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What changed in FIRST NATIONAL CORP /VA/'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of FIRST NATIONAL CORP /VA/'s 2024 and 2025 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 2025 report.

+177 added−201 removedSource: 10-K (2026-03-25) vs 10-K (2025-03-31)

Top changes in FIRST NATIONAL CORP /VA/'s 2025 10-K

177 paragraphs added · 201 removed · 140 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

32 edited+11 added−13 removed83 unchanged
Biggest changeIn addition, those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth.
Biggest changeIn addition, those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth. 7 Table of Contents The minimum capital level requirements applicable to the Bank under the rules are as follows: a common equity Tier 1 capital ratio of 4.5%; a Tier 1 capital ratio of 6%; a total capital ratio of 8%; and a Tier 1 leverage ratio of 4% for all institutions.
For example, under the Federal Deposit Insurance Company Improvement Act of 1991, to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become “undercapitalized” with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan. 6 Table of Contents Under the Federal Deposit Insurance Act (the FDIA), the federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards.
For example, under the Federal Deposit Insurance Company Improvement Act of 1991 (FDICIA), to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become “undercapitalized” with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan. 6 Table of Contents Under the Federal Deposit Insurance Act (the FDIA), the federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards.
These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. Capital Requirements.
These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines.
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.
At December 31, 2025 , 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.
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.
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, 2025 . Community Reinvestment Act . The Bank is subject to the requirements of the CRA.
There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance fund in the event of a depository institution default.
There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the Federal Deposit Insurance Corporation ( FDIC) insurance fund in the event of a depository institution default.
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.
Management believes, as of December 31, 2025 and December 31, 2024 , that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.
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.
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 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 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, and the south-central region of Virginia, including the Richmond MSA and northern North Carolina.
The Bank met the requirements to qualify as "well capitalized" as of December 31, 2024 and December 31, 2023.
The Bank met the requirements to qualify as "well capitalized" as of December 31, 2025 and December 31, 2024 .
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.
The Company’s subsidiaries are: • The Bank owns: • First Bank Financial Services, Inc. • Shen-Valley Land Holdings, 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.
A significant portion of the revenues of the Company result from dividends paid to it by the Bank. There are various legal limitations applicable to the payment of dividends by the Bank to the Company and to the payment of dividends by the Company to its shareholders.
The Company is a legal entity, separate and distinct from its subsidiaries. A significant portion of the revenues of the Company result from dividends paid to it by the Bank. There are various legal limitations applicable to the payment of dividends by the Bank to the Company and to the payment of dividends by the Company to its shareholders.
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.
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.
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.
The provision for credit losses is also a primary expense of the Bank. 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.
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.
Within this market area, there are diverse types of industry including medical and professional services, manufacturing, retail, warehousing, government, hospitality, and higher education. The Bank’s products and services ar e delivered through 33 bank branch offices, one loan production office, and a customer service center in a retirement community.
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.
The following table shows the Bank’s regulatory capital ratios at December 31, 2025: First Bank Total capital to risk-weighted assets 13.64 % Tier 1 capital to risk-weighted assets 12.59 % Common equity Tier 1 capital to risk-weighted assets 12.59 % Tier 1 capital to average assets 9.13 % Capital conservation buffer ratio(1) 5.64 % (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.
Subject to its capital requirements and certain other restrictions, the Company is able to borrow money to make a capital contribution to the Bank, and such loans may be repaid from dividends paid by the Bank to the Company. Limits on Dividends and Other Payments . The Company is a legal entity, separate and distinct from its subsidiaries.
Certain capital requirements applicable to the Bank are described below under “The Bank-Capital Requirements”. Subject to its capital requirements and certain other restrictions, the Company is able to borrow money to make a capital contribution to the Bank, and such loans may be repaid from dividends paid by the Bank to the Company. Limits on Dividends and Other Payments .
The Bank is supervised and regularly examined by the Federal Reserve and the SCC's Bureau of Financial Institutions.
The Bank is supervised and regularly examined by the Federal Reserve Bank of Richmond and the Virginia State Corporation Commissions's Bureau of Financial Institutions.
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.
Although the Bank has not opted into the CBLR framework, it may opt into the CBLR framework in a future quarterly period.
The federal bank regulatory agencies must still issue regulations to implement the source of strength provisions of the Dodd-Frank Act. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources.
Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources.
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.
As the Bank has not opted into the CBLR framework, it does not expect any changes due to the proposal. 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.
Pursuant to the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements. Certain capital requirements applicable to the Bank are described below under “The Bank-Capital Requirements”.
Independent external auditor attestation on ICFR increased from $1 billion to $5 billion or more in assets. Capital Requirements. Pursuant to the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.
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.
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 .
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.
A copy of any of the Company’s filings will be sent, without charge, to any shareholder upon written request to: Brad E. Schwartz, 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. 11 Table of Contents
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.
Net interest income is the difference between interest income and interest expense and currently represents the largest component of the Company’s total revenue. Interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets.
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 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 Company believes its competitive advantages include long-term customer relationships, a commitment to excellent customer service, dedicated and loyal employees, and the support of and involvement in the communities that the Company serves. The Company focuses on providing products and services to individuals, small to medium-sized businesses, non-profit organizations, and local governmental entities within i ts communities.
The Company focuses on providing products and services to individuals, small to medium-sized businesses, non-profit organizations, and local governmental entities within i ts communities.
This 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.
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. Employees At December 31, 2025 , the Bank employed a total of 308 full-time equivalent employees.
Consumer Laws and Regulations . The Bank is also subject to certain consumer laws and regulations issued thereunder that are designed to protect consumers in transactions with banks.
Any changes in law or in the Company’s or the Bank’s supervisory frameworks relating to digital assets cannot be predicted but may have a significant effect on the Company’s business. Consumer Laws and Regulations . The Bank is also subject to certain consumer laws and regulations issued thereunder that are designed to protect consumers in transactions with banks.
Privacy Legislation . Several regulations issued by federal banking agencies also provide new protections against the transfer and use of customer information by financial institutions. A financial institution must provide to its customers information regarding its policies and procedures with respect to the handling of customers’ personal information.
The Federal Reserve assigned the Bank the rating of "satisfactory" at the most recent CRA examination. Privacy Legislation . Several regulations issued by federal banking agencies also provide new protections against the transfer and use of customer information by financial institutions.
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.
Noninterest income is derived primarily from service charges on deposits, fee income from wealth management services, and ATM and check card fees. Primary expense categories are salaries and employee benefits, which comprised 51% of noninterest expenses during 2025, followed by other operating expenses, which comprised 12% of noninterest expenses.
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.
Shen-Valley Land Holdings, LLC was formed to hold other real estate owned and future office sites. McKenney Group, LLC owns an interest in a now inactive entity that previously provided insurance services.
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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.
Added
In March of 2 025 two previously held subsidiaries of the Company, Bank of Fincastle Services, Inc. and ESF, LLC, were closed with no material impact to the financials related to the closures. Revenue Sources and Expense Factors The primary source of revenue is from net interest income earned by the Bank.
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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.
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The Bank’s interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid. In addition to net interest income, noninterest income is the other source of revenue for the Company.
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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.
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In addition, the financial services industry continues to undergo rapid technological change with introductions of new technologies and services, including new ways that customers can make payments or manage their accounts, including through use of stablecoins and other forms of cryptocurrency, tokens, and other digital assets or alternative payment systems.
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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.
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The Company's primary operating subsidiary, First Bank, believes its competitive advantages include long-term customer relationships, a commitment to excellent customer service, dedicated and loyal employees, and the support of and involvement in the communities that the Company serves.
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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.
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FDICIA, implemented through FDIC regulations (12 CFR Part 363), imposes annual audit and reporting requirements on insured depository institutions with total assets above certain thresholds to promote early identification of financial management issues. These requirements focus on audited financial statements, management’s responsibilities, and Internal Control over Financial Reporting (ICFR) assessments.
Removed
Effective January 1, 2015, the Bank became subject to capital rules adopted by federal bank regulators implementing the Basel III regulatory capital reforms adopted by the Basel Committee on Banking Supervision (the Basel Committee), and certain changes required by the Dodd-Frank Act. 7 Table of Contents The minimum capital level requirements applicable to the Bank under the rules are as follows: a common equity Tier 1 capital ratio of 4.5%; a Tier 1 capital ratio of 6%; a total capital ratio of 8%; and a Tier 1 leverage ratio of 4% for all institutions.
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On November 25, 2025, the FDIC officially adopted amendments to 12 CFR Part 363, effective January 1, 2026, to update certain regulatory thresholds that govern audit and reporting requirements. The Company will continue to provide management's attestation of effectiveness of FDICIA controls at the increased asset threshold of greater than $1 billion.
Removed
In 2021, the most recent notific ation from the Federal Reserve, the Bank received a "satisfactory" CRA rating. In October 2023, federal bank regulatory agencies jointly issued a final rule intended to strengthen and modernize the CRA regulatory framework. Most of the final rule’s new requirements are applicable beginning January 1, 2026.
Added
On November 25, 2025 the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency proposed to lower the CBLR requirement from 9% to 8% and extend the length of time that a community banking organization can remain in the CBLR framework while not meeting all of the qualifying criteria from two quarters to four quarters.
Removed
The remaining new requirements, including data reporting requirements, are applicable on January 1, 2027.
Added
A financial institution must provide to its customers information regarding its policies and procedures with respect to the handling of customers’ personal information. Each institution must conduct an internal risk assessment of its ability to protect customer information.
Removed
The rule is intended to, among other things, (i) expand access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry, including internet and mobile banking, (iii) provide greater clarity, consistency and transparency in the application of the regulations and (iv) tailor performance standards to account for differences in bank size, business model, and local conditions.
Added
Digital Assets. In July 2025, President Trump signed into law the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”), which establishes a regulatory framework for “payment stablecoins” and their issuers.
Removed
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 GENIUS Act permits payment stablecoins to be issued in the United States only by “permitted payment stablecoin issuers”, including the subsidiary of an insured depository institution such as the Bank. The GENIUS Act requires federal and state regulators to issue regulations on numerous topics to interpret and implement the act.
Removed
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
The effect of the GENIUS Act on the Company and the Bank will depend on the final form of any regulations and cannot be predicted at this time. Digital assets activities are an area of significant focus for Congress, the current Presidential administration, and federal banking regulators.
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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 .
Removed
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

16 edited+13 added−14 removed197 unchanged
Biggest changeLoss of any of our key personnel could disrupt our operations and result in reduced revenues or increased expenses. We are a relationship-driven organization. A key aspect of our business strategy is for our senior officers to have primary contact with our customers.
Biggest changeAdditionally, there is no certainty that the Company's use of AI will successfully enhance its business operations or achieve its intended outcomes, and its competitors may adopt AI more swiftly or effectively than the Company does. Loss of any of our key personnel could disrupt our operations and result in reduced revenues or increased expenses. We are a relationship-driven organization.
For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, general-purpose reloadable prepaid cards, or in other types of assets, including crypto currencies or other digital assets. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks.
For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, general-purpose reloadable prepaid cards, or in other types of assets, including crypto currencies, Stablecoins, or other digital assets. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks.
The market for qualified management personnel is competitive, which has contributed to salary and employee benefit costs that have risen and are expected to continue to rise, which may have an adverse effect on the Company’s net income.
The market for qualified personnel is competitive, which has contributed to salary and employee benefit costs that have risen and are expected to continue to rise, which may have an adverse effect on the Company’s net income.
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.
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.
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.
We provide 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.
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.
During 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. While brokered mortgage fees increased in 2025, loan production levels may suffer if there is a sustained slowdown in the housing markets in which the Company conducts business or tightening credit conditions.
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.
In addition, changes in interest rates may negatively affect both the returns on and market value of our investment securities. 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.
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.
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 corporate social responsibility, environmental concerns, governance and related practices.
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.
At this time, however, it is unclear what the impacts to the rulemaking, supervision, examination, and enforcement priorities of the federal banking agencies will be, 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.
The loss of the services of these officers could have a material adverse effect upon future prospects. Although we believe the Company has excellent employee relations and provides competitive compensation to its senior officers, we cannot offer any assurance that they and other key employees will remain employed by us.
Although we believe the Company has excellent employee relations and provides competitive compensation to its officers, we cannot offer any assurance that they and other key employees will remain employed by us.
Because of the degree of uncertainty and susceptibility of these factors to change, the actual losses may vary from current estimates. The Company expects fluctuations in the credit loss provisions due to the uncertain economic conditions.
Because of the degree of uncertainty and susceptibility of these factors to change, the actual losses may vary from current estimates.
Our growth and development to date have been, in large part, a result of these personalized relationships with our customer base. Our senior officers have considerable experience in the banking industry and related financial services and are extremely valuable and would be difficult to replace.
Our officers have considerable experience in the banking industry and related financial services and are extremely valuable and would be difficult to replace. The loss of the services of these officers could have a material adverse effect upon future prospects.
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.
Failure to act responsibly or in line with regulatory and stakeholder expectations in a number of areas, such as climate risk, human capital and hiring practices, human rights, support for local communities, and corporate governance and transparency, could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price.
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.
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 continue to raise concerns for the state of the global environment.
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.
The rules, regulations and expectations of regulators, customers, investors, associates, and other stakeholders with respect to these matters continue to evolve, which could result in increases to the Company’s overall operational costs and increased management time and attention. Further, as these rules, regulations and expectations continue to evolve, the Company’s stakeholders may have differing views on related matters.
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.
The Company expects the Trump administration will implement a regulatory agenda that could reduce and streamline certain prudential and regulatory requirements applicable to banking organizations at a federal level.
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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.
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Large technology companies offering embedded financial services, digital wallets, and payment platforms have also increased competitive pressures and may accelerate customer migration away from traditional banking products.
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Risks Related to Operations and Technology Combining the Company and Touchstone may be more difficult, costly or time consuming than we expect.
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The continued evolution and increased usage of artificial intelligence technologies may further increase these risks.
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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.
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Further, the Company may utilize new technology, such as AI, in connection with its business and operations. AI may be developed internally, or may be provided by third- or fourth-party service providers. Any such new technology could have a significant impact on the effectiveness of the Company's system of internal controls.
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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.
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Failure to successfully manage these risks in the development and implementation of new lines of business, products or services and/or technologies could have a material adverse effect on the Company's business, financial condition and results of operations. AI may introduce the Company to novel or intensified legal, regulatory, ethical, operational, reputational or other risks.
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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.
Added
AI usage is subject to a range of existing laws and regulations. AI is also expected to be governed by new laws and regulations, or new applications of existing laws and regulations.
Removed
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.
Added
AI is under ongoing scrutiny by various governmental and regulatory bodies, with federal, state and international authorities either implementing or considering legal frameworks that could impact the Company's ability to leverage AI effectively. The Company may find it challenging to predict and adapt to these rapidly evolving legal requirements.
Removed
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.
Added
AI models employed by the Company or its service providers might be flawed due to improper design, implementation, or training or outputs based on data or algorithms that are incomplete, inadequate, misleading, biased or of poor quality. These flaws may not be easily identifiable.
Removed
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.
Added
A key aspect of our business strategy is for our banking officers to have primary contact with our customers. Our growth and development to date have been, in large part, a result of these personalized relationships with our customer base.
Removed
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.
Added
Scrutiny, or the perception that the Company’s efforts are too ambitious or misdirected, could expose the Company to the risk of investigations, litigation and other proceedings or reputational harm.
Removed
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.
Added
If the Company is unable to meet its social- or environmentally-related goals or evolving and divergent stakeholder expectations and industry standards, it could negatively 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.
Removed
In December 2021, the Office of the Comptroller of the Currency (OCC) published proposed principles for climate risk management by banking organizations with more than $100 billion in assets.
Added
As a result, the Company and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns.
Removed
The OCC also has appointed its first ever Climate Change Risk Officer and established an internal climate risk implementation committee in order to assist with these initiatives and to support the agency’s efforts to enhance its supervision of climate change risk management.
Added
While the Trump administration has shifted federal policy to reduce the emphasis on climate change initiatives and environmental regulations, state and local regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, could affect our business operations.
Removed
Similar and even more expansive initiatives are expected, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.
Added
Among other things, the Company and its customers could face cost increases, compliance-related risks, asset value reductions and operating process changes.
Removed
To the extent that these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to the Company, the Company would likely experience increased compliance costs and other compliance-related risks.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur Chief Risk Officer provides quarterly reports to the Audit Committee of our Board of Directors regarding the information security program and the technology program, key enterprise cybersecurity initiatives, and other matters relating to cybersecurity processes. The Audit Committee of our Board of Directors reviews and approves our information security and technology policies annually.
Biggest changeOur Chief Risk Officer reports to the Audit Committee of our Board of Directors regarding the information security program and the technology program, key enterprise cybersecurity initiatives, and other matters relating to cybersecurity processes. The Audit Committee of our Board of Directors reviews and approves our information security and technology policies annually.
Additionally, the Audit Committee of our Board of Directors reviews our cyber security risk profile on a quarterly basis. The Audit Committee of our Board of Directors provides a report of their activities to the full Board of Directors at each board meeting.
Additionally, the Audit Committee of our Board of Directors reviews our cyber security risk profile on a quarterly basis. The Audit Committee of our Board of Directors provides a report of their activities to the full Board of Directors at board meetings.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeAt December 31, 2025 , 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 a loan production office and a customer service center in a retirement community. The Company’s operations center is in Strasburg, Virginia.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer 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]
Biggest changeIssuer Purchases of Equity Securities There was no authorized repurchase plan, and the Company did not make any repurchases of common stock during 2025. 24 Table of Contents Item 6. [Reserved]
Market 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.
Market 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 16, 2025 the Company had 1,374 shareholders of record and approximately 2,225 beneficial owners of shares of common stock.

Item 7. Management's Discussion & Analysis

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

87 edited+13 added−34 removed78 unchanged
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%.
Biggest changeAverage Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis) Years Ending December 31, 2025 2024 Average Balance Interest Income/Expense Yield/Rate Average Balance Interest Income/Expense Yield/Rate Assets Interest-bearing deposits in other banks $ 160,064 $ 6,913 4.32 % $ 124,407 $ 6,490 5.22 % Securities: Taxable 236,181 5,923 2.51 % 221,611 4,733 2.14 % Tax-exempt (1) 51,613 1,502 2.91 % 53,289 1,547 2.90 % Restricted 4,377 260 5.94 % 2,522 202 8.01 % Total securities 292,171 7,685 2.63 % 277,422 6,482 2.34 % Loans: (2) Taxable 1,441,319 84,982 5.90 % 1,096,312 63,320 5.78 % Tax-exempt (1) 3,978 244 6.13 % 2,561 206 8.04 % Total loans 1,445,297 85,226 5.90 % 1,098,873 63,526 5.78 % Federal funds sold 892 40 4.52 % 4,244 189 4.44 % Total earning assets 1,898,424 99,864 5.26 % 1,504,946 76,687 5.10 % Less: allowance for credit losses on loans (15,437 ) (13,381 ) Total nonearning assets 143,540 105,585 Total assets $ 2,026,527 $ 1,597,150 Liabilities and Shareholders’ Equity Interest-bearing deposits: Checking $ 377,944 $ 4,880 1.29 % $ 278,558 $ 4,870 1.75 % Money market accounts 332,467 7,370 2.22 % 294,818 8,265 2.80 % Savings accounts 210,510 756 0.36 % 160,795 292 0.18 % Certificates of deposit: Less than $250 292,203 8,831 3.02 % 192,456 5,856 3.01 % Greater than $250 71,438 2,455 3.44 % 46,846 1,668 3.56 % Brokered deposits — — 0.00 % 288 13 4.82 % Total interest-bearing deposits 1,284,562 24,292 1.89 % 973,761 20,964 2.15 % Federal funds purchased 1 — 0.00 % 2 — 5.24 % Subordinated debt 20,308 1,687 8.31 % 8,889 603 6.78 % Junior subordinated debt 9,279 266 2.86 % 9,279 270 2.91 % Other borrowings 137 6 4.28 % 42,486 2,029 4.78 % Total interest-bearing liabilities 1,314,287 26,251 2.00 % 1,034,417 23,866 2.31 % Noninterest-bearing liabilities Demand deposits 527,756 422,981 Other liabilities 9,220 9,037 Total liabilities 1,851,263 1,466,435 Shareholders’ equity 175,264 130,715 Total liabilities and shareholders’ equity $ 2,026,527 $ 1,597,150 Net interest income $ 73,613 $ 52,821 Interest rate spread 3.26 % 2.79 % Cost of funds 1.43 % 1.64 % Interest expense as a percent of average earning assets 1.38 % 1.59 % Net interest margin 3.88 % 3.51 % (1) Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 2 1%.
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.
Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may not 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.
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.
The Bank met the requirements to qualify as "well capitalized" as of December 31, 2025 and 2024 . 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.
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).
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, 2025 and approximate weighted average yields of such securities (dollars in thousands).
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.
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, 2025 Less than One Year One to Five Years Five to Ten Years Greater than Ten Years and Equity Securities Total U.S.
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).
Management believes, as of December 31, 2025 and December 31, 2024 , 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, 2025, and 2024 (dollars in thousands).
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 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, 2025.
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.
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 $53 thousand in assets classified as OREO at December 31, 2025 and 2024 , respectively.
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 tax rate utilized in calculating the tax benefit for both 2025 and 2024 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 provision for credit losses, noninterest income, noninterest expense and income tax expense are the other components that determine net income. Noninterest income and expense primarily consists of income from service charges on deposit accounts, ATM and check card income, wealth management income, income from other customer services, income from bank owned life insurance, and general and administrative expenses.
The provision for credit losses, noninterest income, noninterest expense and income tax expense are the other components that determine net income. Noninterest income primarily consists of income from service charges on deposit accounts, ATM and check card income, wealth management income, income from other customer services, and income from bank owned life insurance.
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.
There was a $95 thousand allowance for credit losses on held to maturity securities at December 31, 2024 . 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.
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.
At December 31, 2025 , the cash flow hedges had a fair value of $2.3 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.
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.
Gross unrealized losses in the held to maturity portfolio totaled $6.8 million and $11.0 million at December 31, 2025 and 2024 , respectively. The change in the unrealized gains and losses of investment securities from December 31, 2024 to December 31, 2025 was related to changes in market interest rates and was not related to credit concerns of the issuers.
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.
Specific reserves on the individually evaluated loans were included in the Company’s allowance for credit losses on loans. The remaining $12.0 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.
As of December 31, 2024 , neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $62 thousand and $61 thousand at December 31, 2024 and 2023 , respectively.
As of December 31, 2025 , neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $363 thousand and $62 thousand at December 31, 2025 and 2024 , respectively.
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.
The related allowance for credit losses required for these loans totaled $1.8 million and $3.1 million at December 31, 2025 and December 31, 2024 , 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.
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 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, 2025 and 2024 . At December 31, 2025 , the allowance for credit losses on held to maturity securities was $83 thousand.
For the year ended December 31, 2024, the provision for credit los ses on loans of $7.8 million, the allow ance for credit losses on acquired PCD loans of $386 thousand, and net charge offs of $3.8 million resulted in a $4.4 million increase in the allowance for credit losses on loans.
For the year ended December 31, 2024 , the provision for credit losses on loans of $7.8 million, the allowance for credit losses on acquired PCD loans of $386 thousand, and net charge offs of $3.8 million resulted in a $4.4 million increase in the allowance for credit losses on loans.
There were $365 thousand in loans greater than 90 days past due and still accruing at December 31, 2024 . There were $524 thousand in loans greater than 90 days past due and still accruing at December 31, 2023. The ACLL represents management’s analysis of the existing loan portfolio and related credit risks.
There were no loans greater than 90 days past due and still accruing at December 31, 2025 . There were $365 thousand in loans greater than 90 days past due and still accruing at December 31, 2024 . The ACLL represents management’s analysis of the existing loan portfolio and related credit risks.
The amortization of the unrealized loss on the transferred securities totaled $1.0 million, or $791 thousand net of tax, for the year ended December 31, 2024.
The amortization of the unrealized loss on the transferred securities totaled $957 thousand, or $756 thousand net of tax, for the year ended December 31, 2025 . The amortization of the unrealized loss on the transferred securities totaled $1.0 million, or $791 thousand net of tax, for the year ended December 31, 2024 .
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operation The fo llowing discussion and analysis of the financial condition and results of operations of the Company for the years ended December 31, 2025 and 2024 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.
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.
The net interest margin was 3.88% for the year ended December 31, 2025 , compared to the 3.51% for the prior year as the increase in the yield on earning assets exceeded the increase in cost of funds during 2025.
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).
Net accretion income related to acquisition accounting was $1.1 million, or a six-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, 2025 and 2024 as well as amounts and rates of tax equivalent interest earned and interest paid (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, 2024 and 2023.
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 years ended December 31, 2025 and 2024 .
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.
Other potential problem loans totaled $6.4 million and $9.1 million at December 31, 2025 and December 31, 2024 , 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.
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.
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 $14.7 million at December 31, 2025 and $16.4 million at December 31, 2024 , representing 1.02% and 1.12% of total loans, respective ly.
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.
At December 31, 2025 , t he Bank had $4.7 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 , noninterest-bearing demand deposits, savings and interest-bearing demand deposits, and time deposits composed 29%, 51%, and 20% of total deposits, respectively, compared to 31%, 54%, and 15% at December 31, 2023 . The following tables include a summary of average deposits and average rates paid (dollars in thousands).
At December 31, 2025 , noninterest-bearing demand deposits, savings and interest-bearing demand deposits, and time deposits composed 28%, 52%, and 20% of total deposits, respectively, compared to 29%, 51%, and 20% at December 31, 2024 . The following tables include a summary of average deposits and average rates paid (dollars in thousands).
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 .
Non-performing Assets At December 31, 2025 2024 Non-accrual loans $ 4,654 $ 6,971 Other real estate owned — 53 Total non-performing assets $ 4,654 $ 7,024 Loans past due 90 days accruing interest — 365 Total non-performing assets and past due loans $ 4,654 $ 7,389 Non-performing assets to period end loans 0.32 % 0.50 % The following table summarizes the Company's credit ratios on a consolidated basis as of December 31, 2025 and 2024 .
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.
On December 31, 2025 and 2024 , there were a total of 130 and 155 loans, respectively, purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 6.0 and 7.0 years, 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.
Loans acquired through business combinations included unamortized discounts, net of unamortized premiums totaling $13.2 million and $14.3 million, as of December 31, 2025 and 2024 , respectively, which are amortized over the life of the loans.
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 .
As of December 31, 2025 , the Company did not own securities of any issuer for which the aggregate book value of the securities of such issuer exceeded twelve percent of shareholders’ equity. 37 Table of Contents Deposits At December 31, 2025 , deposits totaled $1.8 billion, decreasing by $4.2 million, from $1.8 billion at December 31, 2024 .
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.
At December 31, 2025 , 56.2% of non-performing assets were commercial and industrial loans, 42.9% were residential real estate loans, and 1.0% were construction loans. Non-performing assets could increase due to the deterioration of other loans identified by management as potential problem loans.
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. Noninterest Income Noninterest income totaled $16.4 million for the year, which was a increase of $4.6 million, or 39%, compared to $11.8 million for the prior year.
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. Noninterest Income Noninterest income totaled $17.0 million for the year, which was an increase of $638 thousand, or 3.9%, compared to $16.4 million for the prior year.
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.
At December 31, 2025 and 2024, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands): 2025 2024 Commitments to extend credit and unfunded commitments under lines of credit $ 299,104 $ 271,419 Standby letters of credit 3,079 15,594 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.
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.
Loans purchased from a third-party that originated and serviced loans to health care professionals totaled $14.1 million as of December 31, 2025 , which included unamortized premiums totaling $4.1 million, compared to loans totaling $19.0 million as of December 31, 2024 , which included unamortized premiums totaling $5.8 million.
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).
Allocation of Allowance for Credit Losses At December 31, 2025 2024 Allocation of Allowance for Credit Losses: Real estate loans: Construction and land development $ 539 $ 585 Secured by 1-4 family 4,819 4,266 Other real estate loans 5,952 7,462 Commercial and industrial 3,188 3,927 Consumer and other loans 221 160 Total allowance for credit losses $ 14,719 $ 16,400 Ratios of loans to total period-end loans: Real estate loans: Construction and land development 6.1 % 5.8 % Secured by 1-4 family 36.4 % 37.3 % Other real estate loans 48.1 % 45.8 % Commercial and industrial 8.1 % 9.6 % Consumer and other loans 1.3 % 1.5 % 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).
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.
These recoveries were offset by provision for credit losses totaling $4.3 million in the 1-4 family residential, consumer and other loans, 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.
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 .
Return on average assets was 0.87% and return on average equity was 10.10% for the year ended December 31, 2025 , compared to 0.44% and 5.33%, respectively, for the year ended December 31, 2024 .
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.
Non-performing assets totaled $4.7 million and $7.0 million at December 31, 2025 and 2024 , representing approximately 0.23% and 0.35% of total assets, respectively. Non-performing assets consisted of $4.7 million and $7.0 million of non-accrual loans at December 31, 2025 and 2024 , respectively.
Loans individually evaluated for impairment totaled $7.0 million and $6.8 million at December 31, 2024 and 2023 , respectively.
Loans individually evaluated for impairment totaled $4.7 million and $7.0 million at December 31, 2025 and 2024 , respectively.
The increase in total interest income was primarily attributable to a $14.2 million, or 29%, increase in interest income and fees on loans.
The increase in total interest income was primarily attributable to a $21.7 million, or 34%, increase in interest income and fees on loans.
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.
On December 31, 2025 , loans purchased from the finance company totaled $14.1 million, which was comprised of $10.0 million of loan balances and unamortized premiums totaling $4.1 million. The Company determined that $2.1 million of the loans were non-accrual and thus were individually evaluated.
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.
Gross unrealized losses in the available for sale portfolio totaled $14.8 million and $22.1 million at December 31, 2025 and 2024 , respectively. Gross unrealized gains in the held to maturity portfolio totaled $98 thousand and $8 thousand at December 31, 2025 and 2024 , respectively.
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.
The Company issued $5.0 million of subordinated debt in June 2020. 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 began July 1, 2025.
The estimate of uninsured deposits generally represents the portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank’s regulatory reporting requirements.
Maturities of the estimated amount of uninsured time deposits at December 31, 2025 are presented in the table below. The estimate of uninsured deposits generally represents the portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank’s regulatory reporting requirements.
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 .
Net Income Net income increased by $10.7 million to $17.7 million, or $1.96 per diluted shar e, for the year ended December 31, 2025 , compared to $7.0 million, or $1.00 per diluted share , for the same period in 2024 .
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.
Consolidated Credit Ratios December 31, 2025 2025 2024 Total Loans $ 1,449,745 $ 1,466,595 Nonaccrual loans $ 4,654 $ 6,971 Allowance for credit losses (ACL) $ 14,719 $ 16,400 Nonaccrual loans to total loans 0.32 % 0.48 % ACL to total loans 1.02 % 1.12 % ACL to nonaccrual loans 316.27 % 235.26 % 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.
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.
Analysis of Capital At December 31, 2025 2024 Common equity Tier 1 capital $ 186,193 $ 164,454 Tier 1 capital 186,193 164,454 Tier 2 capital 15,429 16,995 Total risk-based capital 201,622 181,449 Risk-weighted assets 1,478,549 1,469,752 Capital ratios: Common equity Tier 1 capital ratio 12.59 % 11.19 % Tier 1 capital ratio 12.59 % 11.19 % Total capital ratio 13.64 % 12.35 % Leverage ratio (Tier 1 capital to average assets) 9.13 % 7.95 % Capital conservation buffer ratio(1) 5.64 % 4.34 % (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.
Reconciliation of Net Interest Income to Tax-Equivalent Net Interest Income 2024 2023 GAAP measures: Interest income – loans $ 63,483 $ 49,293 Interest income – investments and other 12,836 8,426 Interest expense – deposits (20,964 ) (13,660 ) Interest expense – federal funds purchased (1 ) — Interest expense – subordinated debt (603 ) (277 ) Interest expense – junior subordinated debt (270 ) (271 ) Interest expense – other borrowings (2,029 ) (98 ) Total net interest income $ 52,452 $ 43,413 Non-GAAP measures: Tax benefit realized on non-taxable interest income - loans $ 43 $ — Tax benefit realized on non-taxable interest income - municipal securities 326 325 Total tax benefit realized on non-taxable interest income $ 369 $ 325 Total tax-equivalent net interest income $ 52,821 $ 43,738 29 Table of Contents Net Interest Income Net interest income represents the primary source of earnings for the Company.
Reconciliation of Net Interest Income to Tax-Equivalent Net Interest Income 2025 2024 GAAP measures: Interest income – loans $ 85,174 $ 63,483 Interest income – investments and other 14,323 12,836 Interest expense – deposits (24,292 ) (20,964 ) Interest expense – federal funds purchased — (1 ) Interest expense – subordinated debt (1,687 ) (603 ) Interest expense – junior subordinated debt (266 ) (270 ) Interest expense – other borrowings (6 ) (2,029 ) Total net interest income $ 73,246 $ 52,452 Non-GAAP measures: Tax benefit realized on non-taxable interest income - loans $ 52 $ 43 Tax benefit realized on non-taxable interest income - municipal securities 315 326 Total tax benefit realized on non-taxable interest income $ 367 $ 369 Total tax-equivalent net interest income $ 73,613 $ 52,821 29 Table of Contents Net Interest Income Net interest income represents the primary source of earnings for the Company.
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.
The increase in interest income on loans was attributable to a 12-basis point increase in the yield on loans and a 31.5% increase in average loan balances compared to the prior year due to the acquisition of Touchstone.
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.
Efficiency Ratio 2025 2024 Total noninterest expense (GAAP) $ 65,433 $ 52,934 Subtract: other real estate (gain) loss and expense, net 7 (15 ) Subtract: amortization of intangibles (1,767 ) (461 ) Subtract: loss on disposal of premises and equipment, net 16 (47 ) Subtract: merger expenses (2,159 ) (8,107 ) Adjusted non-interest expense (non-GAAP) $ 61,530 $ 44,304 Tax-equivalent net interest income (non-GAAP) $ 73,613 $ 52,821 Total noninterest income (GAAP) 17,018 16,380 Gain on subordinated debt payoff (80 ) — Bargain purchase gain from acquisition (304 ) (2,920 ) Securities losses (gains), net — 115 Adjusted income for efficiency ratio (non-GAAP) $ 90,247 $ 66,396 Efficiency ratio (non-GAAP) 68.18 % 66.73 % This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets.
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 $10.7 million increase in net income resulted from a $20.8 million increase in net interest income, a $5.9 million decrease in merger expenses associated with the Touchstone acquisition, a $5.0 million decrease in provision for credit losses partially associated with the acquisition, and a $638 thousand increase in noninterest income .
The Company assumed two subordinated debt issuances from the acquisition of Touchstone. The subordinated debt assumed consisted of a $8.0 million issuance at a 6.00% fixed-to-floating rate subordinated note callable due 2030. The floating rate period for this subordinated note begins August 15, 2025, accordingly the related interest expense could increase during the floating rate period.
The Company assumed two subordinated debt issuances from the acquisition of Touchstone. The subordinated debt assumed consisted of an $8.0 million 6.00% fixed-to-floating rate subordinated note due 2030. The floating rate period for this subordinated note began August 15, 2025. The subordinated debt assumed also consisted of a $10.0 million 4.00% fixed-to-floating rate subordinated note due 2032.
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.
As of and for the years ended December 31, 2025 2024 Results of Operations Interest and dividend income $ 99,497 $ 76,319 Interest expense 26,251 23,867 Net interest income 73,246 52,452 Provision for credit losses 2,887 7,850 Net interest income after provision for credit losses 70,359 44,602 Noninterest income 17,018 16,380 Noninterest expense 65,433 52,934 Income before income taxes 21,944 8,048 Income tax expense 4,241 1,082 Net income $ 17,703 $ 6,966 Key Performance Ratios Return on average assets 0.87 % 0.44 % Return on average equity 10.10 % 5.33 % Net interest margin (1) 3.88 % 3.51 % Efficiency ratio (1) 68.18 % 66.73 % Dividend payout 32.27 % 60.54 % Equity to assets 9.14 % 8.28 % Per Common Share Data Net income, basic $ 1.97 $ 1.00 Net income, diluted 1.96 1.00 Cash dividends 0.635 0.605 Book value at period end 18.83 16.48 Financial Condition Assets $ 2,037,978 $ 2,010,281 Loans, net 1,435,026 1,450,195 Securities 326,034 277,329 Deposits 1,799,548 1,803,778 Shareholders’ equity 186,196 166,531 Average shares outstanding, diluted 9,015 6,971 Capital Ratios (2) Leverage 9.13 % 7.95 % Risk-based capital ratios: Common equity Tier 1 capital 12.59 % 11.19 % Tier 1 capital 12.59 % 11.19 % Total capital 13.64 % 12.34 % (1) Thi s performance ratio is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational performance.
These unfavorable variances were partially offset by a $9.0 million, or 21%, increase in net interest income, a $4.6 million, or 39%, increase in noninterest income, and a $1.1 million decrease in income tax expense. 27 Table of Contents The following is selected financial data for the Company for the years ended December 31, 2024 and 2023.
These favorable variances were partially offset by a $12.5 million, or 24%, increase in noninterest expense and a $3.2 million increase in income tax expense. 27 Table of Contents The following is selected financial data for the Company for the years ended December 31, 2025 and 2024.
The net interest margin increased by 10-basis points to 3.51% and average earnings assets increased by $224.0 million, or 17%, offset by a $186.2 million, or 22%, increase in average interest-bearing liabilities, in each case primarily related to the acquisition of Touchstone.
The net interest margin increased by 37-basis points to 3.88% and average earnings assets increased by $393.5 million, or 26.1%, offset by a $279.9 million, or 27.1%, increase in average interest-bearing liabilities, in each case primarily related to the acquisition of Touchstone.
Securities Securities totaled $277.3 million at December 31, 2024 , a decrease of $25.9 million, or 8.5%, from $303.2 million at the end of 2023 . Investment securities are comprised of U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities.
Securities Securities totaled $326.0 million at December 31, 2025 , an increase of $48.7 million, or 17.6%, from $277.3 million at the end of 2024 . Investment securities are comprised of U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities.
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).
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, 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 on loans 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 % For the year ended December 31, 2025: Balance at beginning of year $ 585 $ 4,266 $ 7,462 $ 3,927 $ 160 $ 16,400 Charge-offs (22 ) (59 ) (7 ) (4,221 ) (496 ) (4,805 ) Recoveries 5 31 15 168 147 366 Provision for (recovery of) credit losses on loans (29 ) 581 (1,518 ) 3,314 410 2,758 Balance at end of year $ 539 $ 4,819 $ 5,952 $ 3,188 $ 221 $ 14,719 Average loans $ 123,177 $ 488,008 $ 698,965 $ 120,285 $ 14,862 $ 1,445,297 Ratio of net (recoveries) charge-offs to average loans 0.01 % 0.01 % 0.00 % 3.37 % 2.35 % 0.31 % 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 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.
The 2025 provision was comprised of a $2.8 million provision for credit losses on loans, a $141 thousand provision for credit losses on unfunded commitments, and a $12 thousand recovery of credit losses on held-to-maturity securities.
The tax-equivalent adjustment was $368 thousand for 2024, and $325 thousand for 2023.
The tax-equivalent adjustment was $367 thousand for 2025 , and $369 thousand for 2024 .
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.
The $4.4 million of net charge-offs included $1.3 million of loans purchased through a third-party lending program and $650 thousand of related unamortized purchase premiums on the loans.
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.
Available lines of credit from other institutions included in the total amount above was $556.2 million on December 31, 2025 , and $562.5 million on December 31, 2024 .
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.
Maturities of Uninsured Time Deposits (in thousands) December 31, 2025 3 months or less $ 27,619 3-6 months 12,158 6-12 months 19,791 Over 12 months 9,107 $ 68,675 Liquidity Liquidity sources available to the Bank, including inter est-bearing deposits in banks, unpledged securities available for sale, at fair value, and available lines of credit totaled $819.0 million on December 31, 2025 , and $758.0 million on December 31, 2024 .
For the year ended December 31, 2023, the provision for credit losses on loans of $6.0 million, the adjustment for the adoption of ASU 2016-13 of $2.1 million, and net charge offs of $3.6 million resulted in a $4.5 million increase in the allowance for credit losses on loans.
For the year ended December 31, 2025 , the provision for credit los ses on loans of $2.8 million and net charge offs of $4.4 million resulted in a $1.7 million decrease in the allowance for credit losses on loans.
Results of Operations Executive Overview The Company’s 2024 financial highlights: ● The Company completed the acquisition of Touchstone Bankshares, Inc. on October 1. ● Net income available to common shareholders was $7.0 million and diluted earnings per share was $1.00 compared to net income of $9.6 million and diluted earnings per share of $1.53 in 2023. ● Earnings produced a return on average equity of 5.33% for 2024 compared to 8.59% for 2023. ● Period end loans, net, grew $493.1 million in 2024 as compared to 2023. ● Period end deposits grew $570.1 million in 2024 as compared to 2023. ● The 2024 provision for credit losses on loans totaled $7.9 million, compared to $6.2 million in 2023. ● Nonperforming assets as a percentage of total loans were 0.50% at December 31, 2024, compared to 0.70% in 2023. ● The net interest margin increased ten basis points to 3.51% for 2024, compared to 3.41% in 2023.
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 Results of Operations Executive Overview The Company’s 2025 financial highlights: ● The Company acquired Touchstone Bankshares, Inc. on October 1, 2024, and completed the operational merger in the first quarter of 2025. ● Net income available to common shareholders was $17.7 million and diluted earnings per share was $1.96 compared to net income of $7.0 million and diluted earnings per share of $1.00 in 2024. ● Earnings produced a return on average equity of 10.10% for 2025 compared to 5.33% for 2024. ● Period end loans, net, decreased $15.2 million in 2025 as compared to 2024. ● Period end deposits decreased $4.2 million in 2025 as compared to 2024. ● The 2025 provision for credit losses on loans totaled $2.9 million, compared to $7.9 million in 2024. ● Nonperforming assets as a percentage of total loans were 0.32% on December 31, 2025, compared to 0.50% in 2024. ● The net interest margin increased to 3.88% for 2025, compared to 3.51% in 2024.
Calculated loss rates were lower as were the inherent risks in the loan portfolio through adjustments to qualitative risk factors. The specific reserve increased by $374 thousand from individually evaluated loan relationships.
Calculated loss rates were lower as were the inherent risks in the loan portfolio through adjustments to qualitative risk factors. The specific reserve decrease was driven by lower individually analyzed loans balances following charge-offs recorded in 2025.
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.
All other held-to-maturity securities are covered by the explicit or implied guarantee of the United States government or one if its agencies. 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 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.
The available lines of credit were comprised of secured and unsecured lines of credit and the Bank had $25.0 million and $0 on the lines as of December 31, 2025 and December 31, 2024 , respectively. The Bank maintains liquidity to fund loan growth and meet the potential demand from its deposit customers, including potential volatile deposits.
This results in the following minimum capital ratios beginning in 2019: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%.
The final rules also established a “capital conservation buffer” above the new regulatory minimum capital requirements. The capital conservation buffer requires a buffer of 2.5% of risk-weighted assets. This results in the following minimum capital ratios: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%.
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 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, 2025 . The collectively evaluated reserve decreased $395 thousand and the individually evaluated reserve component of the ACLL decreased $1.3 million.
Financial Condition General Total assets increased $591.0 million during the year and totaled $2.0 billion at December 31, 2024 .
Financial Condition General Total assets increased $27.7 million during the year and totaled $2.0 billion at December 31, 2025 . The increase was attributable to a $53.7 million increase in securities available for sale.
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.
The Bank’s lending activity is concentrated on individuals, and small and medium-sized businesses primarily in its market areas. 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 loan portfolio includes loans that were acquired through business combinations.
Recoveries of credit losses of $682 thousand and $360 thousand were recorded in the 1-4 family residential and consumer and other loans classes during the year ended December 31, 2024 . The recoveries of credit losses resulted primarily from a decrease in the collectively evaluated reserve.
For further discussion regarding the ACLL, see “Provision for Credit Losses” above. Recoveries of credit losses of $1.5 million and $29 thousand were recorded in the other real estate and construction and land development loans classes during the year ended December 31, 2025 . The recoveries of credit losses resulted primarily from a decrease in the collectively evaluated reserve.
The higher interest expense on deposits resulted from a 51-basis point increase in the cost of interest-bearing deposits and a 17% increase in average interest-bearing deposits in part due to the acquisition of Touchstone.
Although there was a 31-basis point decrease in the cost of interest-bearing liabilities, interest expense increased due to a 31.9% increase in average interest-bearing deposits due to the acquisition of Touchstone.
Each of these line items included the operating expenses of Touchstone for the last three months of 2024. Other operating expense increased from higher recruiting expense, directors fees, card cash expense, education and training, loan collection expense, item processing expense, and courier and armored services.
Other operating expense increased from higher recruiting expense, directors fees, debit card promotion expense, education and training, loan collection expense, item processing expense, core deposit intangible expense, and courier and armored services.
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.
Subordinated Debt See Note 10 to the Consolidated Financial Statements included in this Form 10-K, for discussion of subordinated debt.
Loans The Bank is an active lender with a loan portfolio that includes commercial and residential real estate loans, commercial loans, consumer loans, construction and land development loans, and home equity loans. The Bank’s lending activity is concentrated on individuals, and small and medium-sized businesses primarily in its market areas.
The increase was primarily attributable to a $12.0 million increase in retained earnings and $6.5 million decrease in accumulated other comprehensive loss. Loans The Bank is an active lender with a loan portfolio that includes commercial and residential real estate loans, commercial loans, consumer loans, construction and land development loans, and home equity loans.
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%.
Noninterest income categories with moderate increases over the prior year included brokered mortgage fees which increased $397 thousand, or 157.5%, income from bank owned life insurance which increased $389 thousand, or 51.5%, and fees for other customer services which increased $221 thousand, or 22.9%.
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.
Average Deposits and Rates Paid Year Ended December 31, 2025 2024 Amount Rate Amount Rate Noninterest-bearing deposits $ 527,756 — % $ 422,981 — % Interest-bearing deposits: Interest checking $ 377,944 1.29 % $ 278,558 1.75 % Money market 332,467 2.22 % 294,818 2.80 % Savings 210,510 0.36 % 160,795 0.18 % Time deposits: Less than $250 292,203 3.02 % 192,456 3.01 % Greater than $250 71,438 3.44 % 46,846 3.56 % Brokered deposits — — % 288 4.82 % Total interest-bearing deposits $ 1,284,562 1.89 % $ 973,761 2.15 % Total deposits $ 1,812,318 $ 1,396,742 As of December 31, 2025 the estimated amount of total uninsured deposits was $538.2 million.

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