent with the prior quarter and increased from the prior year primarily due to the Touchstone acquisition. Higher than average loan payoffs offset loan production in the third quarter.
On September 30, 2025, total debt security investments were $305.5 million, an increase of $5.9 million or 2.0% from June 30, 2025, and an increase of $36.0 million or 13.3% from September 30, 2024. Available for sale ("AFS") securities totaled $196.5 million on September 30, 2025, and $187.6 million on June 30, 2025, and $146.0 million on September 30, 2024. The increases compared to the prior quarter was driven by securities purchases and a $3.5 million improvement in unrealized losses. Total net unrealized losses on the AFS securities portfolio were $15.4 million on September 30, 2025, compared to $18.9 million on June 30, 2025, and $17.2 million on September 30, 2024. Held to maturity securities are carried at amortized cost and totaled $104.6 million on September 30, 2025, $106.4 million on June 30, 2025, and $121.4 million on September 30, 2024.
On September 30, 2025, total deposits were $1.810 billion, an increase of $6.4 million or 0.4% from the prior quarter, and an increase of $556.3 million or 44.4% from September 30, 2024. The increases in deposit balances from the prior quarter is primarily due to an increase in interest-bearing demand deposits and the increase from prior year is primarily due to the addition of the Touchstone acquired deposits.
There were no other borrowings on September 30, 2025, compared to $25.0 million in other borrowings with the Federal Home Loan Bank on June 30, 2025. Other borrowings totaled $50.0 million on September 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, and available lines of credit totaled $676.1 million on September 30, 2025, $633.7 million on June 30, 2025, and $499.1 million on September 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 $555.0 million on September 30, 2025, $545.7 million on June 30, 2025, and $400.1 million on September 30, 2024. Excluding municipal deposits that have collateral pledged, the estimated amount of uninsured customer deposits totaled $473.4 million on September 30, 2025, $451.9 million on June 30, 2025, and $322.6 million on September 30, 2024.
ASSET QUALITY
Overall non-performing assets improved over the previous period and previous year as previously reserved loans were charged off in the third quarter of 2025. Management classifies NPAs as non-accrual loans and other real estate owned ("OREO"). NPAs as a percentage of total assets declined to 0.28% on September 30, 2025, compared to 0.33% on June 30, 2025, and down from 0.41% on September 30, 2024. NPAs decreased by $1.1 million to $5.7 million on September 30, 2025, compared to $6.8 million on June 30, 2025, and $6.0 million on September 30, 2024.
There were $388 thousand in loans past due over 90 days or more and still accruing interest on September 30, 2025, compared to $0 on June 30, 2025, and $0 on September 30, 2024. Loans past-due 30-89 days and still accruing interest increased to $3.6 million, or 0.25% of total loans on September 30, 2025, compared to $3.2 million, or 0.22% of total loans on June 30, 2025, and $2.4 million, or 0.24%, of total loans on September 30, 2024. The health care provider portfolio continues to decline with $10.6 million in loan balances and $4.4 million in unamortized premiums, with $1.7 million on non-accrual with specific reserves of $1.2 million.
CAPITAL
During the third quarter of 2025, the Company declared and paid cash dividends of $0.155 per common share, compared to $0.155 in the second quarter of 2025 and $0.15 in the third quarter of 2024. Tangible book value per share (1) grew to $18.26 in the third quarter of 2025 from $17.40 per share in the second quarter primarily due to earnings and positive changes in unrealized losses on available for sale securities, less dividends and corporate expenses paid.
The following table provides capital ratios and values for the periods ended:
During the third quarter the Company called $5 million in subordinated debt, at par, that was redeemed on October 1, 2025. On October 2, 2025, the Company called $8 million in subordinated debt, at par, that will be redeemed on November 15, 2025. There is no gain or loss expected with these redemptions. The Company believes that these capital redemptions will have minimal impact on our total risk-based capital ratio while improving our profitability in future periods.
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 consumer and business mobile banking platforms, 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 Roanoke Valley, the Richmond MSA, the south-central regions of Virginia, 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,” "will," "continue," 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
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(1) Non-GAAP financial measure. See “Non-GAAP Financial Measures” and “Non-GAAP Reconciliation” tables for additional information and detailed calculations of adjustments.
(2) The Company is a small bank holding company under applicable regulations and guidance and is not subject to the minimum regulatory capital regulations for bank holding companies. The regulatory requirements that apply to bank holding companies that are subject to regulatory capital requirements are presented above, along with the Company's capital ratios as determined under those regulations.
(3) All ratios on September 30, 2025, are estimates and subject to change pending the Bank's filing of its Call Report. All other periods are presented as filed.
(4) Ratios are annualized.
(5) Capital ratios presented are for First Bank.
(6) The tax rate utilized in calculating the tax benefit is 21%.
(7) Yields and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 21%.