EXHIBIT 99.1
Contact:
Harry S. Smith, President & CEO |
| M. Shane Bell, EVP & CFO |
(540) 465-9121 |
| (540) 465-9121 |
hsmith@firstbank-va.com |
| sbell@firstbank-va.com |
News Release
October 23, 2008
FIRST NATIONAL CORPORATION REPORTS THIRD QUARTER EARNINGS
Strasburg, Virginia (October 23, 2008) --- First National Corporation (OTCBB: FXNC) reported earnings of $1.3 million, or $0.44 per basic and diluted share, for the third quarter of 2008 compared to $1.6 million, or $0.54 per basic and diluted share for the same period in 2007. Harry S. Smith, President and CEO, stated “I am pleased to report another profitable quarter, in spite of the current economic conditions and the increase in our allowance for loan losses. Although significant reserves were not required for non-performing assets, and net charge-offs have been relatively low, we increased the allowance to reflect higher levels of inherent risk in the portfolio. The Company remains well-capitalized and has now improved capital ratios for three consecutive quarters.”
Earnings decreased in the third quarter of 2008 compared to the same period in 2007 primarily due to the provision for loan losses totaling $385 thousand for the third quarter of 2008 compared to no provision for the same period of 2007. Return on assets and return on equity were 0.95% and 12.78%, respectively, for the third quarter of 2008 compared to 1.18% and 17.81% for the same quarter in 2007. Total assets increased $14.8 million or 3% during the last twelve months to $548.5 million at September 30, 2008 compared to $533.7 million one year ago. In addition, the Company’s trust and investment advisory group had assets under management of $194.2 million at September 30, 2008.
Net interest income decreased slightly to $4.6 million for the third quarter of 2008 compared to $4.7 million for the same quarter of 2007. The net interest margin decreased 9 basis points, while average interest-earning assets increased $9.8 million when comparing the two periods. The decreased margin resulted from lower noninterest-bearing demand deposit balances in the third quarter of 2008.
Noninterest income totaled $1.5 million for the third quarter of 2008 and for the same quarter of 2007. Fees for other customer services increased 16% to $733 thousand for the third quarter of 2008, compared to $631 thousand for the same period in 2007. This increase resulted from an increase in fee income from trust and investment advisory services and ATM and check card fees. Gains on sales of loans decreased 79% to $24 thousand for the third quarter of 2008 compared to $116 thousand for the same quarter of 2007. Noninterest expense increased 1% to $3.9 million for the third quarter of 2008 compared to $3.8 million for the same period in 2007.
Net charge-offs were $43 thousand for the third quarter of 2008, compared to $21 thousand for the third quarter of 2007. Non-performing assets totaled $10.2 million compared to $1.6 million one year ago. At September 30, 2008, non-performing assets consisted of $5.7 million in residential development loans, including one loan totaling $3.0 million. Non-performing assets were also comprised of $2.7 million in commercial real estate loans, including $1.3 million to one borrower. Management believes these loans are well-secured. An increase in non-performing assets, potential problem loans and less favorable economic conditions resulted in a loan loss provision of $385 thousand in the third quarter of 2008 compared to no provision for the same period in 2007. As a result, the allowance for loan losses increased $846 thousand to $4.8 million or 1.07% of total loans at September 30, 2008, compared to $4.0 million or 0.92% of total loans at September 30, 2007.
For the nine months ended September 30, 2008, net income was $4.1 million or $1.41 per basic and diluted share. This was a 4% decrease compared to $4.3 million in net income or $1.46 per basic and diluted share for the same period in 2007. Return on assets was 1.02% for the nine months ended September 30, 2008 compared to 1.09% for the same period in 2007, and return on equity was 13.87% for the nine months ended September 30, 2008 compared to 16.69% for the same period in 2007.
Net interest income increased 3% to $13.9 million for the nine months ended September 30, 2008 compared to $13.4 million for the same period in 2007. This increase was the result of a 2 basis point increase in the net interest margin and a $12.9 million increase in average interest-earning assets when comparing the two periods. The net interest margin was 3.71% for the nine months ended September 30, 2008, compared to 3.69% for the same period in 2007.
Noninterest income increased 7% to $4.5 million for the nine months ended September 30, 2008 from $4.2 million for the same period in 2007. Fees for other customer services increased 20% to $2.2 million compared to $1.8 million for the same period in 2007. This increase was attributable to increases in fee income from trust and investment advisory services and ATM and check card fees. Noninterest expense increased 3% to $11.6 million for the nine months ended September 30, 2008, compared to $11.3 million for the same period in 2007. An increase in non-performing assets, potential problems loans and less favorable economic conditions resulted in a loan loss provision of $739 thousand for the first nine months of 2008 compared to $67 thousand for the same period in 2007.
The Company notes to investors that past results of operations do not necessarily indicate future results. Certain factors that affect the Company’s operations and business environment are subject to uncertainties that could in turn affect future results. These factors are identified in the Annual Report on Form 10-K for the year ended December 31, 2007, which can be accessed from the Company’s website at www.firstbank-va.com, as filed with the Securities and Exchange Commission.
First National Corporation, headquartered in Strasburg, Virginia, is the financial holding company of First Bank. First Bank offers loan, deposit, trust and investment products and services from 11 branch offices in the northern Shenandoah Valley region of Virginia, including Shenandoah County, Warren County, Frederick County and the City of Winchester. First Bank also owns First Bank Financial Services, Inc., which invests in partnerships that provide investment services and title insurance.
FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) | |||||||
| (unaudited) For the Three Months Ended |
| (unaudited) For the Nine Months Ended | ||||
Income Statement | September 30, 2008 |
| September 30, 2007 |
| September 30, 2008 |
| September 30, 2007 |
Interest and dividend income |
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|
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|
|
|
Interest and fees on loans | $ 6,955 |
| $ 8,315 |
| $ 21,555 |
| $ 24,333 |
Interest on federal funds sold | 1 |
| 4 |
| 9 |
| 28 |
Interest on deposits in banks | 3 |
| 31 |
| 33 |
| 81 |
Interest and dividends on securities available for sale: |
|
|
|
|
|
|
|
Taxable interest | 523 |
| 559 |
| 1,527 |
| 1,629 |
Tax-exempt interest | 142 |
| 120 |
| 406 |
| 351 |
Dividends | 28 |
| 52 |
| 126 |
| 147 |
Total interest and dividend income | $ 7,652 |
| $ 9,081 |
| $ 23,656 |
| $ 26,569 |
|
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|
|
Interest expense |
|
|
|
|
|
|
|
Interest on deposits | $ 2,430 |
| $ 3,587 |
| $ 7,802 |
| $ 10,680 |
Interest on federal funds purchased | 28 |
| 50 |
| 96 |
| 130 |
Interest on company obligated mandatorily | 143 |
| 242 |
|
508 |
|
716 |
Interest on other borrowings | 433 |
| 541 |
| 1,400 |
| 1,629 |
Total interest expense | $ 3,034 |
| $ 4,420 |
| $ 9,806 |
| $ 13,155 |
|
|
|
|
|
|
|
|
Net interest income | $ 4,618 |
| $ 4,661 |
| $ 13,850 |
| $ 13,414 |
Provision for loan losses | 385 |
| - |
| 739 |
| 67 |
Net interest income after provision for loan losses | $ 4,233 |
| $ 4,661 |
| $ 13,111 |
| $ 13,347 |
|
|
|
|
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
Service charges | $ 746 |
| $ 769 |
| $ 2,152 |
| $ 2,160 |
Fees for other customer services | 733 |
| 631 |
| 2,173 |
| 1,808 |
Gains on sale of loans | 24 |
| 116 |
| 93 |
| 241 |
Gains (losses) on sale of securities available for sale |
- |
|
(19) |
|
2 |
|
(19) |
Gains (losses) on sale of premises and equipment | - |
| (3) |
| - |
| (2) |
Other operating income (loss) | (7) |
| 1 |
| 111 |
| 37 |
Total noninterest income | $ 1,496 |
| $ 1,495 |
| $ 4,531 |
| $ 4,225 |
|
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|
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|
|
Noninterest expense |
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|
|
|
Salaries and employee benefits | $ 1,980 |
| $ 2,084 |
| $ 6,301 |
| $ 6,157 |
Occupancy | 317 |
| 243 |
| 841 |
| 717 |
Equipment | 353 |
| 327 |
| 1,044 |
| 955 |
Other operating expense | 1,202 |
| 1,176 |
| 3,460 |
| 3,451 |
Total noninterest expense | $ 3,852 |
| $ 3,830 |
| $ 11,646 |
| $ 11,280 |
|
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|
|
|
|
|
|
Income before income taxes | $ 1,877 |
| $ 2,326 |
| $ 5,996 |
| $ 6,292 |
Provision for income taxes | 593 |
| 755 |
| 1,897 |
| 2,038 |
Net income | $ 1,284 |
| $ 1,571 |
| $ 4,099 |
| $ 4,254 |
|
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Share and Per Share Data |
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Net income, basic and diluted | $ 0.44 |
| $ 0.54 |
| $ 1.41 |
| $ 1.46 |
Shares outstanding at period end | 2,922,860 |
| 2,922,860 |
| 2,922,860 |
| 2,922,860 |
Weighted average shares, basic and diluted | 2,913,831 |
| 2,907,232 |
| 2,912,165 |
| 2,905,610 |
Book value at period end | $ 13.84 |
| $ 12.23 |
| $ 13.84 |
| $ 12.23 |
Cash dividends | $ 0.14 |
| $ 0.13 |
| $ 0.42 |
| $ 0.39 |
FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) | |||||||
| (unaudited) For the Three Months Ended |
| (unaudited) For the Nine Months Ended | ||||
| September 30, 2008 |
| September 30, 2007 |
| September 30, 2008 |
| September 30, 2007 |
Key Performance Ratios |
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Return on average assets | 0.95% |
| 1.18% |
| 1.02% |
| 1.09% |
Return on average equity | 12.78% |
| 17.81% |
| 13.87% |
| 16.69% |
Net interest margin | 3.68% |
| 3.77% |
| 3.71% |
| 3.69% |
Efficiency ratio (1) | 62.14% |
| 61.32% |
| 62.54% |
| 63.11% |
|
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|
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Asset Quality |
|
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Loan charge-offs | $ 101 |
| $ 79 |
| $ 325 |
| $ 232 |
Loan recoveries | 58 |
| 58 |
| 201 |
| 163 |
Net charge-offs | 43 |
| 21 |
| 124 |
| 69 |
Non-accrual loans | 8,549 |
| 237 |
| 8,549 |
| 237 |
Other real estate owned | 377 |
| 377 |
| 377 |
| 377 |
Repossessed assets | 21 |
| 78 |
| 21 |
| 78 |
Non-performing assets | 10,228 |
| 1,599 |
| 10,228 |
| 1,599 |
|
|
|
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|
|
|
|
Average Balances |
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|
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|
|
|
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Average assets | $ 539,197 |
| $ 528,899 |
| $ 537,411 |
| $ 523,651 |
Average earning assets | 508,463 |
| 498,642 |
| 507,296 |
| 494,430 |
Average shareholders’ equity | 40,005 |
| 34,968 |
| 39,485 |
| 34,075 |
|
|
|
|
| (unaudited) | ||
|
|
|
|
| September 30, 2008 |
| September 30, 2007 |
Capital Ratios |
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|
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|
|
Tier 1 capital |
|
|
|
| $ 50,475 |
| $ 49,630 |
Total capital |
|
|
|
| 55,298 |
| 53,607 |
Total capital to risk-weighted assets |
|
|
|
| 11.88% |
| 11.86% |
Tier 1 capital to risk-weighted assets |
|
|
|
| 10.84% |
| 10.98% |
Leverage ratio |
|
|
|
| 9.36% |
| 9.38% |
|
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|
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|
|
|
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Balance Sheet |
|
|
|
|
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|
|
Cash and due from banks |
|
|
|
| $ 8,633 |
| $ 14,653 |
Interest-bearing deposits in banks |
|
|
|
| 2,381 |
| 1,965 |
Federal funds sold |
|
|
|
| 5,050 |
| - |
Securities available for sale, at fair value |
|
|
|
| 56,807 |
| 59,669 |
Loans held for sale |
|
|
|
| - |
| 424 |
Loans, net of allowance for loan losses |
|
|
|
| 447,752 |
| 430,616 |
Premises and equipment, net |
|
|
|
| 21,551 |
| 19,341 |
Interest receivable |
|
|
|
| 1,891 |
| 2,145 |
Other assets |
|
|
|
| 4,422 |
| 4,860 |
Total assets |
|
|
|
| $ 548,487 |
| $ 533,673 |
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
|
| $ 75,506 |
| $ 87,629 |
Savings and interest-bearing demand deposits |
|
|
|
| 152,294 |
| 173,003 |
Time deposits |
|
|
|
| 228,826 |
| 175,817 |
Total deposits |
|
|
|
| $ 456,626 |
| $ 436,449 |
Federal funds purchased |
|
|
|
| - |
| 4,586 |
Other borrowings |
|
|
|
| 40,466 |
| 40,660 |
Company obligated mandatorily redeemable capital securities |
|
|
|
| 9,279 |
| 12,372 |
Accrued expenses and other liabilities |
|
|
|
| 1,670 |
| 3,850 |
Total liabilities |
|
|
|
| $ 508,041 |
| $ 497,917 |
FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) | |||
| (unaudited) | ||
| September 30, 2008 |
| September 30, 2007 |
Balance Sheet (continued) |
|
|
|
Common stock | $ 3,653 |
| $ 3,653 |
Surplus | 1,425 |
| 1,459 |
Retained earnings | 36,188 |
| 32,222 |
Unearned ESOP shares | (296) |
| (470) |
Accumulated other comprehensive loss, net | (524) |
| (1,108) |
Total shareholders’ equity | $ 40,446 |
| $ 35,756 |
|
|
|
|
Total liabilities and shareholders’ equity | $ 548,487 |
| $ 533,673 |
|
|
|
|
Loan Data |
|
|
|
Mortgage loans on real estate: |
|
|
|
Construction | $ 67,282 |
| $ 73,148 |
Secured by farm land | 1,727 |
| 1,740 |
Secured by 1-4 family residential | 115,691 |
| 106,059 |
Other real estate loans | 196,167 |
| 178,813 |
Loans to farmers (except those secured by real estate) | 3,289 |
| 2,223 |
Commercial and industrial loans (except those secured by real estate) | 52,007 |
| 52,155 |
Consumer installment loans | 15,382 |
| 19,285 |
Deposit overdrafts | 233 |
| 378 |
All other loans | 797 |
| 792 |
Total loans | $ 452,575 |
| $ 434,593 |
Allowance for loan losses | 4,823 |
| 3,977 |
Loans, net | $ 447,752 |
| $ 430,616 |
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(1) The efficiency ratio is computed by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income excluding securities gains and losses. 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 for 2008 and 2007 was 34%. Net interest income on a tax equivalent basis was $4,702 and $4,733 for the three months ended September 30, 2008 and 2007, respectively, and $14,092 and $13,629 for the nine months ended September 30, 2008 and 2007, respectively. Noninterest income excluding securities gains and losses was $1,496 and $1,514 for the three months ended September 30, 2008 and 2007, respectively, and $4,529 and $4,244 for the nine months ended September 30, 2008 and 2007, respectively. The efficiency ratio is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency. Such information is not in accordance with generally accepted accounting principles (GAAP) and should not be construed as such. Management believes 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. |
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