First National Corp. (NASDAQ:FXNC), a leading regional bank in the Southeastern United States, reported its financial results for the first quarter of 2024, showcasing robust performance across key metrics.

Financials

Net Income and Revenue Highlights

For the first quarter of 2024, First National Corp. reported net income of $3.2 million, or $0.51 per diluted share. This compares to net income of $3.8 million, or $0.61 per diluted share, in the same period of the prior year. The company's annual net income for the fiscal year 2023 was $9.6 million.

Total revenue for the first quarter of 2024 was $14.9 million, up from $13.9 million in the first quarter of 2023. The company's annual revenue for the fiscal year 2023 was $69.5 million.

The increase in revenue was primarily driven by a $2.8 million, or 21%, rise in total interest income, which was partially offset by a $3.1 million, or 132%, increase in total interest expense. Net interest income decreased by $326 thousand, or 3%, to $10.9 million for the first quarter of 2024 compared to the same period in the prior year.

Noninterest income increased by $1.3 million, or 46%, to $4.0 million, primarily due to an increase in other operating income and wealth management fees.

Operational and Profitability Metrics

First National Corp.'s return on average assets (ROAA) was 0.90% for the first quarter of 2024, compared to 1.15% in the same period of 2023. The company's return on average equity (ROAE) was 11.07% for the first quarter of 2024, compared to 14.20% in the same period of the prior year.

The efficiency ratio, a measure of the company's operational efficiency, was 65.65% for the first quarter of 2024, compared to 65.49% in the same period of 2023.

Loan and Deposit Growth

Total loans, net of the allowance for credit losses, increased by $2.9 million, or 2% (annualized), to $960.4 million as of March 31, 2024, compared to $957.5 million as of December 31, 2023. The company's annual operating cash flow for the fiscal year 2023 was $16.4 million, and its annual free cash flow was $14.5 million.

Total deposits increased by $25.4 million, or 8% (annualized), to $1.3 billion as of March 31, 2024, compared to $1.2 billion as of December 31, 2023.

Asset Quality and Allowance for Credit Losses

The allowance for credit losses on loans totaled $12.6 million, or 1.30% of total loans, as of March 31, 2024, compared to $11.9 million, or 1.24% of total loans, as of December 31, 2023. The provision for credit losses increased to $1.0 million for the first quarter of 2024, compared to no provision for the same period in the prior year.

Nonperforming assets, which include nonaccrual loans and other real estate owned, were $8.0 million, or 0.55% of total assets, as of March 31, 2024, compared to $6.8 million, or 0.48% of total assets, as of December 31, 2023.

Liquidity

Capital and Liquidity

As of March 31, 2024, First National Corp.'s capital ratios remained well above regulatory minimums, with a common equity Tier 1 capital ratio of 13.20%, a Tier 1 capital ratio of 13.20%, and a total capital ratio of 14.45%. The company's Tier 1 leverage ratio was 9.19%.

The company's liquidity sources, including interest-bearing deposits in banks, unpledged securities, and available lines of credit, totaled $554.8 million as of March 31, 2024, providing ample liquidity to support the company's operations and growth initiatives.

Recent Developments

Acquisition of Touchstone Bankshares, Inc.

On March 25, 2024, First National Corp. announced that it had entered into an agreement to acquire Touchstone Bankshares, Inc. (Touchstone) for an aggregate purchase price of approximately $47.0 million in stock. The acquisition is expected to close in the fourth quarter of 2024, subject to customary closing conditions, including shareholder and regulatory approvals.

At the time of closing, Touchstone is expected to have 12 retail bank offices serving south-central Virginia and northern North Carolina, and an administrative office in Prince George, Virginia. As of March 31, 2024, Touchstone reported total assets of $673.2 million, gross loans of $506.0 million, and total deposits of $557.6 million.

The acquisition is expected to enhance First National Corp.'s market presence and expand its customer base in the region. The company estimates that it will incur aggregate pre-tax merger-related expenses of approximately $3.3 million during 2024.

Outlook

First National Corp. remains focused on executing its strategic growth initiatives, which include organic loan and deposit growth, expansion of its wealth management services, and the successful integration of the Touchstone acquisition.

The company's management team is optimistic about the company's prospects, citing the strong loan and deposit growth, improved noninterest income, and the anticipated benefits of the Touchstone acquisition. However, the company also acknowledges the potential challenges posed by the rising interest rate environment and its impact on net interest margin.

Conclusion

First National Corp.'s first-quarter 2024 results demonstrate the company's ability to navigate the evolving banking landscape and deliver solid financial performance. The company's focus on organic growth, strategic acquisitions, and operational efficiency has positioned it well for continued success. As the company integrates Touchstone and executes its growth initiatives, investors will closely monitor the company's ability to maintain its strong financial position and capitalize on emerging opportunities in the Southeastern U.S. banking market.