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What changed in FIRST NATIONAL CORP /VA/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of FIRST NATIONAL CORP /VA/'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+191 added−236 removedSource: 10-K (2025-03-31) vs 10-K (2024-03-29)

Top changes in FIRST NATIONAL CORP /VA/'s 2024 10-K

191 paragraphs added · 236 removed · 139 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

20 edited+14 added−3 removed94 unchanged
Biggest changeNo material part of the business of the Company is dependent upon a single or a few customers, and the loss of any single customer would not have a materially adverse effect upon the business of the Company. Employees At December 31, 2023, the Bank employed a total of 224 f ull-time equivalent employees.
Biggest changeThis deposit market did not include the Touchstone market area as of June 30, 2024. No material part of the business of the Company is dependent upon a single or a few customers, and the loss of any single customer would not have a materially adverse effect upon the business of the Company.
Item 1. Business General First National Corporation (the Company) is a bank holding company incorporated under Virginia law on September 7, 1983. The Company owns all of the stock of its primary operating subsidiary, First Bank (the Bank), which is a commercial bank chartered under Virginia law. The Company’s subsidiaries are: • First Bank (the Bank).
Item 1. Business General First National Corporation (the Company) is a bank holding company incorporated under Virginia law on September 7, 1983. The Company owns all of the stock of its primary operating subsidiary, First Bank (the Bank), which is a commercial bank chartered under Virginia law. The Company’s subsidiaries are: • First Bank.
These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank met the definition of “well capitalized” as of December 31, 2023. Community Reinvestment Act . The Bank is subject to the requirements of the CRA.
These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank met the definition of “well capitalized” as of December 31, 2024. Community Reinvestment Act . The Bank is subject to the requirements of the CRA.
The Bank owns: • First Bank Financial Services, Inc. • Shen-Valley Land Holdings, LLC • Bank of Fincastle Services, Inc. • ESF, LLC • First National (VA) Statutory Trust II (Trust II) • First National (VA) Statutory Trust III (Trust III and, together with Trust II, the Trusts) First Bank Financial Services, Inc. owns an interest in an entity that provides title insurance services.
The Bank owns: • First Bank Financial Services, Inc. • Shen-Valley Land Holdings, LLC • Bank of Fincastle Services, Inc. • ESF, LLC • McKenney Group, LLC • First National (VA) Statutory Trust II (Trust II) • First National (VA) Statutory Trust III (Trust III and, together with Trust II, the Trusts) First Bank Financial Services, Inc. owns an interest in an entity that provides title insurance services.
Management believes, as of December 31, 2023 and December 31, 2022, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.
Management believes, as of December 31, 2024 and December 31, 2023, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.
The Bank is subject to several federal laws that are designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities (“AML laws”).
The Bank is subject to several federal laws that are designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities (AML laws).
The Bank met the requirements to qualify as "well capitalized" as of December 31, 2023 and December 31, 2022.
The Bank met the requirements to qualify as "well capitalized" as of December 31, 2024 and December 31, 2023.
Products and Services The Bank offers loan, deposit, and wealth management products and services. Loan products and services include consumer loans, residential mortgages, home equity loans, and commercial loans. Deposit products and services include checking accounts, treasury management solutions, savings accounts, money market accounts, certificates of deposit, and individual retirement accounts.
Loan products and services include consumer loans, residential mortgages, home equity loans, and commercial loans. Deposit products and services include checking accounts, treasury management solutions, savings accounts, money market accounts, certificates of deposit, and individual retirement accounts.
The Company’s primary operating subsidiary, First Bank, generally has a strong deposit share of the markets it serves. According to Federal Deposit Insurance Corporation (FDIC) deposit data as of June 30, 2023 , the Bank was ranked third overall in its market area with 11.13% of its total deposit market.
The Company’s primary operating subsidiary, First Bank, generally has a strong deposit share of the markets it serves. According to Federal Deposit Insurance Corporation (FDIC) deposit data as of June 30, 2024 , the Bank was ranked second overall in its market area with 11.37% of its total deposit market.
The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities and are not included in the Company’s consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities.
McKenney Group, LLC owns an interest in an entity that provides insurance services. The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities, and are not included in the Company’s consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities.
Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer. 9 Table of Contents Anti-Money Laundering Laws and Regulations .
Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.
The following table shows the Bank’s regulatory capital ratios at December 31, 2023: First Bank Total capital to risk-weighted assets 14.05 % Tier 1 capital to risk-weighted assets 12.82 % Common equity Tier 1 capital to risk-weighted assets 12.82 % Tier 1 capital to average assets 9.31 % Capital conservation buffer ratio(1) 6.05 % (1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Bank’s actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital.
The following table shows the Bank’s regulatory capital ratios at December 31, 2024: First Bank Total capital to risk-weighted assets 12.34 % Tier 1 capital to risk-weighted assets 11.19 % Common equity Tier 1 capital to risk-weighted assets 11.19 % Tier 1 capital to average assets 7.95 % Capital conservation buffer ratio(1) 4.34 % (1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Bank’s actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital.
Bank of Fincastle Services, Inc. is no longer an active operating entity. Shen-Valley Land Holdings, LLC and ESF, LLC were formed to hold other real estate owned and future office sites.
Bank of Fincastle Services, Inc. is no longer an active operating entity and was dissolved in March 2025. Shen-Valley Land Holdings, LLC and ESF, LLC were formed to hold other real estate owned and future office sites. ESF, LLC closed in March of 2025 and no material impact to the financials is expected related to the closure.
A change in statutes, regulations or regulatory policies applicable to the Company or the Bank are difficult to predict, and could have a material, adverse effect on the business, financial condition and results of operations of the Company and the Bank. 11 Table of Contents
A change in statutes, regulations or regulatory policies applicable to the Company or the Bank are difficult to predict, and could have a material, adverse effect on the business, financial condition and results of operations of the Company and the Bank. Filings with the SEC The Company’s internet address is www.fbvirginia.com .
Although the Bank has not opted into the CBLR framework, it may opt into the CBLR framework in a future quarterly period. Deposit Insurance. Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (the DIF) of the FDIC and are subject to deposit insurance assessments to maintain the DIF.
Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (the DIF) of the FDIC and are subject to deposit insurance assessments to maintain the DIF.
A copy of any of the Company’s filings will be sent, without charge, to any shareholder upon written request to: M. Shane Bell, Chief Financial Officer, at 112 West King Street, Strasburg, Virginia 22657. The information on the Company's website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.
A copy of any of the Company’s filings will be sent, without charge, to any shareholder upon written request to: Bruce E. Thomas, Interim Chief Financial Officer, at 112 West King Street, Strasburg, Virginia 22657.
The Company considers relations with its employees to be excellent. SUPERVISION AND REGULATION Bank holding companies and banks are extensively and increasingly regulated under both federal and state laws. The following description briefly addresses certain historic and current provisions of federal and state laws and regulations, proposed regulations, and the potential impacts on the Company and the Bank.
The following description briefly addresses certain historic and current provisions of federal and state laws and regulations, proposed regulations, and the potential impacts on the Company and the Bank.
The Bank’s office locations are well-positioned in attractive markets along the Interstate 81, Interstate 66, and Interstate 64 corridors in the Shenandoah Valley, the Roanoke Valley, central regions of Virginia, and the city of Richmond. Within this market area, there are diverse types of industry including medical and professional services, manufacturing, retail, warehousing, Federal government, hospitality, and higher education.
The Bank’s office locations are well-positioned in attractive markets along the Interstate 81, Interstate 66, and Interstate 64 corridors in the Shenandoah Valley, the Roanoke Valley, south-central regions of Virginia, the Richmond MSA, and northern North Carolina.
The Bank’s products and services ar e delivered through 20 bank branch offices, a loan production office and two customer service centers in retirement communities. For the locat ion and general character of each of these offices, see Item 2 of this Form 10-K.
For the locat ion and general character of each of these offices, see Item 2 of this Form 10-K.
The loans are provided through participating financial institutions, including the Bank, that process loan applications and service the loans. Effect of Governmental Monetary Policies The Company’s operations are affected not only by general economic conditions but also by the policies of various regulatory authorities.
At December 31, 2024, the Company had not been made aware of any instances of non-compliance with the guidance. 10 Table of Contents Effect of Governmental Monetary Policies The Company’s operations are affected not only by general economic conditions but also by the policies of various regulatory authorities.
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Access to Filings The Company’s internet address is www.fbvirginia.com .
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On October 1, 2024, the Company completed its merger with Touchstone Bankshares, Inc. (Touchstone), the holding company for Touchstone Bank. With the acquisition of Touchstone, the Company acquired twelve branches in the Richmond metropolitan area and Southern Virginia and two branches in North Carolina.
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At December 31, 2023, the Company had not been made aware of any instances of non-compliance with the guidance. 10 Table of Contents CARES Act. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27, 2020.
Added
Revenue Sources and Expense Factors The primary source of revenue is from net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense and currently represents between 50% and 60% of the Company’s total revenue.
Removed
Among other things, the CARES Act created the Small Business Administration (SBA) Paycheck Protection Program. Under the Paycheck Protection Program, funds were authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt.
Added
Interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets. The Bank’s interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid.
Added
In addition to net interest income, noninterest income is the other source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits, fee income from wealth management services, and ATM and check card fees.
Added
Primary expense categories are salaries and employee benefits, which comprised 47% of noninterest expenses during 2024, followed by merger expenses, which comprised 15% of noninterest expenses. The provision for credit losses is also a primary expense of the Bank.
Added
The provision is determined by factors that include net charge-offs, asset quality, loan growth, evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions, and prepayment experience.
Added
Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company’s control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses. Products and Services The Bank offers loan, deposit, and wealth management products and services.
Added
Within this market area, there are diverse types of industry including medical and professional services, manufacturing, retail, warehousing, Federal government, hospitality, and higher education. The Bank’s products and services ar e delivered through 33 bank branch offices, three loan production offices, and two customer service centers in retirement communities.
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Employees At December 31, 2024, the Bank employed a total of 303 f ull-time equivalent employees. The Company considers relations with its employees to be excellent. SUPERVISION AND REGULATION Bank holding companies and banks are extensively and increasingly regulated under both federal and state laws.
Added
Although the Bank does not meet the criteria for the CBLR framework, it may opt into the CBLR framework in a future quarterly period. Deposit Insurance.
Added
In October 2024, the Consumer Financial Protection Bureau adopted a new rule that requires financial service providers, such as the Bank, to make certain data available to consumers upon request regarding the products or services they obtain from the provider.
Added
The rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products and services.
Added
Compliance is required beginning April 1, 2028 for depository institutions with at least $3 billion in total assets and beginning April 1, 2029 for depository institutions with at least $1.5 billion in total assets. 9 Table of Contents Anti-Money Laundering Laws and Regulations .
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The information on the Company's website is not a part of, and is not incorporated into, this Annual Report on Form 10-K. 11 Table of Contents

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIts policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict.
Biggest changeThose policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans.
In addition, changes in interest rates may negatively affect both the returns on and market value of our investment securities. As we experienced due to rising interest rates in 2022 and 2023, interest rate changes can reduce unrealized gains or increase unrealized losses in our portfolio and thereby negatively impact our accumulated other comprehensive income and equity levels.
In addition, changes in interest rates may negatively affect both the returns on and market value of our investment securities. As we experienced due to rising interest rates in 2023 and 2024, interest rate changes can reduce unrealized gains or increase unrealized losses in our portfolio and thereby negatively impact our accumulated other comprehensive income and equity levels.
Risks Related to Operations and Technology The Company ’ s risk-management framework may not be effective in mitigating risk and loss. The Company maintains an enterprise risk management program that is designed to identify, quantify, monitor, report, and control the risks that it faces. These risks include interest rate, credit, liquidity, operations, reputation, compliance, and litigation.
The Company ’ s risk-management framework may not be effective in mitigating risk and loss. The Company maintains an enterprise risk management program that is designed to identify, quantify, monitor, report, and control the risks that it faces. These risks include interest rate, credit, liquidity, operations, reputation, compliance, and litigation.
During 2022 and 2023, revenues from mortgage banking decreased significantly, primarily due to lower mortgage volumes as market interest rates increased and the demand for mortgages declined. Loan production levels may continue to suffer if there is a sustained slowdown in the housing markets in which the Company conducts business or tightening credit conditions.
During 2023 and 2024, revenues from mortgage banking decreased significantly from historical levels, primarily due to lower mortgage volumes as market interest rates increased and the demand for mortgages declined. Loan production levels may continue to suffer if there is a sustained slowdown in the housing markets in which the Company conducts business or tightening credit conditions.
Further, the growth in economic activity and in the demand for goods and services, coupled with labor shortages, supply chain disruptions and other factors, has contributed to rising inflationary pressures, the Federal Reserve’s responsive interest rate hikes, and the risk of recession.
T he growth in economic activity and in the demand for goods and services, coupled with labor shortages, supply chain disruptions and other factors, has contributed to rising inflationary pressures, the Federal Reserve’s responsive interest rate hikes, and the risk of recession.
A deterioration in economic conditions, in particular a prolonged economic slowdown within our geographic region or a broader disruption in the economy, including as a result of a pandemic or other widespread public health emergency, could result in the following consequences, any of which could hurt our business materia lly: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decline in demand for our products and services; a deterioration in the value of collateral for loans made by our various business segments; and changes in the fair value of financial instruments held by the Company or its subsidiaries.
A deterioration in economic conditions, in particular a prolonged economic slowdown within our geographic region or a broader disruption in the economy could result in the following consequences, any of which could hurt our business materia lly: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decline in demand for our products and services; a deterioration in the value of collateral for loans made by our various business segments; and changes in the fair value of financial instruments held by the Company or its subsidiaries.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (ESG) practices may impose additional costs on the Company or expose it to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (ESG) practices may impose additional costs on the Company or expose it to new or additional risks.
The Company is not restricted from issuing additional authorized shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of common stock.
Future issuances of the Company ’ s common stock could adversely affect the market price of the common stock and could be dilutive. The Company is not restricted from issuing additional authorized shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of common stock.
This could adversely affect the borrower’s earnings and ability to repay a loan, which could have a material adverse effect on our financial condition and results of operations.
For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower's products and services. This could adversely affect the borrower’s earnings and ability to repay a loan, which could have a material adverse effect on our financial condition and results of operations.
The federal banking agencies have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks’ risk management practices.
Federal and state legislatures and regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. The federal banking agencies have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks’ risk management practices.
In addition, the Company’s results of operations could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies. 19 Table of Contents The CFPB may increase our regulatory compliance burden and could affect the consumer financial products and services that we offer.
In addition, the Company’s results of operations could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies. 19 Table of Contents Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.
We provide full-service banking and other financial services throughout the Company’s market areas, which include the Shenandoah Valley, Roanoke Valley, Richmond, and central regions of Virginia. Our loan and deposit activities are directly affected by, and our financial success depends on, economic conditions within these markets, as well as conditions in the industries on which those markets are economically dependent.
Our loan and deposit activities are directly affected by, and our financial success depends on, economic conditions within these markets, as well as conditions in the industries on which those markets are economically dependent.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and the Company’s stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Further, failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards or to act responsibly in these areas could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company ’ s business. The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased.
Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies. The policies of the Federal Reserve affect us significantly. The Federal Reserve regulates the supply of money and credit in the United States.
The policies of the Federal Reserve affect us significantly. The Federal Reserve regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold.
Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues. Increased ESG related compliance costs could result in increases to the Company’s overall operational costs.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosures, especially as they relate to climate risk, hiring practices, the diversity of the work force, racial and social justice issues, support for local communities, and corporate governance and transparency.
Removed
Although the domestic and global economies have largely recovered from the COVID-19 pandemic, certain consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time. For example, the COVID-19 pandemic could have long-lasting impacts on certain industries due to changes in consumer behavior and business practices, including remote work and business travel.
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We provide full-service banking and other financial services throughout the Company’s market areas, which include the Shenandoah Valley, Roanoke Valley, Richmond, south-central regions of Virginia, and northern North Carolina.
Removed
Among significant regulatory changes, the Dodd-Frank Act created a new financial consumer protection agency, the CFPB. The CFPB is reshaping the consumer financial laws through rulemaking and enforcement of the Dodd-Frank Act’s prohibitions against unfair, deceptive and abusive consumer finance products or practices, which are directly affecting the business operations of financial institutions offering consumer financial products or services.
Added
Risks Related to Operations and Technology Combining the Company and Touchstone may be more difficult, costly or time consuming than we expect.
Removed
This agency’s broad rulemaking authority includes identifying practices or acts that are unfair, deceptive or abusive in connection with any consumer financial transaction, financial product or service.
Added
The success of the Company’s acquisition of Touchstone, which closed on October 1, 2024, will depend, in part, on the Company’s ability to realize the anticipated benefits and cost savings from combining the business of Touchstone into the business of the Company without material disruptions to the Company’s business or other unintended consequences that could have a material adverse effect on the Company’s results of operations or financial condition after the merger.
Removed
Although the CFPB has jurisdiction over banks with $10 billion or greater in assets, rules, regulations and policies issued by the CFPB may also apply to the Company or its subsidiaries by virtue of the adoption of such policies and best practices by the Federal Reserve and the FDIC.
Added
Among other things, the combination of Touchstone’s business into the Company’s could result in the disruption of ongoing business, inconsistencies in standards, controls, procedures, and policies that affect adversely the Company’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the merger.
Removed
Further, the CFPB may include its own examiners in regulatory examinations by the Company’s primary regulators. The total costs and limitations related to this additional regulatory agency and the limitations and restrictions that will be placed upon the Company with respect to its consumer product and service offerings have yet to be determined in their entirety.
Added
In addition, the success of the merger will depend on the Company’s ability to retain the deposits and customers of Touchstone and the Bank, control the incremental increase in noninterest expense arising from the merger and retain and integrate the appropriate personnel of Touchstone into the operations of the Bank, and reduce overlapping bank personnel.
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However, these costs, limitations and restrictions may produce significant, material effects on our business, financial condition and results of operations. The CFPB has recently pursued a more aggressive enforcement policy with respect to a range of regulatory compliance matters, specifically including fair lending, loan servicing, financial institution sales and marketing practices, and financial institution consumer fee and account management practices.
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If the Company is not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully, or at all, or may take longer to realize than expected, and the Company could experience an adverse effect on its revenues, expenses and operating results.
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For example, in 2023, the CFPB brought enforcement actions against a number of financial institutions for overdraft practices that the CFPB alleged to be unlawful and ordered each of these institutions to pay a substantial civil money penalty in addition to customer restitution.
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The Company expects that the Trump administration will seek to implement a regulatory agenda that is significantly different than that of the Biden administration, impacting the rulemaking, supervision, examination, and enforcement priorities of the federal banking agencies.
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Despite our ongoing compliance efforts, we may become subject to regulatory enforcement actions with respect to our programs and practices. The costs and limitations related to this additional regulatory scrutiny with respect to consumer product offerings and services may adversely affect the Company’s profitability.
Added
At this time, it is unclear what laws, regulations, and policies may change and whether future changes or uncertainty surrounding future changes will adversely affect the Company’s operating environment and therefore its business, financial condition, and results of operations.
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Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower's products and services.
Added
New rules and regulations also could result in new or more stringent forms of ESG oversight and reporting, diligence, and disclosure. Complying with ESG-related rules, regulations and/or stakeholder expectations could result in increases to the Company’s overall operational costs and increased management time and attention.
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As a result, political and social attention to the issue of climate change has increased. Federal and state legislatures and regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change.
Added
Conversely, if efforts around diversity and inclusion and other ESG-related areas are perceived as too ambitious, the Company may be subject to investigations, litigation and other proceedings and its reputation may be damaged.
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There is a limited trading market for the Company ’ s common stock; it may be difficult to sell shares. The trading volume in the Company’s common stock has been relatively limited.
Added
Adverse incidents could impact the value of the Company’s brand, the cost of its operations and/or relationships with customers, investors or employees, any of which could adversely affect its business and results. Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company ’ s business.
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Even if a more active market develops, there can be no assurance that a more active and liquid trading market for the common stock will exist in the future. Consequently, shareholders may not be able to sell a substantial number of shares for the same price at which shareholders could sell a smaller number of shares.
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In addition, the Company cannot predict the effect, if any, that future sales of its common stock in the market, or the availability of shares of common stock for sale in the market, will have on the market price of the common stock.
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Sales of substantial amounts of common stock in the market, or the potential for large amounts of sales in the market, could cause the price of the Company’s common stock to decline, or reduce the Company’s ability to raise capital through future sales of common stock.
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The lack of liquidity of the investment in the common shares should be carefully considered when making an investment decision. Future issuances of the Company ’ s common stock could adversely affect the market price of the common stock and could be dilutive.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

1 edited+0 added−0 removed17 unchanged
Biggest changeThe objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse our systems or information. The structure of our information security program is designed around the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework, regulatory guidance, and other industry standards.
Biggest changeThe objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse our systems or information. The structure of our information security program is designed around the National Institute of Standards and Technology (NIST) Cybersecurity Framework, regulatory guidance, and other industry standards.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed2 unchanged
Biggest changeAt December 31, 2023, the Ban k operated 20 branches throughout the Shenandoah Valley, central regions of Virginia, and the Richmond and Roanoke market areas. The Bank also operates a loan production office and two customer service centers in retirement communities. The Company’s operations center is in Strasburg, Virginia.
Biggest changeAt December 31, 2024, the Ban k operated 33 branches throughout the Shenandoah Valley, south-central regions of Virginia, the Richmond and Roanoke market areas, and northern North Carolina. The Bank also operates three loan production offices and two customer service centers in retirement communities. The Company’s operations center is in Strasburg, Virginia.
See Note 1, “Nature of Banking Activities and Significant Accounting Policies,” Note 6, “Premises and Equipment,” and Note 17, "Lease Commitments," in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K for information with respect to the amounts at which Bank premises and equipment are carried and commitments under long-term leases.
See Note 1, “Nature of Banking Activities and Significant Accounting Policies,” Note 7, “Premises and Equipment,” and Note 18, "Lease Commitments," in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K for information with respect to the amounts at which Bank premises and equipment are carried and commitments under long-term leases. 23 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

1 edited+1 added−3 removed1 unchanged
Biggest changeMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders Shares of the common stock of the Company are traded on the Nasdaq Capital Market stock exchange under the symbo l “FXNC.” As of March 19, 2024 the Company had 802 shareholders of record and approximately 1,143 beneficial owners of shares of common stock.
Biggest changeMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders Shares of the common stock of the Company are traded on the Nasdaq Capital Market stock exchange under the symbol “FXNC.” As of March 21, 2025 the Company had 1,406 shareholders of record and approximately 1,600 beneficial owners of shares of common stock.
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Issuer Purchases of Equity Securities During the fourth quarter of 2022, the Board of Directors of the Company authorized a stock repurchase plan pursuant to which the Company could have repurchased up to $5.0 million of its outstanding common stock. Repurchases under the plan were made during 2023 through open market transactions in accordance with SEC rules.
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Issuer Purchases of Equity Securities There was no authorized repurchase plan and related repurchase of common stock during 2024. 24 Table of Contents Item 6. [Reserved]
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The Company's Board of Directors authorized the purchase plan through December 31, 2023, unless the entire amount authorized to be repurchased had been acquired before that date. The Company repurchased 37,532 shares of common stock under the purchase plan at a weighted average price of $15.14 during 2023.
Removed
There were no repurchases of common stock during the fourth quarter of 2023. 24 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

99 edited+26 added−76 removed74 unchanged
Biggest changeAverage Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis) Years Ending December 31, 2023 2022 Average Balance Interest Income/Expense Yield/Rate Average Balance Interest Income/Expense Yield/Rate Assets Interest-bearing deposits in other banks $ 36,050 $ 1,809 5.02 % $ 107,530 $ 1,223 1.14 % Securities: Taxable 252,470 5,286 2.09 % 284,380 5,131 1.80 % Tax-exempt (1) 53,524 1,545 2.89 % 65,836 1,555 2.36 % Restricted 1,923 111 5.79 % 1,887 92 4.87 % Total securities 307,917 6,942 2.25 % 352,103 6,778 1.93 % Loans: (2) Taxable 937,013 49,293 5.26 % 872,440 41,700 4.78 % Tax-exempt (1) — — 0.00 % 548 25 4.49 % Total loans 937,013 49,293 5.26 % 872,988 41,725 4.78 % Federal funds sold — — 0.00 % 1 — 2.25 % Total earning assets 1,280,980 58,044 4.53 % 1,332,622 49,726 3.73 % Less: allowance for credit losses on loans (8,994 ) (6,013 ) Total nonearning assets 91,353 82,101 Total assets $ 1,363,339 $ 1,408,710 Liabilities and Shareholders’ Equity Interest-bearing deposits: Checking $ 269,551 $ 4,538 1.68 % $ 295,530 $ 1,394 0.47 % Money market accounts 219,655 4,882 2.22 % 218,783 930 0.43 % Savings accounts 173,075 211 0.12 % 205,532 173 0.08 % Certificates of deposit: Less than $100 84,387 1,641 1.94 % 74,616 345 0.46 % Greater than $100 82,184 2,275 2.77 % 62,036 428 0.69 % Brokered deposits 3,061 113 3.70 % 556 3 0.57 % Total interest-bearing deposits 831,913 13,660 1.64 % 857,053 3,273 0.38 % Federal funds purchased 15 1 5.90 % 1 — 2.27 % Subordinated debt 4,997 277 5.54 % 5,379 277 5.15 % Junior subordinated debt 9,279 271 2.92 % 9,279 270 2.91 % Other borrowings 1,973 97 4.90 % — — 0.00 % Total interest-bearing liabilities 848,177 14,306 1.69 % 871,712 3,820 0.44 % Noninterest-bearing liabilities Demand deposits 397,932 426,823 Other liabilities 5,147 4,306 Total liabilities 1,251,256 1,302,841 Shareholders’ equity 112,083 105,869 Total liabilities and shareholders’ equity $ 1,363,339 $ 1,408,710 Net interest income $ 43,738 $ 45,906 Interest rate spread 2.84 % 3.29 % Cost of funds 1.15 % 0.29 % Interest expense as a percent of average earning assets 1.12 % 0.29 % Net interest margin 3.41 % 3.44 % (1) Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 21%.
Biggest changeAverage Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis) Years Ending December 31, 2024 2023 Average Balance Interest Income/Expense Yield/Rate Average Balance Interest Income/Expense Yield/Rate Assets Interest-bearing deposits in other banks $ 124,407 $ 6,490 5.22 % $ 36,050 $ 1,809 5.02 % Securities: Taxable 221,611 4,733 2.14 % 252,470 5,286 2.09 % Tax-exempt (1) 53,289 1,547 2.90 % 53,524 1,545 2.89 % Restricted 2,522 202 8.01 % 1,923 111 5.79 % Total securities 277,422 6,482 2.34 % 307,917 6,942 2.25 % Loans: (2) Taxable 1,096,312 63,320 5.78 % 937,013 49,293 5.26 % Tax-exempt (1) 2,561 206 8.04 % — — 0.00 % Total loans 1,098,873 63,526 5.78 % 937,013 49,293 5.26 % Federal funds sold 4,244 189 4.44 % — — 0.00 % Total earning assets 1,504,946 76,687 5.10 % 1,280,980 58,044 4.53 % Less: allowance for credit losses on loans (13,381 ) (8,994 ) Total nonearning assets 105,585 91,353 Total assets $ 1,597,150 $ 1,363,339 Liabilities and Shareholders’ Equity Interest-bearing deposits: Checking $ 278,558 $ 4,870 1.75 % $ 269,551 $ 4,538 1.68 % Money market accounts 294,818 8,265 2.80 % 219,655 4,882 2.22 % Savings accounts 160,795 292 0.18 % 173,075 211 0.12 % Certificates of deposit: Less than $250 187,664 5,656 3.01 % 84,387 1,641 1.94 % Greater than $250 46,846 1,668 3.56 % 82,184 2,275 2.77 % Brokered deposits 5,080 213 4.20 % 3,061 113 3.70 % Total interest-bearing deposits 973,761 20,964 2.15 % 831,913 13,660 1.64 % Federal funds purchased 2 — 5.24 % 15 1 5.90 % Subordinated debt 8,889 603 6.78 % 4,997 277 5.54 % Junior subordinated debt 9,279 270 2.91 % 9,279 271 2.92 % Other borrowings 42,486 2,029 4.78 % 1,973 97 4.90 % Total interest-bearing liabilities 1,034,417 23,866 2.31 % 848,177 14,306 1.69 % Noninterest-bearing liabilities Demand deposits 422,981 397,932 Other liabilities 9,037 5,147 Total liabilities 1,466,435 1,251,256 Shareholders’ equity 130,715 112,083 Total liabilities and shareholders’ equity $ 1,597,150 $ 1,363,339 Net interest income $ 52,821 $ 43,738 Interest rate spread 2.79 % 2.84 % Cost of funds 1.64 % 1.15 % Interest expense as a percent of average earning assets 1.59 % 1.12 % Net interest margin 3.51 % 3.41 % (1) Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 21%.
The Company recorded an allowance for credit losses on held-to-maturity securities of $132 thousand upon adoption of ASC 326. Allowance for Credit Losses – Available-for-Sale Securities Management evaluates all available-for-sale securities in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation.
The Company recorded an allowance for credit losses on held-to-maturity securities of $132 thousand upon adoption of ASC 326. Management evaluates all available-for-sale securities in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation.
As a provider of community-oriented financial services, the Bank does not attempt to further geographically diversify its loan portfolio by undertaking significant lending activity outside its market areas. The Bank actively participated as a lender in the U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP) to support local small businesses and non-profit organizations by providing forgivable loans.
As a provider of community-oriented financial services, the Bank does not typically attempt to further geographically diversify its loan portfolio by undertaking significant lending activity outside its market areas. The Bank actively participated as a lender in the U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP) to support local small businesses and non-profit organizations by providing forgivable loans.
For a more detailed discussion of the Company's annual performance, see "Net Interest Income,” “Provision for Credit Losses,” "Noninterest Income," "Noninterest Expense" and "Income Taxes" below. 27 Table of Contents Non-GAAP Financial Measures This report refers to the efficiency ratio, which is computed by dividing noninterest expense, excluding OREO expense, amortization of intangibles, and merger expenses, by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding (gains)/losses on disposal of premises and equipment, and securities gains.
For a more detailed discussion of the Company's annual performance, see "Net Interest Income,” “Provision for Credit Losses,” "Noninterest Income," "Noninterest Expense" and "Income Taxes" below. 28 Table of Contents Non-GAAP Financial Measures This report refers to the efficiency ratio, which is computed by dividing noninterest expense, excluding OREO expense, amortization of intangibles, and merger expenses, by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding (gains)/losses on disposal of premises and equipment, and securities gains.
The Bank met the requirements to qualify as "well capitalized" as of December 31, 2023 and 2022 . On September 17, 2019 the FDIC finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the Economic Growth Act.
The Bank met the requirements to qualify as "well capitalized" as of December 31, 2024 and 2023 . On September 17, 2019 the FDIC finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the Economic Growth Act.
For further information about the Company’s loans and the ACLL, see Notes 1, 3, and 4 to the Consolidated Financial Statements included in this Form 10-K. The ACLL is evaluated on a quarterly basis by management and is based on a discounted cash flow model to estimate its current expected credit losses.
For further information about the Company’s loans and the ACLL, see Notes 1, 4, and 5 to the Consolidated Financial Statements included in this Form 10-K. The ACLL is evaluated on a quarterly basis by management and is based on a discounted cash flow model to estimate its current expected credit losses.
The increase in the cost of deposits was impacted by a change in the composition of the deposit portfolio as lower cost deposit balances decreased, while higher cost deposit balances increased.
The increase in the cost of deposits was also impacted by a change in the composition of the deposit portfolio as lower cost deposit balances decreased, while higher cost deposit balances increased.
Management’s Discussion and Analysis of Financial Condition and Results of Operation The following discussion and analysis of the financial condition and results of operations of the Company for the years ended December 31, 2023 and 2022 should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements included in Item 8 of this Form 10-K.
Management’s Discussion and Analysis of Financial Condition and Results of Operation The following discussion and analysis of the financial condition and results of operations of the Company for the years ended December 31, 2024 and 2023 should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements included in Item 8 of this Form 10-K.
Within the quantitative portion of the calculation, the Company utilizes at least one or a combination of loss drivers, which may include unemployment rates, home price indices, and/or gross domestic product (“GDP”), to adjust its loss rates over a reasonable and supportable forecast period of one year.
Within the quantitative portion of the calculation, the Company utilizes at least one or a combination of loss drivers, which may include unemployment rates, home price indices, and/or gross domestic product (GDP), to adjust its loss rates over a reasonable and supportable forecast period of one year.
Th ere can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers.
There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers.
Junior Subordinated Debt See Note 10 to the Consolidated Financial Statements included in this Form 10-K, for discussion of junior subordinated debt. 41 Table of Contents Off-Balance Sheet Arrangements The Company, through the Bank, is a party to credit related financial instruments with risk not reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers.
Junior Subordinated Debt See Note 11 to the Consolidated Financial Statements included in this Form 10-K, for discussion of junior subordinated debt. 38 Table of Contents Off-Balance Sheet Arrangements The Company, through the Bank, is a party to credit related financial instruments with risk not reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers.
The tax rate utilized in calculating the tax benefit for both 2023 and 2022 is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (in thousands).
The tax rate utilized in calculating the tax benefit for both 2024 and 2023 is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (in thousands).
The Company’s cash flow hedges effectively modify the Company’s exposure to interest rate risk by converting variable rates of interest on $9.0 million of the Company’s junior subordinated debt to fixed rates of interest for periods that end between June 2034 and October 2036. The cash flow hedges’ total notional amount is $9.0 million.
The Company’s cash flow hedges effectively modify the Company’s exposure to interest rate risk by converting variable rates of interest on $9.0 million of the Company’s junior subordinated debt to fixed rates of interest for periods that end between June 2034 and October 2036. The cash flow hedges’ total notional am ount is $9.0 million.
The unrealized loss is being amortized monthly over the life of the securities with an increase to the carrying value of securities and a decrease to the related accumulated other comprehensive loss, which is included in the shareholders’ equity section of the Company’s balance sheet.
The unrealized loss is being amortized monthly over the life of the securities with an increase to the carrying value of securities and a decrease to the related accumulated other comprehensive loss, wh ich is included in the shareholders’ equity section of the Company’s balance sheet.
Loan fees received from the SBA are accreted by the Bank into income evenly over the life of the loans, net of loan origination costs, through interest and fees on loans. PPP loans totaled $128 thousand and $350 thousand at December 31, 2023 and 2022, respectively; with $128 thousand scheduled to mature in the first and second quarters of 2026.
Loan fees received from the SBA are accreted by the Bank into income evenly over the life of the loans, net of loan origination costs, through interest and fees on loans. PPP loans totaled $66 thousand and $128 thousand at December 31, 2024 and 2023, respectively; with $66 thousand scheduled to mature in the first and second quarters of 2026.
There was no allowance for credit losses on held to maturity securities at December 31, 2022. On September 1, 2022, the Bank transferred 24 securities designated as available for sale with a combined book value of $82.2 million, market value of $74.4 million, and unrealized loss of $7.8 million, to securities designated held to maturity.
There was a $107 thousand allowance for credit losses on held to maturity securities at December 31, 2023 . On September 1, 2022, the Bank transferred 24 securities designated as available for sale with a combined book value of $82.2 million, market value of $74.4 million, and unrealized loss of $7.8 million, to securities designated held to maturity.
Securities designated as held to maturity are carried on the balance sheet at amortized cost, while securities designated as available for sale are carried at fair market value. 39 Table of Contents The following table shows the maturities of debt and restricted securities at amortized cost and market value at December 31, 2023 and approximate weighted average yields of such securities (dollars in thousands).
Securities designated as held to maturity are carried on the balance sheet at amortized cost, while securities designated as available for sale are carried at fair market value. 36 Table of Contents The following table shows the maturities of debt and restricted securities at amortized cost and market value at December 31, 2024 and approximate weighted average yields of such securities (dollars in thousands).
At December 31, 2023, the cash flow hedges had a fair value of $2.5 million, which is recorded in other assets. The net gain/loss on the cash flow hedges is recognized as a component of other comprehensive income and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings.
At December 31, 2024, the cash flow hedges had a fair value of $2.7 million, which is recorded in other assets. The net gain/loss on the cash flow hedges is recognized as a component of other comprehensive income and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings.
For further information on securities, see Note 2 to the Consolidated Financial Statements included in this Form 10-K. Securities Portfolio Maturity Distribution/Yield Analysis At December 31, 2023 Less than One Year One to Five Years Five to Ten Years Greater than Ten Years and Equity Securities Total U.S.
For further information on securities, see Note 3 to the Consolidated Financial Statements included in this Form 10-K. Securities Portfolio Maturity Distribution/Yield Analysis At December 31, 2024 Less than One Year One to Five Years Five to Ten Years Greater than Ten Years and Equity Securities Total U.S.
The Company’s derivative financial instruments are described more fully in Note 24 to the Consolidated Financial Statements included in this Form 10-K.
The Company’s derivative financial instruments are described more fully in Note 25 to the Consolidated Financial Statements included in this Form 10-K.
Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project. • Other real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project. • Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business.
Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project. ● Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business.
At December 31, 2023, t he Bank had $1.2 million in locked-rate commitments to originate mortgage loans. Risks arise from the possible inability of counterparties to meet the terms of their contracts. The Bank does not expect any counterparty to fail to meet its obligations.
At December 31, 2024, t he Bank had $2.3 million in locked-rate commitments to originate mortgage loans. Risks arise from the possible inability of counterparties to meet the terms of their contracts. The Bank does not expect any counterparty to fail to meet its obligations.
Management believes, as of December 31, 2023 and December 31, 2022, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer. 42 Table of Contents The following table summarizes the Bank’s regulatory capital and related ratios at December 31, 2023, and 2022 (dollars in thousands).
Management believes, as of December 31, 2024 and December 31, 2023, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer. 39 Table of Contents The following table summarizes the Bank’s regulatory capital and related ratios at December 31, 2024, and 2023 (dollars in thousands).
The provision for credit losses is based upon management’s current estimate of the amount required to maintain an adequate ACLL reflective of the risks in the loan portfolio. The allowance for credit losses on loans totaled $12.0 million at December 31, 2023 and $7.4 million at December 31, 2022 , representing 1.24% and 0.81% of total loans, respective ly.
The provision for credit losses is based upon management’s current estimate of the amount required to maintain an adequate ACLL reflective of the risks in the loan portfolio. The allowance for credit losses on loans totaled $16.4 million at December 31, 2024 and $12.0 million at December 31, 2023 , representing 1.12% and 1.24% of total loans, respective ly.
OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through brokerage channels. The Bank had $0 and $184 thousand in assets classified as OREO at December 31, 2023 and 2022, respectively.
OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through brokerage channels. The Bank had $53 thousand and $0 in assets classified as OREO at December 31, 2024 and 2023, respectively.
Other loans included in this category include loans to states and political subdivisions. 29 Table of Contents The ACLL consists of loans individually evaluated and loans collectively evaluated. Lo ans that do not share risk characteristics are evaluated on an individual basis.
Other loans included in this category include loans to states and political subdivisions. 25 Table of Contents The ACLL consists of loans individually evaluated and loans collectively evaluated. Loans that do not share risk characteristics are evaluated on an individual basis.
The Company evaluated securities available for sale in an unrealized loss position for credit related impairment and determined that no allowance for credit losses was necessary at December 31, 2023 and 2022 . At December 31, 2023 , the allowance for credit losses on held to maturity securities was $107 thousand.
The Company evaluated securities available for sale in an unrealized loss position for credit related impairment and determined that no allowance for credit losses was necessary at December 31, 2024 and 2023 . At December 31, 2024 , the allowance for credit losses on held to maturity securities was $95 thousand.
The net interest margin was 3.41% for the year ended December 31, 2023 compared to the 3.44% for the prior year as the increase in the cost of funds exceeded the increase in yield on earning assets during 2023.
The net interest margin was 3.51% for the year ended December 31, 2024, compared to the 3.41% for the prior year as the increase in the yield on earning assets exceeded the increase in cost of funds during 2024.
For further information regarding the ACLL, see Notes 1 and 4 to the Consolidated Financial Statements included in this Form 10-K. Allowance for Credit Losses – Held-to-Maturity Securities The Company estimates expected credit losses on held-to-maturity securities on an individual basis based on a Probability of Default/Loss Given Default (“PD/LGD”) methodology primarily using security-level credit ratings.
For further information regarding the ACLL, see Notes 1 and 5 to the Consolidated Financial Statements included in this Form 10-K. The Company estimates expected credit losses on held-to-maturity securities on an individual basis based on a Probability of Default/Loss Given Default (PD/LGD) methodology primarily using security-level credit ratings.
Other potential problem loans totaled $287 thousand and $2.3 million at December 31, 2023 and December 31, 2022 , respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers’ ability to meet their debt requirements.
Other potential problem loans totaled $9.1 million and $287 thousand at December 31, 2024 and December 31, 2023 , respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers’ ability to meet their debt requirements.
Specific reserves on the individually evaluated loans were included in the Company’s allowance for credit losses on loans. The remaining $22.1 million of loans were considered performing and were included in the calculation of the general reserve c omponent of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method.
Specific reserves on the individually evaluated loans were included in the Company’s allowance for credit losses on loans. The remaining $16.4 million of loans were considered performing and were included in the calculation of the collectively evaluated reserve c omponent of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method.
The Bank maintains liquidity to fund loan growth and meet the potential demand from its deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $368.2 million on December 31, 2023 , and $261.7 million on December 31, 2022.
The Bank maintains liquidity to fund loan growth and meet the potential demand from its deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $537.0 million on December 31, 2024 , and $368.2 million on December 31, 2023.
Available lines of credit from other institutions included in the total amount above was $351.4 million on December 31, 2023 , and $287.3 million on December 31, 2022. The available lines of credit were comprised of secured and unsecured lines of credit and the Bank had no borrowings on the lines as of December 31, 2023 and December 31, 2022.
Available lines of credit from other institutions included in the total amount above was $562.5 million on December 31, 2024 , and $351.4 million on December 31, 2023. The available lines of credit were comprised of secured and unsecured lines of credit and the Bank had no borrowings on the lines as of December 31, 2024 and December 31, 2023.
Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $286.2 million on December 31, 2023 , and $185.3 million on December 31, 2022. Subordinated Debt See Note 9 to the Consolidated Financial Statements included in this Form 10-K, for discussion of subordinated debt.
Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $319.1 million on December 31, 2024 , and $286.2 million on December 31, 2023. Subordinated Debt See Note 10 to the Consolidated Financial Statements included in this Form 10-K, for discussion of subordinated debt.
At December 31, 2023 and 2022, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands): 2023 2022 Commitments to extend credit and unfunded commitments under lines of credit $ 194,242 $ 158,297 Stand-by letters of credit 11,615 17,950 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
At December 31, 2024 and 2023, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands): 2024 2023 Commitments to extend credit and unfunded commitments under lines of credit $ 271,419 $ 194,242 Stand-by letters of credit $ 15,594 $ 11,615 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
The related allowance for credit losses required for these loans totaled $2.7 million and $888 thousand at December 31, 2023 and December 31, 2022 , respectively. 37 Table of Contents Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover losses inherent within the loan portfolio.
The related allowance for credit losses required for these loans totaled $3.1 million and $2.7 million at December 31, 2024 and December 31, 2023 , respectively. 34 Table of Contents Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover expected losses inherent within the loan portfolio.
Treasury, agency, municipal and commercial mortgage-backed securities. The securities were transferred to mitigate the potential unfavorable impact that higher market interest rates may have on the carrying value of the securities and on the related accumulated other comprehensive loss.
The securities were transferred to mitigate the potential unfavorable impact that higher market interest rates may have on the carrying value of the securities and on the related accumulated other comprehensive loss.
Ma nagement believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. See “Non-GAAP Financial Measures” included in Item 7 of this Form 10-K. (2) All capital ratios reported are for the Bank.
Ma nagement believes such financial information is meaningful to the reader in understanding operating performance but cautions that such information should not be viewed as a substitute for GAAP. See “Non-GAAP Financial Measures” included below. (2) All capital ratios reported are for the Bank.
Loans individually evaluated for impairment totaled $6.8 million and $2.7 million at December 31, 2023 and 2022 , respectively.
Loans individually evaluated for impairment totaled $7.0 million and $6.8 million at December 31, 2024 and 2023 , respectively.
At December 31, 2023 , 92.1% of non-performing assets were commercial and industrial loans, 7.3% were residential real estate loans, 0.6% construction loans. Non-performing assets could increase due to the deterioration of other loans identified by management as potential problem loans.
At December 31, 2024 , 68% of non-performing assets were commercial and industrial loans, 31% were residential real estate loans, and 1% were construction loans. Non-performing assets could increase due to the deterioration of other loans identified by management as potential problem loans.
The purpose of the issuance was primarily to further strengthen holding company liquidity and to remain a source of strength for the Bank in the event of a severe economic downturn. The Company used the proceeds of the issuance for general corporate purposes.
The Company issued $5.0 million of subordinated debt in June 2020. The purpose of the issuance was primarily to further strengthen holding company liquidity and to remain a source of strength for the Bank in the event of a severe economic downturn. The Company used the proceeds of the issuance for general corporate purposes.
Loans purchased from a third-party that originated and serviced loans to health care professionals totaled $24.6 million as of December 31, 2023, which included unamortized premiums totaling $7.9 million, compared to loans totaling $22.3 million as of December 31, 2022, which included unamortized premiums totaling $7.4 million.
Loans purchased from a third-party that originated and serviced loans to health care professionals totaled $19.0 million as of December 31, 2024, which included unamortized premiums totaling $5.8 million, compared to loans totaling $24.6 million as of December 31, 2023, which included unamortized premiums totaling $7.9 million.
As of December 31, 2023 the estimated amount of total uninsured deposits was $368.2 million. Maturities of the estimated amount of uninsured time deposits at December 31, 2023 are presented in the table below.
As of December 31, 2024 the estimated amount of total uninsured deposits was $537.0 million. Maturities of the estimated amount of uninsured time deposits at December 31, 2024 are presented in the table below.
Allocation of Allowance for Credit Losses At December 31, 2023 2022 Allocation of Allowance for Credit Losses: Real estate loans: Construction and land development $ 312 $ 546 Secured by 1-4 family 3,159 1,108 Other real estate loans 4,698 3,609 Commercial and industrial 3,706 1,874 Consumer and other loans 99 309 Total allowance for credit losses $ 11,974 $ 7,446 Ratios of loans to total period-end loans: Real estate loans: Construction and land development 5.4 % 5.6 % Secured by 1-4 family 35.5 % 36.0 % Other real estate loans 46.1 % 45.5 % Commercial and industrial 11.7 % 12.1 % Consumer and other loans 1.2 % 0.8 % 100.0 % 100.0 % 38 Table of Contents The following table provides information on the Bank’s non-performing assets at the dates indicated (dollars in thousands).
Allocation of Allowance for Credit Losses At December 31, 2024 2023 Allocation of Allowance for Credit Losses: Real estate loans: Construction and land development $ 585 $ 312 Secured by 1-4 family 4,266 3,159 Other real estate loans 7,462 4,698 Commercial and industrial 3,927 3,706 Consumer and other loans 160 99 Total allowance for credit losses $ 16,400 $ 11,974 Ratios of loans to total period-end loans: Real estate loans: Construction and land development 5.8 % 5.4 % Secured by 1-4 family 37.3 % 35.5 % Other real estate loans 45.8 % 46.1 % Commercial and industrial 9.6 % 11.7 % Consumer and other loans 1.5 % 1.2 % 100.0 % 100.0 % 35 Table of Contents The following table provides information on the Bank’s non-performing assets at the dates indicated (dollars in thousands).
As of December 31, 2023, the Company did not own securities of any issuer for which the aggregate book value of the securities of such issuer exceeded ten percent of shareholders’ equity. 40 Table of Contents Deposits At December 31, 2023 , deposits totaled $1.2 billion, decreasing slightly by $7.6 million, from $1.2 billion at December 31, 2022 .
As of December 31, 2024, the Company did not own securities of any issuer for which the aggregate book value of the securities of such issuer exceeded ten percent of shareholders’ equity. 37 Table of Contents Deposits At December 31, 2024 , deposits totaled $1.8 billion, increasing by $570.1 million, from $1.2 billion at December 31, 2023 .
On December 31, 2023, loans purchased from the finance company totaled $24.5 million, which was comprised of $16.6 million of loan balances and unamortized premiums totaling $7.9 million. The Company determined that $2.4 million of the loans were non-accrual and thus were individually evaluated.
On December 31, 2024, loans purchased from the finance company totaled $19.0 million, which was comprised of $13.2 million of loan balances and unamortized premiums totaling $5.8 million. The Company determined that $2.6 million of the loans were non-accrual and thus were individually evaluated.
Non-performing Assets At December 31, 2023 2022 Non-accrual loans $ 6,763 $ 2,673 Other real estate owned — 184 Total non-performing assets $ 6,763 $ 2,857 Loans past due 90 days accruing interest 524 — Total non-performing assets and past due loans $ 7,287 $ 2,857 Troubled debt restructurings $ — $ 101 Non-performing assets to period end loans 0.75 % 0.31 % The following table summarizes the Company's credit ratios on a consolidated basis as of December 31, 2023 and 2022 .
Non-performing Assets At December 31, 2024 2023 Non-accrual loans $ 6,971 $ 6,763 Other real estate owned 53 — Total non-performing assets $ 7,024 $ 6,763 Loans past due 90 days accruing interest 365 524 Total non-performing assets and past due loans $ 7,389 $ 7,287 Non-performing assets to period end loans 0.50 % 0.75 % The following table summarizes the Company's credit ratios on a consolidated basis as of December 31, 2024 and 2023 .
The $3.6 million of net charge-offs included $1.7 million of loans purchased through a third-party lending program and $830 thousand of related unamortized purchase premiums on the loans. The general reserve component of the ACLL increased $2.7 million and the specific reserve component of the ACLL increased $1.8 million.
The $3.8 million of net charge-offs included $2.3 million of loans purchased through a third-party lending program and $1.1 million of related unamortized purchase premiums on the loans. The general reserve component of the ACLL increased $4.1 million and the specific reserve component of the ACLL increased $374 thousand. The increase in the general reserve was attributable to loan growth.
Non-performing assets totaled $6.8 million and $2.9 million at December 31, 2023 and 2022 , representing approximately 0.48% and 0.21% of total assets, respectively. Non-performing assets consisted of $6.8 million of non-accrual loans at December 31, 2023. Non-performing assets consisted of $184 thousand of OREO and $2.7 million of non-accrual loans and at December 31, 2022.
Non-performing assets totaled $7.0 million and $6.8 million at December 31, 2024 and 2023 , representing approximately 0.35% and 0.48% of total assets, respectively. Non-performing assets consisted of $7.0 million of non-accrual loans at December 31, 2024. Non-performing assets consisted of $6.8 million of non-accrual loans at December 31, 2023.
This recovery was offset by provision for credit losses totaling $6.5 million in the construction and land development, 1-4 family residential, commercial and industrial, and consumer loan classes. For more detailed information regarding the provision for credit losses on loans, see Note 4 to the Consolidated Financial Statements included in this Form 10-K.
These recoveries were offset by provision for credit losses totaling $5.0 million in the construction and land development, other real estate, and commercial and industrial loan classes. For more detailed information regarding the provision for credit losses on loans, see Note 5 to the Consolidated Financial Statements included in this Form 10-K.
The increase in interest income on loans was attributable to a 48-basis point increase in the yield on loans and a 7% increase in average loan balances compared to the prior year. The increase in total interest expense was attributable to a $10.4 million increase in interest expense on deposits.
The increase in interest income on loans was attributable to a 52-basis point increase in the yield on loans and a 17% increase in average loan balances compared to the prior year in part due to the acquisition of Touchstone. The increase in total interest expense was attributable to a $7.3 million increase in interest expense on deposits.
Return on average assets was 0.71% and return on average equity was 8.59% for the year ended December 31, 2023 , compared to 1.19% and 15.87%, respectively, for the year ended December 31, 2022 .
Return on average assets was 0.44% and return on average equity was 5.33% for the year ended December 31, 2024 , compared to 0.71% and 8.59%, respectively, for the year ended December 31, 2023 .
The increase was primarily attributable to a $44.4 million increase in loans, net of allowance and a $23.8 million increase in interest-bearing deposits in banks, which was partially offset by a $10.1 million decrease in securities available for sale, and a $4.9 million decrease in securities held to maturity.
The increase was primarily attributable to a $493.1 million increase in loans, net of allowance, a $68.0 million increase in interest-bearing deposits in banks, and a $11.0 million increase in securities available for sale, which were partially offset by a $38.5 million decrease in securities held to maturity.
Consolidated Credit Ratios December 31, 2023 2023 2022 Total Loans $ 969,430 $ 920,523 Nonaccrual loans $ 6,763 $ 2,673 Allowance for credit losses (ACL) $ 11,974 $ 7,446 Nonaccrual loans to total loans 0.70 % 0.29 % ACL to total loans 1.24 % 0.81 % ACL to nonaccrual loans 177.05 % 278.56 % The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals.
Consolidated Credit Ratios December 31, 2024 2024 2023 Total Loans $ 1,466,595 $ 969,430 Nonaccrual loans $ 6,971 $ 6,763 Allowance for credit losses (ACL) $ 16,400 $ 11,974 Nonaccrual loans to total loans 0.48 % 0.70 % ACL to total loans 1.12 % 1.24 % ACL to nonaccrual loans 235.26 % 177.05 % The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals.
The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.
The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. The Company did not opt into the framework. The Company did not repurchase any shares during the year ended December 31, 2024.
The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheet. Loans Acquired through Third Party Lending Programs The loan portfolio includes commercial and industrial loans that were originated by a third-party and were acquired at premiums.
The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheet. The loan portfolio includes commercial and industrial loans that were originated by a third-party and were acquired at premiums. Premiums on performing loans are amortized into interest income and fees on loans over the life of the loans using the effective interest method.
Analysis of Capital At December 31, 2023 2022 Common equity Tier 1 capital $ 129,840 $ 132,103 Tier 1 capital 129,840 132,103 Tier 2 capital 12,493 7,446 Total risk-based capital 142,333 139,549 Risk-weighted assets 1,012,843 955,779 Capital ratios: Common equity Tier 1 capital ratio 12.82 % 13.82 % Tier 1 capital ratio 12.82 % 13.82 % Total capital ratio 14.05 % 14.60 % Leverage ratio (Tier 1 capital to average assets) 9.31 % 9.36 % Capital conservation buffer ratio(1) 6.05 % 6.60 % (1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Company’s actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital.
Analysis of Capital At December 31, 2024 2023 Common equity Tier 1 capital $ 164,454 $ 129,840 Tier 1 capital 164,454 129,840 Tier 2 capital 16,995 12,493 Total risk-based capital 181,449 142,333 Risk-weighted assets 1,469,752 1,012,843 Capital ratios: Common equity Tier 1 capital ratio 11.19 % 12.82 % Tier 1 capital ratio 11.19 % 12.82 % Total capital ratio 12.35 % 14.05 % Leverage ratio (Tier 1 capital to average assets) 7.95 % 9.31 % Capital conservation buffer ratio(1) 4.34 % 6.05 % (1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Company’s actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital.
As of and for the years ended December 31, 2023 2022 Results of Operations Interest and dividend income $ 57,719 $ 49,395 Interest expense 14,306 3,820 Net interest income 43,413 45,575 Provision for credit losses 6,150 1,850 Net interest income after provision for credit losses 37,263 43,725 Noninterest income 11,784 12,621 Noninterest expense 37,242 35,597 Income before income taxes 11,805 20,749 Income tax expense 2,181 3,952 Net income $ 9,624 $ 16,797 Key Performance Ratios Return on average assets 0.71 % 1.19 % Return on average equity 8.59 % 15.87 % Net interest margin (1) 3.41 % 3.44 % Efficiency ratio (1) 67.69 % 61.75 % Dividend payout 39.05 % 20.85 % Equity to assets 7.97 % 7.91 % Per Common Share Data Net income, basic $ 1.54 $ 2.69 Net income, diluted 1.53 2.68 Cash dividends 0.60 0.56 Book value at period end 18.06 16.79 Financial Condition Assets $ 1,419,295 $ 1,369,383 Loans, net 957,456 913,077 Securities 303,179 317,973 Deposits 1,233,726 1,241,332 Shareholders’ equity 116,271 108,360 Average shares outstanding, diluted 6,279 6,259 Capital Ratios (2) Leverage 9.31 % 9.36 % Risk-based capital ratios: Common equity Tier 1 capital 12.82 % 13.82 % Tier 1 capital 12.82 % 13.82 % Total capital 14.05 % 14.60 % (1) Thi s performance ratio is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational performance.
As of and for the years ended December 31, 2024 2023 Results of Operations Interest and dividend income $ 76,319 $ 57,719 Interest expense 23,867 14,306 Net interest income 52,452 43,413 Provision for credit losses 7,850 6,150 Net interest income after provision for credit losses 44,602 37,263 Noninterest income 16,380 11,784 Noninterest expense 52,934 37,242 Income before income taxes 8,048 11,805 Income tax expense 1,082 2,181 Net income $ 6,966 $ 9,624 Key Performance Ratios Return on average assets 0.44 % 0.71 % Return on average equity 5.33 % 8.59 % Net interest margin (1) 3.51 % 3.41 % Efficiency ratio (1) 66.73 % 67.69 % Dividend payout 60.54 % 39.05 % Equity to assets 8.28 % 7.97 % Per Common Share Data Net income, basic $ 1.00 $ 1.54 Net income, diluted 1.00 1.53 Cash dividends 0.605 0.600 Book value at period end 16.48 18.06 Financial Condition Assets $ 2,010,281 $ 1,419,295 Loans, net 1,450,195 957,456 Securities 277,329 303,179 Deposits 1,803,778 1,233,726 Shareholders’ equity 166,531 116,271 Average shares outstanding, diluted 6,971 6,279 Capital Ratios (2) Leverage 7.95 % 9.31 % Risk-based capital ratios: Common equity Tier 1 capital 11.19 % 12.82 % Tier 1 capital 11.19 % 12.82 % Total capital 12.34 % 14.05 % (1) Thi s performance ratio is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational performance.
The Critical Accounting Policies require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.
In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.
Overview of Financial Performance and Condition Net income decreased by $7.2 million to $9.6 million, or $1.53 per diluted share, for the year ended December 31, 2023 , compared to $16.8 million, or $2.68 per diluted share, for the same period in 2022 .
Net Income Net income decreased by $2.6 million to $7.0 million, or $1.00 per diluted shar e, for the year ended December 31, 2024 , compared to $9.6 million, or $1.53 per diluted share , for the same period in 2023 .
The change in the unrealized gains and losses of investment securities from December 31, 2022 to December 31, 2023 was related to changes in market interest rates and was not related to credit concerns of the issuers.
Gross unrealized losses in the held to maturity portfolio totaled $11.0 million and $10.8 million at December 31, 2024 and 2023 , respectively. The change in the unrealized gains and losses of investment securities from December 31, 2023 to December 31, 2024 was related to changes in market interest rates and was not related to credit concerns of the issuers.
Loans acquired through business combinations included unamortized discounts, net of unamortized premiums totaling $1.9 million and $2.5 million, as of December 31, 2023 and 2022, respectively.
Loans acquired through business combinations included unamortized discounts, net of unamortized premiums totaling $14.3 million and $1.9 million, as of December 31, 2024 and 2023, respectively, which are amortized over the life of the loans.
Gross unrealized gains in the available for sale portfolio totaled $61 thousand and $99 thousand at December 31, 2023 and 2022 , respectively. Gross unrealized losses in the available for sale portfolio totaled $20.7 million and $24.0 million at December 31, 2023 and 2022 , respectively.
Gross unrealized losses in the available for sale portfolio totaled $22.1 million and $20.7 million at December 31, 2024 and 2023 , respectively. Gross unrealized gains in the held to maturity portfolio totaled $95 thousand and $107 at December 31, 2024 and 2023 , respectively.
Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met.
Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. Financial Instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs.
Allowance for credit losses Construction and Land Development Secured by 1-4 Family Residential Other Real Estate Commercial and Industrial Consumer and Other Loans Total For the year ended December 31, 2022: Balance at beginning of year $ 345 $ 1,077 $ 3,230 $ 718 $ 340 $ 5,710 Charge-offs — (6 ) — (32 ) (491 ) (529 ) Recoveries 10 19 15 145 226 415 Provision for (recovery of) credit losses 191 18 364 1,043 234 1,850 Balance at end of year $ 546 $ 1,108 $ 3,609 $ 1,874 $ 309 $ 7,446 Average loans $ 49,671 $ 308,276 $ 399,395 $ 107,561 $ 8,085 $ 872,988 Ratio of net (recoveries) charge-offs to average loans -0.02 % 0.00 % 0.00 % -0.11 % 3.28 % 0.01 % For the year ended December 31, 2023: Balance at beginning of year $ 546 $ 1,108 $ 3,609 $ 1,874 $ 309 $ 7,446 Adjustment to allowance for adoption of ASU 2016-13 (313 ) 1,409 1,702 (387 ) (225 ) 2,186 Charge-offs — (59 ) (34 ) (3,452 ) (448 ) (3,993 ) Recoveries — 47 14 145 212 418 Provision for (recovery of) credit losses 79 654 (593 ) 5,526 251 5,917 Balance at end of year $ 312 $ 3,159 $ 4,698 $ 3,706 $ 99 $ 11,974 Average loans $ 49,950 $ 337,278 $ 427,094 $ 112,822 $ 9,868 $ 937,012 Ratio of net (recoveries) charge-offs to average loans 0.00 % 0.00 % 0.00 % 2.93 % 2.39 % 0.38 % The following table shows the balance of the Bank’s ACLL allocated to each major category of loans and the ratio of related outstanding loan balances to total loans (dollars in thousands).
Allowance for credit losses Construction and Land Development Secured by 1-4 Family Residential Other Real Estate Commercial and Industrial Consumer and Other Loans Total For the year ended December 31, 2023: Balance at beginning of year $ 546 $ 1,108 $ 3,609 $ 1,874 $ 309 $ 7,446 Adjustment to allowance for adoption of ASU 2016-13 (313 ) 1,409 1,702 (387 ) (225 ) 2,186 Charge-offs — (59 ) (34 ) (3,452 ) (448 ) (3,993 ) Recoveries — 47 14 145 212 418 Provision for (recovery of) credit losses 79 654 (593 ) 5,526 251 5,917 Balance at end of year $ 312 $ 3,159 $ 4,698 $ 3,706 $ 99 $ 11,974 Average loans $ 49,950 $ 337,278 $ 427,094 $ 112,822 $ 9,868 $ 937,012 Ratio of net (recoveries) charge-offs to average loans 0.00 % 0.00 % 0.00 % 2.93 % 2.39 % 0.38 % For the year ended December 31, 2024: Balance at beginning of year $ 312 $ 3,159 $ 4,698 $ 3,706 $ 99 $ 11,974 Initial Allowance on PCD Touchstone loans 11 173 201 1 — 386 Charge-offs (4 ) (38 ) — (3,699 ) (293 ) (4,034 ) Recoveries — 22 3 111 148 284 Initial Provision - Non-PCD Touchstone loans 118 1,310 1,370 143 888 3,829 Provision for (recovery of) credit losses 148 (360 ) 1,190 3,665 (682 ) 3,961 Balance at end of year $ 585 $ 4,266 $ 7,462 $ 3,927 $ 160 $ 16,400 Average loans $ 137,029 $ 373,012 $ 457,732 $ 115,410 $ 15,689 $ 1,098,872 Ratio of net (recoveries) charge-offs to average loans 0.00 % 0.00 % 0.00 % 3.11 % 0.92 % 0.34 % The following table shows the balance of the Bank’s ACLL allocated to each major category of loans and the ratio of related outstanding loan balances to total loans (dollars in thousands).
The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the year ended December 31, 2023 and 2022. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income and income from bank owned life insurance.
The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the year ended December 31, 2024 and 2023.
Efficiency Ratio 2023 2022 Noninterest expense $ 37,242 $ 35,597 Subtract: other real estate (gain) loss and expense, net 199 106 Subtract: amortization of intangibles (18 ) (19 ) Subtract: merger related expenses — (69 ) $ 37,423 $ 35,615 Tax-equivalent net interest income $ 43,738 $ 45,906 Noninterest income 11,784 12,621 (Gain) loss on disposal of premises and equipment (47 ) 29 Gain on sale of other investment (186 ) (2,885 ) Securities losses (gains), net — 2,004 $ 55,289 $ 57,675 Efficiency ratio 67.69 % 61.75 % This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets.
Efficiency Ratio 2024 2023 Total noninterest expense (GAAP) $ 52,934 $ 37,242 Subtract: other real estate (gain) loss and expense, net (15 ) 199 Subtract: amortization of intangibles (461 ) (18 ) Subtract: loss on disposal of premises and equipment, net (47 ) — Subtract: merger expenses (8,107 ) — Adjusted non-interest expense (non-GAAP) $ 44,304 $ 37,423 Tax-equivalent net interest income (non-GAAP) $ 52,821 $ 43,738 Total noninterest income (GAAP) 16,380 11,784 (Gain) loss on disposal of premises and equipment — (47 ) Gain on sale of other investment — (186 ) Bargain purchase gain from acquisition (2,920 ) — Securities losses (gains), net 115 — Adjusted income for efficiency ratio (non-GAAP) $ 66,396 $ 55,289 Efficiency ratio (non-GAAP) 66.73 % 67.69 % This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets.
The subordinated debt issued consisted of a 5.50% fixed-to-floating rate subordinated note due 2030 issued to an institutional investor and was structured to qualify as Tier 2 capital under bank regulatory guidelines. First Bank remained well-capitalized at December 31, 2023.
The subordinated debt issued consisted of a 5.50% fixed-to-floating rate subordinated note due 2030 issued to an institutional investor and was structured to qualify as Tier 2 capital under bank regulatory guidelines. The floating rate period for this subordinated note begins July 1, 2025, accordingly the related interest expense could increase during the floating rate period.
Net Interest Income Net interest income decreased $2.2 million, or 5%, to $43.4 million for 2023 compared to the prior year. Total interest expense increased by $10.5 million and was partially offset by total interest income, which increased by $8.3 million.
Net interest income increased $9.0 million, or 21%, to $52.5 million for 2024 compared to the prior year. Total interest income increased by $18.6 million and was partially offset by total interest expense, which increased by $9.6 million.
On December 31, 2023, there was a total of 172 loans purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 7.5 years. Securities Securities totaled $303.2 million at December 31, 2023 , a decrease of $14.8 million, or 4.7%, from $318.0 million at the end of 2022 .
On December 31, 2024 and 2023, there were a total of 155 and 172 loans, respectively, purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 7.0 and 7.5 years, respectively.
Although the economics of transactions would be the same, the timing of events that would impact transactions could change. Presented below is a discussion of those accounting policies that management believes are the most important (Critical Accounting Policies) to the portrayal and understanding of the Company’s financial condition and results of operations.
Presented below is a discussion of those accounting policies that management believes are the most important (Critical Accounting Policies) to the portrayal and understanding of the Company’s financial condition and results of operations. The Critical Accounting Policies require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain.
Noninterest income categories with moderate increases over the prior year included service charges on deposits, which increased $103 thousand, or 4%, ATM and check card fees, which increased $149 thousand, or 5%, and wealth management fees, which increased $112 thousand, or 4%.
Noninterest income categories with moderate increases over the prior year included brokered mortgage fees which increased $133 thousand, or 112%, fees for other customer services which increased $196 thousand, or 25%, wealth management fees which increased $497 thousand, or 16%, and service charges on deposits which increased $342 thousand, or 12%.
Premiums on non-performing loans are not amortized into interest income and fees on loans after loans are placed on non-accrual status and are included in the calculation of specific reserve component of the allowance for credit losses on loans for individually analyzed loans. 30 Table of Contents Loans Acquired in a Business Combination Acquired loans are recorded at their fair value at acquisition date without carryover of the acquiree’s previously established ACLL, as credit discounts are included in the determination of fair value.
Premiums on non-performing loans are not amortized into interest income and fees on loans after loans are placed on non-accrual status and are included in the calculation of specific reserve component of the allowance for credit losses on loans for individually analyzed loans. 26 Table of Contents Acquisition Accounting The Company accounts for mergers and acquisitions that qualify as a business combination under ASC 805, Business Combinations , which requires the use of the acquisition method of accounting.
Average Deposits and Rates Paid Year Ended December 31, 2023 2022 Amount Rate Amount Rate Noninterest-bearing deposits $ 397,932 — % $ 426,823 — % Interest-bearing deposits: Interest checking $ 269,551 1.68 % $ 295,530 0.47 % Money market 219,655 2.22 % 218,783 0.43 % Savings 173,075 0.12 % 205,532 0.08 % Time deposits: Less than $100 84,387 1.94 % 74,616 0.46 % Greater than $100 82,184 2.77 % 62,036 0.69 % Brokered deposits 3,061 3.70 % 556 0.57 % Total interest-bearing deposits $ 831,913 1.64 % $ 857,053 0.38 % Total deposits $ 1,229,845 $ 1,283,876 The table above includes brokered deposits greater than $100 thousand.
Average Deposits and Rates Paid Year Ended December 31, 2024 2023 Amount Rate Amount Rate Noninterest-bearing deposits $ 422,981 — % $ 397,932 — % Interest-bearing deposits: Interest checking $ 278,558 1.75 % $ 269,551 1.68 % Money market 294,818 2.80 % 219,655 2.22 % Savings 160,795 0.18 % 173,075 0.12 % Time deposits: Less than $250 187,664 3.01 % 84,387 1.94 % Greater than $250 46,846 3.56 % 82,184 2.77 % Brokered deposits 5,080 4.20 % 3,061 3.70 % Total interest-bearing deposits $ 973,761 2.15 % $ 831,913 1.64 % Total deposits $ 1,396,742 $ 1,229,845 The table above includes brokered deposits greater than $100 thousand.
The provision was comprised of a $6.0 million provision for credit losses on loans, a $260 thousand provision for credit losses on unfunded commitments, and a $26 thousand recovery of credit losses on held-to-maturity securities.
The provision was comprised of a $7.8 million provision for credit losses on loans which includes $3.8 million Day-One provision on Non-PCD loans purchased from Touchstone, a $73 thousand provision for credit losses on unfunded commitments, and a $12 thousand recovery of credit losses on held-to-maturity securities.
Maturities of Uninsured Time Deposits December 31, 2023 3 months or less $ 5,157 3-6 months 5,555 6-12 months 4,967 Over 12 months 7,802 $ 23,481 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 to the Federal Reserve Bank through its Bank Term Funding Program, and available lines of credit totaled $512.7 million on December 31, 2023 , and $417.2 million on December 31, 2022.
Maturities of Uninsured Time Deposits December 31, 2024 3 months or less $ 22,482 3-6 months 11,226 6-12 months 17,692 Over 12 months 6,064 $ 57,464 L iquidity Liquidity sources available to the Bank, including inter est-bearing deposits in banks, unpledged securities available for sale, at fair value, unpledged securities held-to-maturity, at par, and available lines of credit totaled $758.0 million on December 31, 2024 , and $512.7 million on December 31, 2023.
The $7.2 million decrease in net income resulted from a $4.3 million, increase in provision for credit losses, a $2.2 million, or 5%, decrease in net interest income, a $866 thousand, or 7%, decrease in noninterest income, and a $1.6 million, or 5%, increase in noninterest expense.
The $2.6 million decrease in net income resulted from a $8.1 million increase in merger expenses associated with the Touchstone acquisition and a $1.7 million increase in provision for credit losses partially associated with the acquisition.
The Company determined that the historical loss analysis and the qualitative adjustment factors that established the general reserve component of the ACLL were appropriate at December 31, 2023 .
The Company determined that the historical loss analysis and the qualitative adjustment factors that established the collectively evaluated reserve component of the ACLL were appropriate at December 31, 2024 . The allowance for credit losses on loans as a percentage of total loans decreased to 1.12% at December 31, 2024 compared to 1.24% at December 31, 2023.
The amortization of the unrealized loss on the transferred securities totaled $593 thousand, or $468 thousand net of tax, for the year ended December 31, 2022. The securities selected for transfer had larger potential decreases in their fair market values in higher interest rate environments than most of the other securities in the available for sale portfolio and included U.S.
The securities selected for transfer had larger potential decreases in their fair market va lues in higher interest rate environments than most of the other securities in the available for sale portfolio and included U.S. Treasury, agency, municipal and commercial mortgage-backed securities.
Although the interest rate environment continued to be challenging during the year, the net interest margin was stable over the last three quarters of 2023 as the rising cost of funds was offset by an increase in earning asset yields. 33 Table of Contents The following table provides information on average interest-earning assets and interest-bearing liabilities for the years ended December 31, 2023 and 2022 as well as amounts and rates of tax equivalent interest earned and interest paid (dollars in thousands).
Net accretion income related to acquisition accounting was $408 thousand, or a three-basis point incremental increase to the net interest margin. 30 Table of Contents The following table provides information on average interest-earning assets and interest-bearing liabilities for the years ended December 31, 2024 and 2023 as well as amounts and rates of tax equivalent interest earned and interest paid (dollars in thousands).

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