Exhibit 99.1
Contact:
Harry S. Smith, President & CEO | M. Shane Bell, EVP & CFO |
(540) 465-9121 | (540) 465-9121 |
hsmith@therespowerinone.com | sbell@therespowerinone.com |
News Release
February 11, 2009
FIRST NATIONAL CORPORATION REPORTS FOURTH QUARTER AND ANNUAL EARNINGS
Strasburg, Virginia (February 11, 2009) --- First National Corporation (OTCBB: FXNC) reported earnings for the year ended December 31, 2008 of $4.2 million, or $1.45 per basic and diluted share, compared to $5.7 million, or $1.98 per basic and diluted share for the same period in 2007. Total assets increased $6.6 million during the last twelve months to $548.2 million at December 31, 2008 compared to $541.6 million one year ago. In addition, the Company’s trust and investment advisory group had assets under management of $174.0 million at December 31, 2008. For the fourth quarter of 2008, earnings totaled $124 thousand, or $0.04 per basic and diluted share, compared to $1.5 million, or $0.51 per basic and diluted share for the same period in 2007.
Harry S. Smith, President and CEO, stated “In spite of economic conditions, we are pleased with earnings of $4.2 million for the year ended December 31, 2008. During the fourth quarter of 2008, we increased the allowance for loan losses by recording a $1.3 million provision for loan losses. Although net charge-offs have remained relatively low during 2008, higher levels of non-performing assets and worsening economic conditions were key factors in making that decision. As a result, the allowance for loan losses increased 18 basis points to 1.25% of total loans at December 31, 2008 compared to 1.07% at September 30, 2008. We have taken action to reduce expenses, including eliminating pay increases and new employee positions for 2009. Other cost control plans continue to include no further expansion of the branch network during 2009.”
Earnings decreased in the fourth quarter of 2008 compared to the same period in 2007 primarily as a result of the increase in the provision for loan losses. Other factors included a decrease in net interest income and noninterest income and an increase in noninterest expenses. Return on assets and return on equity were 0.09% and 1.22%, respectively, for the fourth quarter of 2008 compared to 1.11% and 16.10% for the same quarter in 2007.
Net interest income decreased to $4.3 million for the fourth quarter of 2008 compared to $4.7 million for the same quarter of 2007. The net interest margin decreased 39 basis points and average interest-earning assets increased $10.3 million when comparing the two periods. The decreased margin resulted from reversals of accrued interest on loans placed on non-accrual status during the fourth quarter combined with the impact of Federal Reserve rate cuts. The Fed decreased their fed funds target rate from 2.00% at September 30, 2008 to the range of 0.00% to 0.25% at December 31, 2008. These rate cuts compressed the margin as funding costs did not fall at the same pace as earning asset yields. We expect margin improvement during the first quarter of 2009 from lower funding costs.
Noninterest income totaled $1.4 million for the fourth quarter of 2008 compared to $1.8 million for the same quarter of 2007. The decrease in noninterest income resulted primarily from non-recurring items including net losses on sale of premises and equipment of $106 thousand for 2008 compared to net gains of $365 thousand for 2007. Noninterest expense increased to $4.4 million for the fourth quarter of 2008 compared to $4.0 million for the same period in 2007. This was attributable to higher occupancy and other operating expenses. Occupancy costs increased from new lease payments on future office sites and depreciation expense on the new operations center. Other operating expenses increased primarily from higher FDIC assessments, foreclosed property expenses and one-time costs related to the Company’s re-branding initiative.
Net charge-offs were $427 thousand for the fourth quarter of 2008, compared to $100 thousand for the fourth quarter of 2007. Non-performing assets totaled $17.8 million compared to $2.3 million one year ago. At December 31, 2008, non-performing assets consisted of $8.5 million in commercial real estate loans, $4.3 million in other real estate owned, $2.9 million in residential development loans and $1.1 million in residential real estate loans. Worsening asset quality and economic conditions resulted in a loan loss provision of $1.3 million in the fourth quarter of 2008 compared to $331 thousand for the same period in 2007. As a result, the allowance for loan losses increased $1.5 million to $5.7 million or 1.25% of total loans at December 31, 2008, compared to $4.2 million or 0.94% of total loans at December 31, 2007.
For the year ended December 31, 2008, net income was $4.2 million or $1.45 per basic and diluted share. This was a 27% decrease compared to $5.7 million in net income or $1.98 per basic and diluted share for the same period in 2007. This was primarily the result of a $1.6 million increase in the provision for loan losses. Net interest income was unchanged, noninterest income only decreased 2% and noninterest expenses increased 5% when comparing the two periods. Return on assets was 0.78% for the year ended December 31, 2008 compared to 1.09% for the same period in 2007, and return on equity was 10.65% for the year ended December 31, 2008 compared to 16.52% for the same period in 2007. Total assets increased $6.6 million during the last twelve months to $548.2 million at December 31, 2008 compared to $541.6 million one year ago.
Net interest income totaled $18.1 million for the year ended December 31, 2008 and for the same period in 2007. The net interest margin decreased 8 basis points and average interest-earning assets increased $11.9 million when comparing the two periods. The net interest margin was 3.63% for the year ended December 31, 2008, compared to 3.71% for the same period in 2007. The decrease in margin was attributable to the impact of significant rate cuts by the Federal Reserve during the year.
Noninterest income decreased slightly to $6.0 million for the year ended December 31, 2008 from $6.1 million for the same period in 2007. Fees for other customer services increased 13% to $2.8 million compared to $2.5 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. Net losses on the sale of premises and equipment totaled $106 thousand for the year compared to net gains of $363 thousand in the previous year. Noninterest expense increased 5% to $16.0 million for the year ended December 31, 2008, compared to $15.3 million for the same period in 2007. This was driven primarily from higher occupancy and other operating costs. Worsening asset quality and economic conditions resulted in a loan loss provision of $2.0 million for 2008 compared to $398 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.therespowerinone.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 Year Ended |
Income Statement | | December 31, 2008 | | December 31, 2007 | | December 31, 2008 | | December 31, 2007 |
Interest and dividend income | | | | | | | | |
Interest and fees on loans | $ | 6,581 | $ | 8,205 | $ | 28,136 | $ | 32,538 |
Interest on federal funds sold | | 2 | | 1 | | 11 | | 29 |
Interest on deposits in banks | | 1 | | 22 | | 34 | | 103 |
Interest and dividends on securities available for sale: | | | | | | | | |
Taxable interest | | 524 | | 530 | | 2,051 | | 2,159 |
Tax-exempt interest | | 139 | | 121 | | 545 | | 472 |
Dividends | | 10 | | 53 | | 136 | | 200 |
Total interest and dividend income | $ | 7,257 | $ | 8,932 | $ | 30,913 | $ | 35,501 |
| | | | | | | | |
Interest expense | | | | | | | | |
Interest on deposits | | 2,497 | $ | 3,369 | $ | 10,299 | $ | 14,049 |
Interest on federal funds purchased | | 16 | | 40 | | 112 | | 170 |
Interest on company obligated mandatorily redeemable capital securities | | 134 | | 240 | | 642 | | 956 |
Interest on other borrowings | | 340 | | 597 | | 1,740 | | 2,226 |
Total interest expense | $ | 2,987 | $ | 4,246 | $ | 12,793 | $ | 17,401 |
| | | | | | | | |
Net interest income | $ | 4,270 | $ | 4,686 | | 18,120 | $ | 18,100 |
Provision for loan losses | | 1,255 | | 331 | | 1,994 | | 398 |
Net interest income after provision for loan losses | $ | 3,015 | $ | 4,355 | $ | 16,126 | $ | 17,702 |
| | | | | | | | |
Noninterest income | | | | | | | | |
Service charges | $ | 726 | $ | 832 | $ | 2,878 | $ | 2,992 |
Fees for other customer services | | 653 | | 689 | | 2,826 | | 2,497 |
Gains on sale of loans | | 26 | | 43 | | 119 | | 284 |
Gains (losses) on sale of securities available for sale | | - | | (84) | | 2 | | (103) |
Gains (losses) on sale of premises and equipment | | (106) | | 365 | | (106) | | 363 |
Other operating income | | 121 | | 2 | | 232 | | 39 |
Total noninterest income | $ | 1,420 | $ | 1,847 | $ | 5,951 | $ | 6,072 |
| | | | | | | | |
Noninterest expense | | | | | | | | |
Salaries and employee benefits | $ | 2,184 | $ | 2,208 | $ | 8,485 | $ | 8,365 |
Occupancy | | 334 | | 235 | | 1,175 | | 952 |
Equipment | | 347 | | 322 | | 1,391 | | 1,277 |
Other operating expense | | 1,503 | | 1,241 | | 4,963 | | 4,692 |
Total noninterest expense | $ | 4,368 | $ | 4,006 | $ | 16,014 | $ | 15,286 |
| | | | | | | | |
Income before income taxes | $ | 67 | $ | 2,196 | $ | 6,063 | $ | 8,488 |
Provision for income taxes | | (57) | | 703 | | 1,840 | | 2,741 |
Net income | $ | 124 | $ | 1,493 | $ | 4,223 | $ | 5,747 |
| | | | | | | | |
Share and Per Share Data | | | | | | | | |
Net income, basic and diluted | $ | 0.04 | $ | 0.51 | $ | 1.45 | $ | 1.98 |
Shares outstanding at period end | | 2,922,860 | | 2,922,860 | | 2,922,860 | | 2,922,860 |
Weighted average shares, basic and diluted | | 2,915,530 | | 2,908,866 | | 2,913,011 | | 2,906,431 |
Book value at period end | $ | 13.41 | $ | 12.95 | $ | 13.41 | $ | 12.95 |
Cash dividends | $ | 0.14 | $ | 0.14 | $ | 0.56 | $ | 0.53 |
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FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) |
| | (unaudited) For the Three Months Ended | | (unaudited) For the Year Ended |
| | December 31, 2008 | | December 31, 2007 | | December 31, 2008 | | December 31, 2007 |
Key Performance Ratios | | | | | | | | |
Return on average assets | | 0.09% | | 1.11% | | 0.78% | | 1.09% |
Return on average equity | | 1.22% | | 16.10% | | 10.65% | | 16.52% |
Net interest margin | | 3.38% | | 3.77% | | 3.63% | | 3.71% |
Efficiency ratio (1) | | 75.72% | | 59.84% | | 65.66% | | 62.22% |
| | | | | | | | |
Asset Quality | | | | | | | | |
Loan charge-offs | $ | 479 | $ | 150 | $ | 804 | $ | 382 |
Loan recoveries | | 52 | | 50 | | 253 | | 213 |
Net charge-offs | | 427 | | 100 | | 551 | | 169 |
Non-accrual loans | | 10,058 | | 382 | | 10,058 | | 382 |
Other real estate owned | | 4,300 | | 377 | | 4,300 | | 377 |
Repossessed assets | | 63 | | 32 | | 63 | | 32 |
Non-performing assets | | 17,773 | | 2,266 | | 17,773 | | 2,266 |
| | | | | | | | |
Average Balances | | | | | | | | |
Average assets | $ | 543,753 | $ | 532,266 | $ | 539,025 | $ | 526,225 |
Average earning assets | | 511,711 | | 501,445 | | 508,120 | | 496,198 |
Average shareholders’ equity | | 40,294 | | 36,814 | | 39,660 | | 34,788 |
| | | | | | |
| | | | | | (unaudited) |
| | | | | | December 31, 2008 | | December 31, 2007 |
Capital Ratios | | | | | | | | |
Tier 1 capital | | | | | $ | 49,469 | $ | 50,715 |
Total capital | | | | | | 55,119 | | 54,922 |
Total capital to risk-weighted assets | | | | | | 11.73% | | 11.80% |
Tier 1 capital to risk-weighted assets | | | | | | 10.53% | | 10.89% |
Leverage ratio | | | | | | 9.10% | | 9.53% |
| | | | | | | | |
Balance Sheet | | | | | | | | |
Cash and due from banks | | | | | $ | 8,534 | $ | 10,680 |
Interest-bearing deposits in banks | | | | | | 1,956 | | 2,229 |
Securities available for sale, at fair value | | | | | | 58,238 | | 57,503 |
Loans held for sale | | | | | | - | | 270 |
Loans, net of allowance for loan losses | | | | | | 446,327 | | 445,380 |
Premises and equipment, net | | | | | | 21,519 | | 19,405 |
Interest receivable | | | | | | 1,763 | | 2,227 |
Other assets | | | | | | 9,900 | | 3,871 |
Total assets | | | | | $ | 548,237 | $ | 541,565 |
| | | | | | | | |
Noninterest-bearing demand deposits | | | | | $ | 73,444 | $ | 78,474 |
Savings and interest-bearing demand deposits | | | 140,670 | | 177,676 |
Time deposits | | | | | | 233,379 | | 188,992 |
Total deposits | | | | | $ | 447,493 | $ | 445,142 |
Federal funds purchased | | | | | | 2,456 | | 3,409 |
Other borrowings | | | | | | 45,397 | | 40,564 |
Company obligated mandatorily redeemable capital securities | | 9,279 | | 12,372 |
Accrued expenses and other liabilities | | | | | | 4,427 | | 2,219 |
Total liabilities | | | | | $ | 509,052 | $ | 503,706 |
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FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) |
| (unaudited) |
| | December 31, 2008 | | December 31, 2007 |
Balance Sheet (continued) | | | | |
Common stock | $ | 3,653 | $ | 3,653 |
Surplus | | 1,409 | | 1,453 |
Retained earnings | | 35,196 | | 33,311 |
Unearned ESOP shares | | (232) | | (379) |
Accumulated other comprehensive loss, net | | (841) | | (179) |
Total shareholders’ equity | $ | 39,185 | $ | 37,859 |
| | | | |
Total liabilities and shareholders’ equity | $ | 548,237 | $ | 541,565 |
| | | | |
Loan Data | | | | |
Mortgage loans on real estate: | | | | |
Construction | $ | 63,744 | $ | 73,478 |
Secured by farm land | | 1,702 | | 1,789 |
Secured by 1-4 family residential | | 116,821 | | 106,378 |
Other real estate loans | | 196,163 | | 192,616 |
Loans to farmers (except those secured by real estate) | | 3,158 | | 2,144 |
Commercial and industrial loans (except those secured by real estate) | | 53,196 | | 53,028 |
Consumer installment loans | | 14,572 | | 18,363 |
Deposit overdrafts | | 1,630 | | 415 |
All other loans | | 991 | | 1,376 |
Total loans | $ | 451,977 | $ | 449,587 |
Allowance for loan losses | | 5,650 | | 4,207 |
Loans, net | $ | 446,327 | $ | 445,380 |
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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 $4,350 and $4,761 for the three months ended December 31, 2008 and 2007, respectively, and $18,442 and $18,391 for the year ended December 31, 2008 and 2007, respectively. Noninterest income excluding securities gains and losses was $1,420 and $1,931 for the three months ended December 31, 2008 and 2007, respectively, and $5,949 and $6,175 for the year ended December 31, 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. | | | | |
