Executive Summary

Q1 2025 came in below Street on normalized EPS and revenue as integration costs, higher operating expenses, and elevated charge-offs offset healthy core spreads; normalized EPS was $0.35 vs S&P Global consensus $0.535, and revenue was $19.88M vs $22.00M consensus, while GAAP EPS was $0.18 due to $1.9M merger expenses and duplicative systems costs through late February *.
Core banking trends remained solid: net interest margin FTE was 3.77% (down 6 bps q/q; up 53 bps y/y) as earning asset yields dipped 12 bps and cost of funds fell 6 bps; noninterest-bearing deposits were 30% of total (up ~40.7% y/y) .
Asset quality mixed: NPAs improved to 0.24% of assets and ACL/NPAs rose to 303%, but net charge-offs increased to $2.4M, including $2.2M in C&I with $208K tied to a healthcare-professional loan pool .
Integration of Touchstone is largely complete (systems conversion in 1Q) and management expects a return to its “efficient model” with scale from new markets, but near-term expenses (salary/benefits, FDIC, fraud) and amortization on early loan payoffs pressured q/q results .

What Went Well and What Went Wrong

What Went Well

Completed operational merger with Touchstone; management: “We completed the Touchstone system conversion… Going forward we expect to return to our efficient model of banking and enjoy scale and growth from these new markets” .
Funding mix and spreads: NIM FTE 3.77% (vs 3.24% in Q1’24), cost of funds down 6 bps q/q to 1.45% aided by deposit mix and late-2024 Fed cuts .
Balance sheet and liquidity: deposits +1.2% q/q to $1.825B; liquidity sources $800.2M (vs $770.0M at 12/31/24); no other borrowings vs $50M a year ago .

What Went Wrong

Earnings vs expectations: normalized EPS $0.35 vs S&P Global consensus $0.535; revenue $19.88M vs $22.00M; GAAP EPS $0.18 on $1.9M merger costs and elevated operating expense run-rate (salaries/benefits, FDIC, fraud losses) *.
Sequential margin pressure: NIM FTE fell to 3.77% from 3.83% due to lower earning asset yields and amortization on early Touchstone loan payoffs; net interest income decreased $908K q/q to $17.5M .
Credit costs remained elevated: net charge-offs rose to $2.4M (vs $1.3M in Q4), largely C&I-related; provision was $832K, with ACL/loans down to 1.02% mainly as specific reserves were charged off .

Financial Results

P&L and Per-Share Metrics

Metric	Q3 2024	Q4 2024	Q1 2025
Net Revenue ($M)	$14.952	$24.803	$21.062
Net Interest Income ($M)	$11.749	$18.359	$17.451
Noninterest Income ($M)	$3.203	$6.444	$3.611
Provision for Credit Losses ($M)	$1.700	$4.750	$0.832
Noninterest Expense ($M)	$10.459	$21.929	$18.335
GAAP Net Income ($M)	$2.248	$(0.933)	$1.598
GAAP EPS ($)	$0.36	$(0.10)	$0.18
Adjusted EPS ($)	$0.39	$0.66	$0.35

Key Ratios

Metric	Q3 2024	Q4 2024	Q1 2025
NIM (FTE)	3.43%	3.83%	3.77%
Efficiency Ratio (non-GAAP)	67.95%	63.97%	75.44%
ROA (GAAP)	0.62%	(0.18%)	0.32%
ROE (GAAP)	7.28%	(2.35%)	3.85%

Balance Sheet and Credit KPIs

KPI	Q3 2024	Q4 2024	Q1 2025
Total Assets ($B)	$1.451	$2.010	$2.033
Loans, net ($B)	$0.982	$1.451	$1.436
Deposits ($B)	$1.253	$1.804	$1.825
NIB Deposits (% of total)	31%	29%	30%
Liquidity Sources ($M)	$499.1	$770.0 (12/31/24)	$800.2
NPAs / Assets (%)	0.41%	0.35%	0.24%
Net Charge-offs ($M)	$1.572	$1.334	$2.401
ACL / Loans (%)	1.28%	1.12%	1.02%
Total Capital Ratio	14.29%	12.35%	12.44%
Tier 1 Capital Ratio	13.04%	11.19%	11.39%
Leverage Ratio	9.23%	7.95%	8.28%

Estimate Comparison (S&P Global)

Metric	Consensus	Actual	Surprise
Revenue ($M)	$22.00*	$19.88*	(9.6%)*
EPS (Normalized)	$0.535*	$0.35*	(34.6%)*
Note: Asterisked values retrieved from S&P Global consensus and actuals via SPGI.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Financial guidance (revenue, margins, OpEx, tax)	2025 outlook	Not provided	Not provided	N/A
Dividend per share	Q1 2025	$0.155 (Q4 2024)	$0.155 (declared/paid)	Maintained

Earnings Call Themes & Trends

No earnings call transcript was found for Q1 2025; themes below reflect company press releases and 8‑K disclosures.

Topic	Previous Mentions (Q3 2024)	Previous Mentions (Q4 2024)	Current Period (Q1 2025)	Trend
Merger integration	Announced Touchstone acquisition; pro forma scale outlined	Closed 10/1; bargain purchase gain; system conversion pending	Operational merger completed; expect return to “efficient model”	Improving execution
Net interest margin & deposit mix	NIM 3.43%; sticky NIB deposits 31%	NIM up to 3.83% on mix and rate cuts	NIM 3.77%; yields −12 bps, COF −6 bps; amortization drag	Slight q/q pressure, y/y higher
Operating expenses/efficiency	Modest merger costs ($219K)	High merger costs ($7.3M); efficiency 63.97%	Merger costs $1.9M; adj OpEx up on salaries, fraud, FDIC; efficiency 75.44%	Near-term elevated
Asset quality	Charge-offs elevated; ACL/loans 1.28%	NCOs $1.3M; day-2 ACL build	NCOs $2.4M (C&I, healthcare pool); NPAs down to 0.24%	Mixed: lower NPAs, higher NCOs
Liquidity & uninsured deposits	Liquidity $499.1M; uninsured deposits $400.1M	—	Liquidity $800.2M; uninsured $549.3M (ex-muni $458.7M)	Stronger buffers
Capital & dividends	TBVPS $19.37	Share count up post-merger; dividend $0.155	Ratios stable; dividend $0.155	Stable

Management Commentary

Strategic integration: “We completed the Touchstone system conversion during the first quarter of 2025… Going forward we expect to return to our efficient model of banking and enjoy scale and growth from these new markets” — Scott Harvard, President & CEO .
Margin dynamics: Net amortization expense related to acquisition accounting reduced NIM by ~1 bp in Q1’25 vs +22 bps accretion in Q4’24; earning asset yields fell 12 bps q/q to 5.18% while cost of funds fell 6 bps to 1.45% .
Expense posture: Adjusted operating noninterest expense rose to $16.0M on higher salaries/benefits, fraud losses, and FDIC assessment (merger costs $1.9M in Q1 vs $7.3M in Q4) .

Q&A Highlights

No Q1 2025 earnings call transcript was available in the filings database; no Q&A themes to report for this period [ListDocuments result: none].

Estimates Context

Normalized EPS of $0.35 missed S&P Global consensus of $0.535 due to lower net interest income (amortization on early Touchstone payoffs) and higher adjusted OpEx (salaries/benefits, FDIC, fraud), with GAAP EPS at $0.18 reflecting $1.9M merger expenses *.
Revenue of $19.88M missed S&P Global consensus of $22.00M; Street models likely assumed higher “operating revenue” after the merger, but Q1 saw lower earning asset yields and waived charges during the systems conversion *.
S&P Global values were used for consensus and actuals in this section.
Note: Asterisked values retrieved from S&P Global.

Key Takeaways for Investors

Near-term prints are integration-affected: normalized EPS and revenue missed Street; GAAP EPS reflects $1.9M merger costs and duplicative systems costs through late February *.
Core franchise remains sound: NIM FTE 3.77% (up 53 bps y/y), NIB deposits 30%, liquidity $800.2M, and capital ratios stable post-merger .
Watch credit: NPAs fell to 0.24% but NCOs rose to $2.4M (C&I concentration, including a healthcare-professional loan pool); ACL/loans eased to 1.02% as specific reserves were charged off .
Expense normalization is the catalyst: as merger costs abate and systems duplication ends, efficiency should improve from 75%+ back toward pre-merger levels, aided by scale in new markets .
Margin trajectory depends on mix and rates: q/q NIM drifted lower on yield compression and amortization; stabilization/improvement hinges on accretion/repayment dynamics and deposit mix management .
Dividend held at $0.155; stable payout while integration completes .
Potential stock reaction catalysts: evidence of OpEx normalization, sustained NIM stabilization, and steady credit trends (lower NCOs) could re-rate the shares; renewed credit noise or higher-than-expected fraud/FDIC costs would be negatives .

Additional Detail and Cross-Checks

Revenue and earnings composition: Net interest income of $17.5M and noninterest income of $3.6M (total net revenue $21.1M) vs Q4 $24.8M that included a $2.9M bargain purchase gain; noninterest income ex-gain increased 2.5% q/q despite waived fees during conversion .
Balance sheet scale (Touchstone): Assets $2.033B (+40.5% y/y), deposits $1.825B (+44.9% y/y), loans net $1.436B (+49.5% y/y) .
Leadership update: New CFO Brad E. Schwartz (effective March 31, 2025) brings extensive Virginia banking and M&A experience, strengthening execution post-merger .

Footnote: Asterisked values in the Estimates section are retrieved from S&P Global consensus and actuals via SPGI.

FIRST NATIONAL CORP /VA/ (FXNC)·Q1 2025 Earnings Summary