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 | | |
| July 26, 2010 | | |
| | | |
FIRST NATIONAL CORPORATION REPORTS INCREASE IN SECOND QUARTER EARNINGS
Strasburg, Virginia (July 26, 2010) --- First National Corporation (OTCBB: FXNC) reported net income of $753 thousand for the second quarter of 2010 compared to $237 thousand for the same quarter of 2009. After the effective dividend on preferred stock, net income available to common shareholders was $532 thousand, or $0.18 per basic and diluted share, compared to $17 thousand, or $0.01 per basic and diluted share, for the same quarter of 2009.
“Second quarter 2010 earnings showed an improvement over second quarter 2009 as a result of higher net interest income and lower noninterest expenses, which were partially offset by higher provision for loan losses,” said Harry Smith, President and Chief Executive Officer of First National Corporation. “We continue to be pleased with net interest margin performance, driven by lower funding costs. Lower FDIC assessment expense and lower provision for other real estate owned were the primary factors that resulted in reduced noninterest expenses. Higher provision for loan losses resulted from loan charge-offs and an increase to the allowance for loan losses. For the remainder of 2010, we expect stable net interest income and low expense growth.”
Quarterly Performance
Second quarter 2010 net income was $516 thousand higher than the same quarter of 2009:
| | § | Net interest income was $631 thousand higher |
| | § | Provision for loan losses was $511 thousand higher |
| | § | Noninterest income was $80 thousand higher |
| | § | Noninterest expense was $584 thousand lower |
The increase in second quarter 2010 earnings compared to second quarter 2009 was primarily the result of a 14% increase in net interest income and an 11% decrease in noninterest expense, offset by higher provision for loan losses. Noninterest income increased 6% when comparing the two periods. Return on assets and return on equity were 0.55% and 5.41%, respectively, for the second quarter of 2010, compared to 0.17% and 1.80% for the same quarter in 2009.
Net interest income increased 14% to $5.1 million for the second quarter of 2010 compared to $4.5 million for the same quarter of 2009. The net interest margin was 58 basis points higher and average interest-earning assets were $11.1 million lower when comparing the two periods. The margin was 4.11% for the quarter ended June 30, 2010 compared to 3.53% for the same period of 2009. The margin improvement was primarily the result of a decline in the cost of funding earning assets.
Noninterest income totaled $1.5 million for the second quarter of 2010, an increase of 6%, compared to $1.4 million for the same quarter of 2009. The increase in noninterest income resulted primarily from more overdraft fee income and ATM and check card fees. Noninterest expense decreased 11% to $4.5 million for the second quarter of 2010 compared to $5.1 million for the same period in 2009. The decrease in noninterest expense is primarily related to lower FDIC assessments and provisions for other real estate owned.
Net charge-offs were $531 thousand for the second quarter of 2010, compared to $23 thousand for the second quarter of 2009. Nonperforming assets totaled $14.3 million compared to $18.1 million one year ago. The allowance for loan losses totaled $7.6 million or 1.73% of total loans at June 30, 2010, compared to $7.0 million or 1.58% of total loans at June 30, 2009. The loan loss provision totaled $1.0 million for the second quarter of 2010 compared to $489 thousand for the same period in 2009. The higher provision for loan losses was primarily attributable to higher net charge-offs during the quarter.
Year-to-Date Performance
Net income was $1.5 million higher than the previous year:
| | § | Net interest income was $1.4 million higher |
| | § | Provision for loan losses was $249 thousand lower |
| | § | Noninterest income was $174 thousand higher |
| | § | Noninterest expense was $450 thousand lower |
For the six months ended June 30, 2010, net income was $1.8 million compared to $274 thousand for the same period in 2009. After the effective dividend on preferred stock, net income available to common shareholders was $1.3 million, or $0.45 per basic and diluted share, compared to $10 thousand, or $0.00 per basic and diluted share, for the same period in 2009. Return on assets was 0.65% for the six months ended June 30, 2010 compared to 0.10% for the same period in 2009, and return on equity was 6.42% for the six months ended June 30, 2010 compared to 1.17% for the same period in 2009.
Net interest income increased 16% to $10.1 million for the six months ended June 30, 2010 compared to $8.7 million for the same period in 2009. The net interest margin was 61 basis points higher while average interest-earning assets were $7.5 million lower when comparing the two periods. The net interest margin was 4.06% for the six months ended June 30, 2010, compared to 3.45% for the same period in 2009.
Noninterest income increased 7% to $2.8 million for the six months ended June 30, 2010 from $2.6 million for the same period in 2009. This increase was attributable to more overdraft and ATM and check card fee income. Noninterest expense decreased 5% to $8.9 million for the six months ended June 30, 2010, compared to $9.4 million for the same period in 2009. The decrease in noninterest expense was primarily the result of lower provision for other real estate owned. The provision for other real estate owned totaled $40 thousand for the six months ended June 30, 2010 compared to $635 thousand for the same period in 2009. The provision for loan losses decreased to $1.4 million for the six months ended June 30, 2010 compared to $1.7 million for the same period in 2009.
Cautionary Statements
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, 2009, which can be accessed from the Company’s website at www.therespowerinone.com, as filed with the Securities and Exchange Commission.
About the Company
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 Six Months Ended | |
| Income Statement | | June 30, 2010 | | | June 30, 2009 | | | June 30, 2010 | | | June 30, 2009 | |
| Interest and dividend income | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 6,229 | | | $ | 6,074 | | | $ | 12,489 | | | $ | 12,135 | |
| Interest on federal funds sold | | | - | | | | 2 | | | | - | | | | 4 | |
| Interest on deposits in banks | | | 2 | | | | - | | | | 4 | | | | - | |
| Interest and dividends on securities available for sale: | | | | | | | | | | | | | | | | |
| Taxable interest | | | 432 | | | | 520 | | | | 900 | | | | 1,029 | |
| Tax-exempt interest | | | 142 | | | | 143 | | | | 287 | | | | 282 | |
| Dividends | | | 16 | | | | 10 | | | | 28 | | | | 16 | |
| Total interest and dividend income | | $ | 6,821 | | | $ | 6,749 | | | $ | 13,708 | | | $ | 13,466 | |
| | | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | | | | | |
| Interest on deposits | | $ | 1,501 | | | $ | 1,968 | | | $ | 3,177 | | | $ | 4,109 | |
| Interest on federal funds purchased | | | 6 | | | | 1 | | | | 11 | | | | 9 | |
| Interest on company obligated mandatorily redeemable capital securities | | | 109 | | | | 121 | | | | 217 | | | | 248 | |
| Interest on other borrowings | | | 103 | | | | 188 | | | | 252 | | | | 436 | |
| Total interest expense | | $ | 1,719 | | | $ | 2,278 | | | $ | 3,657 | | | $ | 4,802 | |
| | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 5,102 | | | $ | 4,471 | | | $ | 10,051 | | | $ | 8,664 | |
| Provision for loan losses | | | 1,000 | | | | 489 | | | | 1,411 | | | | 1,660 | |
| Net interest income after provision for loan losses | | $ | 4,102 | | | $ | 3,982 | | | $ | 8,640 | | | $ | 7,004 | |
| | | | | | | | | | | | | | | | | |
| Noninterest income | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | $ | 682 | | | $ | 629 | | | $ | 1,291 | | | $ | 1,183 | |
| ATM and check card fees | | | 366 | | | | 306 | | | | 680 | | | | 575 | |
| Trust and investment advisory fees | | | 294 | | | | 281 | | | | 604 | | | | 589 | |
| Fees for other customer services | | | 91 | | | | 71 | | | | 164 | | | | 145 | |
| Gains on sale of loans | | | 25 | | | | 69 | | | | 65 | | | | 108 | |
| Gains on sale of securities available for sale | | | - | | | | 4 | | | | 2 | | | | 10 | |
| Gains on sale of premises and equipment | | | - | | | | 9 | | | | - | | | | 9 | |
| Losses on sale of other real estate owned, net | | | - | | | | - | | | | (52 | ) | | | - | |
| Other operating income | | | 31 | | | | 40 | | | | 56 | | | | 17 | |
| Total noninterest income | | $ | 1,489 | | | $ | 1,409 | | | $ | 2,810 | | | $ | 2,636 | |
| | | | | | | | | | | | | | | | | |
| Noninterest expense | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | | $ | 2,290 | | | $ | 2,206 | | | $ | 4,517 | | | $ | 4,412 | |
| Occupancy | | | 351 | | | | 320 | | | | 695 | | | | 651 | |
| Equipment | | | 343 | | | | 362 | | | | 691 | | | | 697 | |
| Marketing | | | 128 | | | | 134 | | | | 252 | | | | 269 | |
Stationery and supplies Legal and professional fees | | | 85 194 | | | | 148 211 | | | | 182 420 | | | | 295 391 | |
| ATM and check card fees | | | 209 | | | | 201 | | | | 386 | | | | 371 | |
| FDIC assessment | | | 184 | | | | 337 | | | | 371 | | | | 429 | |
| Provision for other real estate owned | | | 40 | | | | 575 | | | | 40 | | | | 635 | |
| Other operating expense | | | 701 | | | | 615 | | | | 1,368 | | | | 1,222 | |
| Total noninterest expense | | $ | 4,525 | | | $ | 5,109 | | | $ | 8,922 | | | $ | 9,372 | |
| | | | | | | | | | | | | | | | | |
| Income before income taxes | | $ | 1,066 | | | $ | 282 | | | $ | 2,528 | | | $ | 268 | |
| Income tax provision (benefit) | | | 313 | | | | 45 | | | | 760 | | | | (6 | ) |
| Net income | | $ | 753 | | | $ | 237 | | | $ | 1,768 | | | $ | 274 | |
| Effective dividend and accretion on preferred stock | | | 221 | | | | 220 | | | | 442 | | | | 264 | |
| Net income available to common shareholders | | $ | 532 | | | $ | 17 | | | $ | 1,326 | | | $ | 10 | |
| | | | | | | | | | | | | | | | | |
| Common Share and Per Common Share Data | | | | | | | | | | | | | | | | |
| Net income, basic and diluted | | $ | 0.18 | | | $ | 0.01 | | | $ | 0.45 | | | $ | 0.00 | |
| Shares outstanding at period end | | | 2,940,776 | | | | 2,922,860 | | | | 2,940,776 | | | | 2,922,860 | |
| Weighted average shares, basic and diluted | | | 2,937,480 | | | | 2,918,843 | | | | 2,935,192 | | | | 2,918,012 | |
| Book value at period end | | $ | 14.18 | | | $ | 13.15 | | | $ | 14.18 | | | $ | 13.15 | |
| Cash dividends | | $ | 0.14 | | | $ | 0.14 | | | $ | 0.28 | | | $ | 0.28 | |
FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) |
| | | (unaudited) For the Three Months Ended | | | (unaudited) For the Six Months Ended | |
| | | June 30, 2010 | | | June 30, 2009 | | | June 30, 2010 | | | June 30, 2009 | |
| Key Performance Ratios | | | | | | | | | | | | |
| Return on average assets | | | 0.55 | % | | | 0.17 | % | | | 0.65 | % | | | 0.10 | % |
| Return on average equity | | | 5.41 | % | | | 1.80 | % | | | 6.42 | % | | | 1.17 | % |
| Net interest margin | | | 4.11 | % | | | 3.53 | % | | | 4.06 | % | | | 3.45 | % |
Efficiency ratio (1) | | | 67.22 | % | | | 76.19 | % | | | 67.91 | % | | | 76.32 | % |
| | | | | | | | | | | | | | | | | |
| Asset Quality | | | | | | | | | | | | | | | | |
| Loan charge-offs | | $ | 585 | | | $ | 89 | | | $ | 1,017 | | | $ | 453 | |
| Loan recoveries | | | 54 | | | | 66 | | | | 134 | | | | 170 | |
| Net charge-offs | | | 531 | | | | 23 | | | | 883 | | | | 283 | |
| Non-accrual loans | | | 7,006 | | | | 12,461 | | | | 7,006 | | | | 12,461 | |
| Other real estate owned, net | | | 7,253 | | | | 5,230 | | | | 7,253 | | | | 5,230 | |
| Repossessed assets | | | 3 | | | | 395 | | | | 3 | | | | 395 | |
| Restructured loans | | | - | | | | - | | | | - | | | | - | |
| Nonperforming assets | | | 14,262 | | | | 18,086 | | | | 14,262 | | | | 18,086 | |
| | | | | | | | | | | | | | | | | |
| Average Balances | | | | | | | | | | | | | | | | |
| Average assets | | $ | 544,443 | | | $ | 551,695 | | | $ | 545,660 | | | $ | 549,743 | |
| Average earning assets | | | 506,574 | | | | 517,700 | | | | 507,870 | | | | 515,381 | |
| Average shareholders’ equity | | | 55,772 | | | | 53,007 | | | | 55,513 | | | | 47,307 | |
| | | | | | | | | | | | | | | | | |
| | | (unaudited) | |
| | | June 30, 2010 | | | June 30, 2009 | |
| Capital Ratios | | | | | | |
| Tier 1 capital | | $ | 63,777 | | | $ | 62,660 | |
| Total capital | | | 69,557 | | | | 68,452 | |
| Total capital to risk-weighted assets | | | 15.10 | % | | | 14.81 | % |
| Tier 1 capital to risk-weighted assets | | | 13.85 | % | | | 13.56 | % |
| Leverage ratio | | | 11.72 | % | | | 11.35 | % |
| | | | | | | | | |
| Balance Sheet | | | | | | | | |
| Cash and due from banks | | $ | 6,852 | | | $ | 6,540 | |
| Interest-bearing deposits in banks | | | 5,231 | | | | 1,434 | |
| Federal funds sold | | | - | | | | 1,871 | |
| Securities available for sale, at fair value | | | 54,757 | | | | 61,383 | |
| Restricted securities, at cost | | | 3,426 | | | | 2,751 | |
| Loans held for sale | | | - | | | | 805 | |
| Loans, net of allowance for loan losses | | | 434,860 | | | | 439,052 | |
| Premises and equipment, net | | | 20,157 | | | | 21,107 | |
| Interest receivable | | | 1,697 | | | | 1,684 | |
| Other assets | | | 16,741 | | | | 11,414 | |
| Total assets | | $ | 543,721 | | | $ | 548,041 | |
| | | | | | | | | |
| Noninterest-bearing demand deposits | | $ | 82,665 | | | $ | 75,443 | |
| Savings and interest-bearing demand deposits | | | 156,914 | | | | 140,784 | |
| Time deposits | | | 202,536 | | | | 245,229 | |
| Total deposits | | $ | 442,115 | | | $ | 461,456 | |
| Federal funds purchased | | | 13,304 | | | | - | |
| Other borrowings | | | 20,133 | | | | 20,300 | |
Company obligated mandatorily redeemable capital securities | | | 9,279 | | | | 9,279 | |
| Accrued expenses and other liabilities | | | 3,126 | | | | 4,634 | |
| Total liabilities | | $ | 487,957 | | | $ | 495,669 | |
| | | | | | | | | |
FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) |
| | | (unaudited) | |
| | | June 30, 2010 | | | June 30, 2009 | |
Balance Sheet (continued) | | | | | | |
| Preferred stock | | $ | 14,062 | | | $ | 13,937 | |
| Common stock | | | 3,676 | | | | 3,653 | |
| Surplus | | | 1,487 | | | | 1,369 | |
| Retained earnings | | | 35,607 | | | | 34,486 | |
| Unearned ESOP shares | | | - | | | | (146 | ) |
| Accumulated other comprehensive income (loss), net | | | 932 | | | | (927 | ) |
| Total shareholders’ equity | | $ | 55,764 | | | $ | 52,372 | |
| | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 543,721 | | | $ | 548,041 | |
| | | | | | | | | |
| Loan Data | | | | | | | | |
| Mortgage loans on real estate: | | | | | | | | |
| Construction | | $ | 52,785 | | | $ | 57,099 | |
| Secured by farm land | | | 6,128 | | | | 1,600 | |
| Secured by 1-4 family residential | | | 122,612 | | | | 118,897 | |
| Other real estate loans | | | 203,800 | | | | 197,221 | |
| Loans to farmers (except those secured by real estate) | | | 3,478 | | | | 3,322 | |
| Commercial and industrial loans (except those secured by real estate) | | | 39,717 | | | | 52,668 | |
| Consumer installment loans | | | 12,737 | | | | 13,416 | |
| Deposit overdrafts | | | 290 | | | | 765 | |
| All other loans | | | 947 | | | | 1,091 | |
Total loans | | $ | 442,494 | | | $ | 446,079 | |
| Allowance for loan losses | | | 7,634 | | | | 7,027 | |
| Loans, net | | $ | 434,860 | | | $ | 439,052 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(1) The efficiency ratio is computed by dividing noninterest expense excluding the provision for other real estate owned by the sum of net interest income on a tax equivalent basis and noninterest income excluding gains and losses on securities, premises and equipment and other real estate owned. 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 2010 and 2009 was 34%. Net interest income on a tax equivalent basis was $5,185 and $4,555 for the three months ended June 30, 2010 and 2009, respectively, and $10,218 and $8,830 for the six months ended June 30, 2010 and 2009, respectively. Noninterest income excluding securities, premises and equipment and other real estate owned gains and losses was $1,489 and $1,396 for the three months ended June 30, 2010 and 2009, respectively, and $2,860 and $2,617 for the six months ended June 30, 2010 and 2009, 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. |
