Exhibit 99.1
First National Corporation Announces 18% Increase in Earnings
STRASBURG, Va., October 25, 2016 --- First National Corporation (the "Company" or "First National") (OTC: FXNC) today reported earnings of $1.7 million and earnings per share of $0.34 for the third quarter ended September 30, 2016, an 18% increase compared to $1.4 million or $0.29 per share for the second quarter of 2016. Earnings for the third quarter of 2015 were $398 thousand or $0.08 per share.
For the nine months ended September 30, 2016, reported earnings totaled $4.2 million or $0.86 per share, compared to $729 thousand or $0.15 per share for the nine months ended September 30, 2015. Year-to-date earnings for 2016 were positively impacted by higher revenues from net interest income and noninterest income, combined with lower noninterest expenses. In addition, net income available to common shareholders was favorably impacted by the elimination of dividends on preferred stock. Year-to-date earnings for 2015 were negatively impacted by integration expenses totaling $897 thousand related to the acquisition of six bank branches and the assumption of $186.8 million of deposit liabilities.
Select highlights for the third quarter include:
| | Return on equity increased to 13.44%, compared to 11.90% for the second quarter of 2016, and 4.80% for the third quarter of 2015 |
| | Net income available to common shareholders increased $261 thousand, or 18%, to $1.7 million compared to the second quarter of 2016, and increased $1.3 million compared to the third quarter of 2015 |
| | The efficiency ratio improved to 68.56% for the quarter, compared to 71.62% in the prior quarter and 81.38% in the third quarter of 2015 |
| | Noninterest income increased $199 thousand, or 9%, compared to the prior quarter, and increased $67 thousand, or 3%, compared to the third quarter of 2015 |
| | Noninterest expense decreased for the fifth consecutive quarter, and decreased $848 thousand, or 13%, compared to the third quarter of 2015 |
| | Assets per employee increased to $4.3 million, compared to $3.6 million at the end of the third quarter of 2015 |
| | Net interest income increased $51 thousand compared to the prior quarter, and increased $421 thousand, or 8%, compared to the third quarter of 2015 |
| | Net loans increased $5.4 million during the quarter, and increased $64.4 million, or 16%, over the prior year |
| | Noninterest-bearing demand deposits increased $8.9 million, or 6%, compared to the prior quarter, and increased $19.0 million, or 13%, over the prior year |
"The Company improved profitability for the fifth consecutive quarter by increasing revenue and lowering expense levels," said Scott Harvard, president and chief executive officer of First National. Harvard added, "We continued to reap the benefits of the 2015 branch deposit acquisition, executing on our strategy of deploying deposits into loans, while reducing expenses and improving efficiency. Thanks to the hard work of our team of associates, productivity has improved from $3.6 million in assets per employee one year ago, to $4.3 million assets per employee at the end of the third quarter of 2016. We are also pleased that we have begun growing deposits in our expanded markets. Total deposits across our market footprint increased 4% from June 30, 2015 to June 30, 2016, according to FDIC data. During that same period, First Bank's total non-interest bearing deposits grew by 8%, as the company remained focused on retaining and growing low cost, non-maturity deposits."
BRANCH ACQUISITION
On April 17, 2015, First Bank (the "Bank"), the Company's banking subsidiary, completed the acquisition of six banking offices with approximately $186.8 million of deposits in the Shenandoah Valley and central Virginia regions from Bank of America, N.A. (the "Acquisition" or "Branch Acquisition"). The Company incurred integration costs related to the Acquisition, including legal and professional fees, supplies, data processing and postage expenses that totaled $897 thousand for the nine month period ended September 30, 2015. The Company did not incur integration costs during 2016.
At September 30, 2016, deposits from the acquired branches totaled $176.3 million, which was 94% of the deposit balances assumed in the Acquisition. The branch acquisition had a positive impact on the cost of funds for the Company. The cost of funds for the third quarter of 2016 for acquired branches was 0.22%, compared to the total cost of funds of the Company of 0.30% for the same period. The mix of deposits, which was comprised of a significant amount of noninterest-bearing deposits, remained consistent from the acquisition date through September 30, 2016. The Bank assembled an experienced lending team in its south region that made a meaningful contribution to loan growth during 2015 and the first nine months of 2016.
BALANCE SHEET
Total assets of First National increased $1.3 million during the quarter to $712.7 million at September 30, 2016, and increased $23.8 million compared to one year ago. Loans, net of the allowance for loan losses, increased $5.4 million during the quarter to $465.2 million, and increased $64.4 million, or 16%, compared to one year ago. While net loans increased over the prior periods, the total of securities and interest-bearing deposits in banks decreased $1.2 million during the quarter to $193.0 million, and decreased $38.8 million compared to balances one year ago.
Total deposits increased $10.4 million during the quarter to $640.7 million, and were $26.8 million higher than one year ago. When comparing the composition of the deposit portfolio at September 30, 2016 to one year ago, noninterest-bearing demand deposits increased from 24% to 26% of total deposits, while time deposits decreased from 24% to 21%.
Total shareholders' equity increased $1.7 million during the quarter to $51.0 million. Tangible common equity totaled $49.2 million at September 30, 2016, compared to $47.3 million at June 30, 2016 and $43.2 million at September 30, 2015. The Company exceeded its target regulatory capital ratios at quarter-end.
NET INTEREST INCOME
Net interest income increased $51 thousand to $5.8 million for the quarter, compared to the second quarter of 2016, and increased $421 thousand, or 8%, compared to $5.4 million for the third quarter of 2015.
Total interest income increased $64 thousand during the quarter to $6.3 million, compared to the second quarter of 2016 and increased $578 thousand, or 10%, compared to the third quarter of 2015. Interest income increased when compared to the second quarter of 2016 primarily from growth in average earning assets. Compared to the third quarter of 2015, growth in interest income resulted from growth in average earning assets, as well as a change in the earning asset mix. The change in asset mix resulted from an increase in average loan balances to 71% of average earning assets for the third quarter of 2016, up from 62% for the third quarter of 2015. While loan balances increased, the average balance of interest-bearing deposits in banks and securities decreased to 29% of average earning assets, down from 38% when comparing the same periods.
Total interest expense increased $13 thousand during the quarter compared to the second quarter of 2016, and increased $157 thousand, or 46%, compared to the third quarter of 2015. Comparing the third quarter of 2016 to the same period one year ago, the increase in interest expense resulted primarily from interest on deposits and interest on subordinated debt. There was no subordinated debt on the Company's balance sheet during the third quarter of 2015; therefore, there was no related interest expense during that period.
NONINTEREST INCOME
Noninterest income increased $199 thousand, or 9%, to $2.3 million, compared to $2.1 million for the second quarter of 2016, and increased $67 thousand, or 3%, compared to the third quarter of 2015. All noninterest income categories improved during the quarter when compared to the second quarter of 2016. Service charges on deposit accounts increased over the prior quarter and the same period one year ago. Net gains on sale of loans were higher than the second quarter of 2016 as the Bank experienced an increase in the number of mortgage loan originations.
NONINTEREST EXPENSE
Noninterest expense decreased $30 thousand to $5.9 million for the third quarter compared to the prior period, and decreased $848 thousand, or 13%, compared to the third quarter of 2015. The decrease in expenses when compared to the second quarter of 2016 was primarily attributable to lower salaries and employee benefit expense. Comparing current period results to the third quarter of 2015, the 13% decrease in total noninterest expense was primarily attributable to lower salaries and employee benefit expense, other real estate owned, legal and professional, and marketing expense.
ASSET QUALITY/LOAN LOSS PROVISION
Credit quality continued to improve during the quarter as nonperforming assets decreased $728 thousand to 0.53% of total assets, compared to 0.63% at June 30, 2016, and 1.12% at September 30, 2015. Loans past due between 30 and 89 days and still accruing was 0.43% of total loans, compared to 0.43% at June 30, 2016 and 0.51% at September 30, 2015. The allowance for loan losses totaled $5.6 million at September 30, 2016, $5.7 million at June 30, 2016, and $5.6 million at September 30, 2015, representing 1.19%, 1.23%, and 1.37% of total loans, respectively.
FORWARD-LOOKING STATEMENTS
Certain information contained in this discussion may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to the Company's future operations and are generally identified by phrases such as "the Company expects," "the Company believes" or words of similar import. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. For details on factors that could affect expectations, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and other filings with the Securities and Exchange Commission.
ABOUT FIRST NATIONAL CORPORATION
First National Corporation (OTC: FXNC) is the parent company and bank holding company of First Bank, a community bank that first opened for business in 1907 in Strasburg, Virginia. The Bank offers loan and deposit products and services through its website, www.fbvirginia.com, its mobile banking platform, a network of ATMs located throughout its market area, two loan production offices, a customer service center in a retirement community, and 14 bank branch office locations located throughout the Shenandoah Valley and central regions of Virginia. In addition to providing traditional banking services, the Bank operates a wealth management division under the name First Bank Wealth Management. First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.
FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
| | | (unaudited) For the Quarter Ended | |
| Income Statement | | September 30, 2016 | | | June 30, 2016 | | | March 31, 2016 | | | December 31, 2015 | | | September 30, 2015 | |
| Interest income | | | | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 5,500 | | | $ | 5,370 | | | $ | 5,236 | | | $ | 5,056 | | | $ | 4,854 | |
| Interest on deposits in banks | | | 73 | | | | 62 | | | | 48 | | | | 63 | | | | 61 | |
| Interest on securities | | | 749 | | | | 825 | | | | 888 | | | | 884 | | | | 829 | |
| Dividends on restricted securities | | | 20 | | | | 21 | | | | 19 | | | | 18 | | | | 20 | |
| Total interest income | | $ | 6,342 | | | $ | 6,278 | | | $ | 6,191 | | | $ | 6,021 | | | $ | 5,764 | |
| Interest expense | | | | | | | | | | | | | | | | | | | | |
| Interest on deposits | | $ | 338 | | | $ | 329 | | | $ | 333 | | | $ | 302 | | | $ | 282 | |
| Interest on federal funds purchased | | | - | | | | - | | | | 3 | | | | - | | | | - | |
| Interest on subordinated debt | | | 91 | | | | 89 | | | | 90 | | | | 62 | | | | - | |
| Interest on junior subordinated debt | | | 65 | | | | 64 | | | | 61 | | | | 59 | | | | 56 | |
| Interest on other borrowings | | | 1 | | | | - | | | | 5 | | | | - | | | | - | |
| Total interest expense | | $ | 495 | | | $ | 482 | | | $ | 492 | | | $ | 423 | | | $ | 338 | |
| Net interest income | | $ | 5,847 | | | $ | 5,796 | | | $ | 5,699 | | | $ | 5,598 | | | $ | 5,426 | |
| Provision for loan losses | | | - | | | | - | | | | - | | | | - | | | | - | |
| Net interest income after provision for loan losses | | $ | 5,847 | | | $ | 5,796 | | | $ | 5,699 | | | $ | 5,598 | | | $ | 5,426 | |
| Noninterest income | | | | | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | $ | 941 | | | $ | 914 | | | $ | 780 | | | $ | 846 | | | $ | 897 | |
| ATM and check card fees | | | 529 | | | | 515 | | | | 488 | | | | 520 | | | | 529 | |
| Wealth management fees | | | 339 | | | | 334 | | | | 336 | | | | 496 | | | | 477 | |
| Fees for other customer services | | | 143 | | | | 137 | | | | 147 | | | | 143 | | | | 172 | |
| Income from bank owned life insurance | | | 123 | | | | 107 | | | | 86 | | | | 103 | | | | 106 | |
| Net gains (losses) on sales of securities | | | 4 | | | | - | | | | 6 | | | | (3 | ) | | | - | |
| Net gains on sale of loans | | | 50 | | | | 31 | | | | 21 | | | | 43 | | | | 53 | |
| Other operating income | | | 182 | | | | 74 | | | | 79 | | | | 50 | | | | 10 | |
| Total noninterest income | | $ | 2,311 | | | $ | 2,112 | | | $ | 1,943 | | | $ | 2,198 | | | $ | 2,244 | |
| Noninterest expense | | | | | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | | $ | 3,183 | | | $ | 3,415 | | | $ | 3,444 | | | $ | 3,491 | | | $ | 3,637 | |
| Occupancy | | | 380 | | | | 365 | | | | 424 | | | | 400 | | | | 396 | |
| Equipment | | | 406 | | | | 394 | | | | 432 | | | | 398 | | | | 400 | |
| Marketing | | | 125 | | | | 120 | | | | 107 | | | | 94 | | | | 176 | |
| Supplies | | | 108 | | | | 103 | | | | 101 | | | | 93 | | | | 116 | |
| Legal and professional fees | | | 179 | | | | 156 | | | | 311 | | | | 450 | | | | 243 | |
| ATM and check card fees | | | 229 | | | | 221 | | | | 205 | | | | 200 | | | | 236 | |
| FDIC assessment | | | 106 | | | | 126 | | | | 122 | | | | 119 | | | | 134 | |
| Bank franchise tax | | | 89 | | | | 90 | | | | 103 | | | | 130 | | | | 131 | |
| Telecommunications expense | | | 110 | | | | 115 | | | | 114 | | | | 120 | | | | 131 | |
| Data processing expense | | | 160 | | | | 146 | | | | 128 | | | | 157 | | | | 130 | |
| Postage expense | | | 56 | | | | 57 | | | | 69 | | | | 71 | | | | 73 | |
| Amortization expense | | | 188 | | | | 198 | | | | 207 | | | | 216 | | | | 226 | |
| Other real estate owned expense (income), net | | | 1 | | | | (49 | ) | | | (72 | ) | | | 92 | | | | 144 | |
| Net loss on disposal of premises and equipment | | | 8 | | | | - | | | | - | | | | - | | | | - | |
| Other operating expense | | | 525 | | | | 426 | | | | 422 | | | | 481 | | | | 528 | |
| Total noninterest expense | | $ | 5,853 | | | $ | 5,883 | | | $ | 6,117 | | | $ | 6,512 | | | $ | 6,701 | |
| Income before income taxes | | $ | 2,305 | | | $ | 2,025 | | | $ | 1,525 | | | $ | 1,284 | | | $ | 969 | |
| Income tax expense | | | 611 | | | | 592 | | | | 426 | | | | 343 | | | | 243 | |
| Net income | | $ | 1,694 | | | $ | 1,433 | | | $ | 1,099 | | | $ | 941 | | | $ | 726 | |
| Effective dividend and accretion on preferred stock | | | - | | | | - | | | | - | | | | 128 | | | | 328 | |
| Net income available to common shareholders | | $ | 1,694 | | | $ | 1,433 | | | $ | 1,099 | | | $ | 813 | | | $ | 398 | |
| Common Share and Per Common Share Data | | | | | | | | | | | | | | | | | |
| Net income, basic | | $ | 0.34 | | | $ | 0.29 | | | $ | 0.22 | | | $ | 0.17 | | | $ | 0.08 | |
| Weighted average shares, basic | | | 4,925,753 | | | | 4,924,702 | | | | 4,920,315 | | | | 4,913,985 | | | | 4,911,604 | |
| Net income, diluted | | $ | 0.34 | | | $ | 0.29 | | | $ | 0.22 | | | $ | 0.17 | | | $ | 0.08 | |
| Weighted average shares, diluted | | | 4,929,922 | | | | 4,926,859 | | | | 4,923,117 | | | | 4,916,804 | | | | 4,913,461 | |
| Shares outstanding at period end | | | 4,926,546 | | | | 4,925,599 | | | | 4,924,539 | | | | 4,916,130 | | | | 4,912,662 | |
| Tangible book value at period end | | $ | 9.99 | | | $ | 9.61 | | | $ | 9.25 | | | $ | 8.87 | | | $ | 8.80 | |
| Cash dividends | | $ | 0.03 | | | $ | 0.03 | | | $ | 0.03 | | | $ | 0.025 | | | $ | 0.025 | |
FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
| | | (unaudited) For the Quarter Ended | | | | |
| | | September 30, 2016 | | | June 30, 2016 | | | March 31, 2016 | | | December 31, 2015 | | | September 30, 2015 | |
| Key Performance Ratios | | | | | | | | | | | | | | | |
| Return on average assets | | | 0.95 | % | | | 0.82 | % | | | 0.64 | % | | | 0.54 | % | | | 0.42 | % |
| Return on average equity | | | 13.44 | % | | | 11.90 | % | | | 9.39 | % | | | 7.01 | % | | | 4.80 | % |
| Net interest margin | | | 3.57 | % | | | 3.62 | % | | | 3.63 | % | | | 3.53 | % | | | 3.40 | % |
Efficiency ratio (1) | | | 68.56 | % | | | 71.62 | % | | | 77.32 | % | | | 78.42 | % | | | 81.38 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Average Balances | | | | | | | | | | | | | | | | | | | | |
| Average assets | | $ | 710,006 | | | $ | 705,707 | | | $ | 693,783 | | | $ | 692,263 | | | $ | 691,121 | |
| Average earning assets | | | 661,624 | | | | 654,535 | | | | 643,358 | | | | 640,880 | | | | 642,234 | |
| Average shareholders' equity | | | 50,160 | | | | 48,443 | | | | 47,066 | | | | 53,264 | | | | 60,043 | |
| | | | | | | | | | | | | | | | | | | | | |
| Asset Quality | | | | | | | | | | | | | | | | | | | | |
| Loan charge-offs | | $ | 195 | | | $ | 136 | | | $ | 120 | | | $ | 418 | | | $ | 637 | |
| Loan recoveries | | | 71 | | | | 350 | | | | 116 | | | | 367 | | | | 83 | |
| Net charge-offs (recoveries) | | | 124 | | | | (214 | ) | | | 4 | | | | 51 | | | | 554 | |
| Non-accrual loans | | | 3,521 | | | | 4,057 | | | | 4,258 | | | | 3,854 | | | | 4,930 | |
| Other real estate owned, net | | | 250 | | | | 442 | | | | 2,112 | | | | 2,679 | | | | 2,760 | |
| Nonperforming assets | | | 3,771 | | | | 4,499 | | | | 6,370 | | | | 6,533 | | | | 7,690 | |
| Loans 30 to 89 days past due, accruing | | | 2,036 | | | | 1,979 | | | | 1,743 | | | | 1,418 | | | | 2,084 | |
| Loans over 90 days past due, accruing | | | 59 | | | | 11 | | | | 124 | | | | 92 | | | | 147 | |
| Troubled debt restructurings, accruing | | | 88 | | | | - | | | | - | | | | 317 | | | | 321 | |
| Special mention loans | | | 14,238 | | | | 13,392 | | | | 13,796 | | | | 16,372 | | | | 15,706 | |
| Substandard loans, accruing | | | 8,273 | | | | 9,610 | | | | 10,068 | | | | 10,265 | | | | 10,496 | |
| | | | | | | | | | | | | | | | | | | | | |
Capital Ratios (2) | | | | | | | | | | | | | | | | | | | | |
| Total capital | | $ | 65,759 | | | $ | 64,375 | | | $ | 62,440 | | | $ | 61,513 | | | $ | 60,232 | |
| Tier 1 capital | | | 60,149 | | | | 58,641 | | | | 56,920 | | | | 55,989 | | | | 55,066 | |
| Common equity tier 1 capital | | | 60,149 | | | | 58,641 | | | | 56,920 | | | | 55,989 | | | | 55,066 | |
| Total capital to risk-weighted assets | | | 13.90 | % | | | 13.66 | % | | | 13.50 | % | | | 13.86 | % | | | 14.59 | % |
| Tier 1 capital to risk-weighted assets | | | 12.72 | % | | | 12.45 | % | | | 12.30 | % | | | 12.62 | % | | | 13.34 | % |
| Common equity tier 1 capital to risk-weighted assets | | | 12.72 | % | | | 12.45 | % | | | 12.30 | % | | | 12.62 | % | | | 13.34 | % |
| Leverage ratio | | | 8.48 | % | | | 8.33 | % | | | 8.22 | % | | | 8.12 | % | | | 7.99 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks | | $ | 8,955 | | | $ | 10,518 | | | $ | 10,250 | | | $ | 8,247 | | | $ | 9,890 | |
| Interest-bearing deposits in banks | | | 47,902 | | | | 40,225 | | | | 29,077 | | | | 31,087 | | | | 66,956 | |
| Securities available for sale, at fair value | | | 88,323 | | | | 94,566 | | | | 99,019 | | | | 105,559 | | | | 109,166 | |
| Securities held to maturity, at carrying value | | | 55,263 | | | | 57,401 | | | | 64,963 | | | | 66,519 | | | | 54,276 | |
| Restricted securities, at cost | | | 1,548 | | | | 2,058 | | | | 1,548 | | | | 1,391 | | | | 1,391 | |
| Loans held for sale | | | 1,053 | | | | 1,819 | | | | 523 | | | | 323 | | | | 471 | |
| Loans, net of allowance for loan losses | | | 465,224 | | | | 459,812 | | | | 448,556 | | | | 433,475 | | | | 400,838 | |
| Other real estate owned, net of valuation allowance | | | 250 | | | | 442 | | | | 2,112 | | | | 2,679 | | | | 2,760 | |
| Premises and equipment, net | | | 20,852 | | | | 21,126 | | | | 21,366 | | | | 21,389 | | | | 21,493 | |
| Accrued interest receivable | | | 1,631 | | | | 1,612 | | | | 1,741 | | | | 1,661 | | | | 1,543 | |
| Bank owned life insurance | | | 13,808 | | | | 13,935 | | | | 13,828 | | | | 11,742 | | | | 11,627 | |
| Core deposit intangibles, net | | | 1,730 | | | | 1,917 | | | | 2,115 | | | | 2,322 | | | | 2,539 | |
| Other assets | | | 6,133 | | | | 5,917 | | | | 5,945 | | | | 5,927 | | | | 5,945 | |
| Total assets | | $ | 712,672 | | | $ | 711,348 | | | $ | 701,043 | | | $ | 692,321 | | | $ | 688,895 | |
| | | | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing demand deposits | | $ | 168,204 | | | $ | 159,278 | | | $ | 161,783 | | | $ | 157,070 | | | $ | 149,178 | |
| Savings and interest-bearing demand deposits | | | 340,884 | | | | 337,589 | | | | 334,599 | | | | 328,945 | | | | 318,510 | |
| Time deposits | | | 131,654 | | | | 133,479 | | | | 136,736 | | | | 141,101 | | | | 146,219 | |
| Total deposits | | $ | 640,742 | | | $ | 630,346 | | | $ | 633,118 | | | $ | 627,116 | | | $ | 613,907 | |
| Other borrowings | | | - | | | | 12,000 | | | | - | | | | - | | | | 7 | |
| Subordinated debt | | | 4,926 | | | | 4,921 | | | | 4,917 | | | | 4,913 | | | | - | |
| Junior subordinated debt | | | 9,279 | | | | 9,279 | | | | 9,279 | | | | 9,279 | | | | 9,279 | |
Accrued interest payable and other liabilities | | | 6,742 | | | | 5,544 | | | | 6,029 | | | | 5,060 | | | | 5,303 | |
| Total liabilities | | $ | 661,689 | | | $ | 662,090 | | | $ | 653,343 | | | $ | 646,368 | | | $ | 628,496 | |
FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | (unaudited) | |
| | | For the Quarter Ended | |
| | | September 30, 2016 | | | June 30, 2016 | | | March 31, 2016 | | | December 31, 2015 | | | September 30, 2015 | |
| | | | | | | | | | | | | | | | |
Balance Sheet (continued) | | | | | | | | | | | | | | | |
| Preferred stock | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 14,595 | |
| Common stock | | | 6,158 | | | | 6,157 | | | | 6,156 | | | | 6,145 | | | | 6,141 | |
| Surplus | | | 7,046 | | | | 7,021 | | | | 6,996 | | | | 6,956 | | | | 6,922 | |
| Retained earnings | | | 38,223 | | | | 36,676 | | | | 35,391 | | | | 34,440 | | | | 33,917 | |
| Accumulated other comprehensive loss, net | | | (444 | ) | | | (596 | ) | | | (843 | ) | | | (1,588 | ) | | | (1,176 | ) |
| Total shareholders' equity | | $ | 50,983 | | | $ | 49,258 | | | $ | 47,700 | | | $ | 45,953 | | | $ | 60,399 | |
| Total liabilities and shareholders' equity | | $ | 712,672 | | | $ | 711,348 | | | $ | 701,043 | | | $ | 692,321 | | | $ | 688,895 | |
| | | | | | | | | | | | | | | | | | | | | |
| Loan Data | | | | | | | | | | | | | | | | | | | | |
| Mortgage loans on real estate: | | | | | | | | | | | | | | | | | | | | |
| Construction and land development | | $ | 34,518 | | | $ | 33,232 | | | $ | 31,505 | | | $ | 33,135 | | | $ | 29,935 | |
| Secured by farm land | | | 695 | | | | 706 | | | | 931 | | | | 964 | | | | 984 | |
| Secured by 1-4 family residential | | | 196,492 | | | | 196,295 | | | | 196,165 | | | | 189,286 | | | | 179,419 | |
| Other real estate loans | | | 202,148 | | | | 199,456 | | | | 190,375 | | | | 180,483 | | | | 164,677 | |
Loans to farmers (except those secured by real estate) | | | 737 | | | | 492 | | | | 473 | | | | 3,056 | | | | 3,014 | |
| Commercial and industrial loans (except those secured by real estate) | | | 25,114 | | | | 24,229 | | | | 23,742 | | | | 20,992 | | | | 16,936 | |
| Consumer installment loans | | | 4,283 | | | | 4,083 | | | | 3,854 | | | | 4,055 | | | | 4,165 | |
| Deposit overdrafts | | | 260 | | | | 334 | | | | 312 | | | | 257 | | | | 421 | |
| All other loans | | | 6,587 | | | | 6,719 | | | | 6,719 | | | | 6,771 | | | | 6,862 | |
Total loans | | $ | 470,834 | | | $ | 465,546 | | | $ | 454,076 | | | $ | 438,999 | | | $ | 406,413 | |
| Allowance for loan losses | | | (5,610 | ) | | | (5,734 | ) | | | (5,520 | ) | | | (5,524 | ) | | | (5,575 | ) |
| Loans, net | | $ | 465,224 | | | $ | 459,812 | | | $ | 448,556 | | | $ | 433,475 | | | $ | 400,838 | |
| | | | | | | | | | | | | | | | | | | | | |
| Reconciliation of Tax-Equivalent Net Interest Income | | | | | | | | | | | | | | | | | |
| GAAP measures: | | | | | | | | | | | | | | | | | | | | |
| Interest income – loans | | $ | 5,500 | | | $ | 5,370 | | | $ | 5,236 | | | $ | 5,056 | | | $ | 4,854 | |
| Interest income – investments and other | | | 842 | | | | 908 | | | | 955 | | | | 965 | | | | 910 | |
| Interest expense – deposits | | | (338 | ) | | | (329 | ) | | | (333 | ) | | | (302 | ) | | | (282 | ) |
| Interest expense – other borrowings | | | (1 | ) | | | - | | | | (5 | ) | | | - | | | | - | |
| Interest expense – subordinated debt | | | (91 | ) | | | (89 | ) | | | (90 | ) | | | (62 | ) | | | - | |
| Interest expense – junior subordinated debt | | | (65 | ) | | | (64 | ) | | | (61 | ) | | | (59 | ) | | | (56 | ) |
| Interest expense – federal funds purchased | | | - | | | | - | | | | (3 | ) | | | - | | | | - | |
| Total net interest income | | $ | 5,847 | | | $ | 5,796 | | | $ | 5,699 | | | $ | 5,598 | | | $ | 5,426 | |
| Non-GAAP measures: | | | | | | | | | | | | | | | | | | | | |
| Tax benefit realized on non-taxable interest income – loans | | $ | 26 | | | $ | 25 | | | $ | 25 | | | $ | 26 | | | $ | 26 | |
| Tax benefit realized on non-taxable interest income – municipal securities | | | 70 | | | | 73 | | | | 76 | | | | 71 | | | | 60 | |
| Total tax benefit realized on non-taxable interest income | | $ | 96 | | | $ | 98 | | | $ | 101 | | | $ | 97 | | | $ | 86 | |
| Total tax-equivalent net interest income | | $ | 5,943 | | | $ | 5,894 | | | $ | 5,800 | | | $ | 5,695 | | | $ | 5,512 | |
| | | | | | | | | | | | | | | | | | | | | |
FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
| | | (unauditted) For the Nine Mongths Ended | |
| Income Statement | | September 30, 2016 | | | September 30, 2015 | |
| Interest income | | | | | | |
| Interest and fees on loans | | $ | 16,106 | | | $ | 14,082 | |
| Interest on deposits in banks | | | 183 | | | | 134 | |
| Interest on securities | | | 2,462 | | | | 1,869 | |
| Dividends on restricted securities | | | 60 | | | | 59 | |
| Total interest income | | $ | 18,811 | | | $ | 16,144 | |
| Interest expense | | | | | | | | |
| Interest on deposits | | $ | 1,000 | | | $ | 848 | |
| Interest on federal funds purchased | | | 3 | | | | 2 | |
| Interest on subordinated debt | | | 270 | | | | - | |
| Interest on junior subordinated debt | | | 190 | | | | 165 | |
| Interest on other borrowings | | | 6 | | | | 3 | |
| Total interest expense | | $ | 1,469 | | | $ | 1,018 | |
| Net interest income | | $ | 17,342 | | | $ | 15,126 | |
| Recovery of loan losses | | | - | | | | (100 | ) |
| Net interest income after recovery of loan losses | | $ | 17,342 | | | $ | 15,226 | |
| Noninterest income | | | | | | | | |
| Service charges on deposit accounts | | $ | 2,635 | | | $ | 2,196 | |
| ATM and check card fees | | | 1,532 | | | | 1,375 | |
| Wealth management fees | | | 1,009 | | | | 1,479 | |
| Fees for other customer services | | | 427 | | | | 463 | |
| Income from bank owned life insurance | | | 316 | | | | 270 | |
| Net gains (losses) on sales of securities | | | 10 | | | | (52 | ) |
| Net gains on sale of loans | | | 102 | | | | 158 | |
| Other operating income | | | 335 | | | | 255 | |
| Total noninterest income | | $ | 6,366 | | | $ | 6,144 | |
| Noninterest expense | | | | | | | | |
| Salaries and employee benefits | | $ | 10,042 | | | $ | 10,359 | |
| Occupancy | | | 1,169 | | | | 1,052 | |
| Equipment | | | 1,232 | | | | 1,103 | |
| Marketing | | | 352 | | | | 436 | |
| Supplies | | | 312 | | | | 690 | |
| Legal and professional fees | | | 646 | | | | 886 | |
| ATM and check card fees | | | 655 | | | | 581 | |
| FDIC assessment | | | 354 | | | | 265 | |
| Bank franchise tax | | | 282 | | | | 383 | |
| Telecommunications expense | | | 339 | | | | 316 | |
| Data processing expense | | | 434 | | | | 543 | |
| Postage expense | | | 182 | | | | 270 | |
| Amortization expense | | | 593 | | | | 426 | |
| Other real estate owned (income) expense, net | | | (120 | ) | | | 260 | |
| Net loss on disposal of premises and equipment | | | 8 | | | | - | |
| Other operating expense | | | 1,373 | | | | 1,473 | |
| Total noninterest expense | | $ | 17,853 | | | $ | 19,043 | |
| | | | | | | | | |
| Income before income taxes | | $ | 5,855 | | | $ | 2,327 | |
| Income tax expense | | | 1,629 | | | | 613 | |
| Net income | | $ | 4,226 | | | $ | 1,714 | |
| Effective dividend and accretion on preferred stock | | | - | | | | 985 | |
| Net income available to common shareholders | | $ | 4,226 | | | $ | 729 | |
| Common Share and Per Common Share Data | | | | | |
| Net income, basic | | $ | 0.86 | | | $ | 0.15 | |
| Weighted average shares, basic | | | 4,923,598 | | | | 4,909,470 | |
| Net income, diluted | | $ | 0.86 | | | $ | 0.15 | |
| Weighted average shares, diluted | | | 4,926,380 | | | | 4,911,951 | |
| Shares outstanding at period end | | | 4,926,546 | | | | 4,912,662 | |
| Tangible book value at period end | | $ | 9.99 | | | $ | 8.80 | |
| Cash dividends | | $ | 0.09 | | | $ | 0.075 | |
FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
| | | (unaudited) For the Nine Months Ended | |
| | | September 30, 2016 | | | September 30, 2015 | |
| Key Performance Ratios | | | | | | |
| Return on average assets | | | 0.80 | % | | | 0.37 | % |
| Return on average equity | | | 11.62 | % | | | 3.82 | % |
| Net interest margin | | | 3.61 | % | | | 3.52 | % |
Efficiency ratio (1) | | | 72.41 | % | | | 81.85 | % |
| | | | | | | | | |
| Average Balances | | | | | | | | |
| Average assets | | $ | 703,173 | | | $ | 626,909 | |
| Average earning assets | | | 653,203 | | | | 583,233 | |
| Average shareholders' equity | | | 48,572 | | | | 60,041 | |
| | | | | | | | | |
| Asset Quality | | | | | | | | |
| Loan charge-offs | | $ | 451 | | | $ | 1,420 | |
| Loan recoveries | | | 537 | | | | 377 | |
| Net (recoveries) charge-offs | | | (86) | | | | 1,043 | |
| | | | | | | | | |
| Reconciliation of Tax-Equivalent Net Interest Income | | | | | |
| GAAP measures: | | | | | | | | |
| Interest income – loans | | $ | 16,106 | | | $ | 14,082 | |
| Interest income – investments and other | | | 2,705 | | | | 2,062 | |
| Interest expense – deposits | | | (1,000) | | | | (848) | |
| Interest expense – other borrowings | | | (6) | | | | (3) | |
| Interest expense – subordinated debt | | | (270) | | | | - | |
| Interest expense – junior subordinated debt | | | (190) | | | | (165) | |
| Interest expense – federal funds purchased | | | (3) | | | | (2) | |
| Total net interest income | | $ | 17,342 | | | $ | 15,126 | |
| | | | | | | | | |
| Non-GAAP measures: | | | | | | | | |
| Tax benefit realized on non-taxable interest income – loans | | $ | 76 | | | $ | 79 | |
| Tax benefit realized on non-taxable interest income – municipal securities | | | 219 | | | | 133 | |
| Total tax benefit realized on non-taxable interest income | | $ | 295 | | | $ | 212 | |
| Total tax-equivalent net interest income | | $ | 17,637 | | | $ | 15,338 | |
| | | | | | | | | |
(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, acquisition and integration related expenses, and gains and losses on disposal of premises and equipment by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains and losses on sales of securities and bargain purchase gain. Tax-equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit is 34%. See the tables above for tax-equivalent net interest income and reconciliations of net interest income to tax-equivalent net interest income. The efficiency ratio is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with U.S. generally accepted accounting principles (GAAP) and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operational performance, but cautions that such information not be viewed as a substitute for GAAP.
(2) All capital ratios reported are for the Bank.
CONTACTS
| Scott C. Harvard | | M. Shane Bell |
| President and CEO | | Executive Vice President and CFO |
| (540) 465-9121 | | (540) 465-9121 |
| sharvard@fbvirginia.com | | sbell@fbvirginia.com |
| | | |
