Exhibit 99.1
Contact:
| Scott C. Harvard | | | M. Shane Bell |
| President and CEO | | | Executive Vice President and CFO |
| (540) 465-9121 | | | (540) 465-9121 |
| sharvard@therespowerinone.com | | | sbell@therespowerinone.com |
News Release
FIRST NATIONAL CORPORATION ANNOUNCES OPERATING INITIATIVES, EARNINGS AND DIVIDEND DECISION
Strasburg, Virginia (August 1, 2011) --- First National Corporation (the “Company”) (OTCBB: FXNC), the parent company of First Bank (the “Bank”), announced today that it has taken several actions which are intended to preserve and position its strong balance sheet for future growth and expansion in its markets. Scott C. Harvard, President and CEO of First National Corporation and First Bank commented, “With over a century of history delivering banking services in our markets, the Company has weathered economic downturns as severe as the Great Depression. The current board, taking lessons from the boards of the past, is committed to taking actions necessary to ensure the Company maintains a fortress balance sheet during this prolonged economic downturn.” In response to the current operating environment, the Company has launched the following initiatives during the last four months to protect and improve shareholder value:
| · | Hired a new President and Chief Executive Officer of First National Corporation and First Bank with deep experience in community banking in Virginia. |
| · | Initiated a search for an experienced Chief Credit Officer to join the management team and reinforce a strong credit culture for the future. |
| · | Introduced a new menu of checking products with a broad range of features and benefits for customers throughout the market. |
| · | Engaged a highly regarded credit risk management firm to assist with enhancing loan policies and procedures. |
The Company also announced today that it recorded $3.6 million in provision for loan losses, which resulted in a net loss of $945 thousand for the second quarter of 2011. Net loss available to common shareholders totaled $1.2 million for the second quarter of 2011, or $0.40 per basic and diluted share. Net income available to common shareholders totaled $532 thousand, or $0.18 per basic and diluted share, for the same period in 2010. Harvard continued, “Although the allowance for loan losses was increased substantially in the fourth quarter of 2010 to prudently deal with problem loans, the Company increased the allowance again in the second quarter. The additional reserves were appropriate to reflect lower loan collateral values, an increase in charge-offs and the Company’s concerns about continued weakness in the economy. Core operating results remained stable at $2.1 million when compared to the same quarter one year ago. I am pleased with the strength of our core banking company. Solid and consistent net interest margin, noninterest income, and expense management are characteristic of a strong banking company that has been serving its markets for over a century. Earnings for the six months ended June 30, 2011 were positive, with net income totaling $58 thousand before the effective dividend and accretion on preferred stock.” Core operating results are measured by income before taxes, excluding the provision for loan losses and the provision for other real estate owned.
At the most recent meeting of the Board of Directors, it was determined that it was in the best interests of the Company and its stockholders to suspend cash dividends on common stock. Harvard commented, “It was a difficult decision to eliminate the dividend to loyal stockholders. However, in the current economic environment it is imperative that strong companies like First National Corporation and First Bank maintain solid capital levels. We believe this board, like our legacy boards of the past, made the right decision for our Company and its owners.”
Quarterly Performance
Second quarter 2011 earnings were $1.7 million lower than the same quarter of 2010, primarily as a result of the provision for loan losses. Net interest income, noninterest income and noninterest expense were all relatively consistent when comparing the two periods. Return on assets and return on equity were -0.69% and -7.68%, respectively, for the second quarter of 2011, compared to 0.55% and 5.41% for the same quarter in 2010.
Net interest income remained stable at $5.1 million for the second quarter of 2011 when compared to the same quarter of 2010. Average interest-earning assets were $11.0 million higher when comparing the two periods. The margin was 4.00% for the quarter ended June 30, 2011 compared to 4.11% for the same period of 2010. The slight decline in the margin was the result of a change in the earning asset mix.
Noninterest income was $1.5 million for the second quarter of 2011, which was consistent with the same quarter of 2010. Increases in ATM, check card and trust and investment advisory fees offset the decrease in overdraft fee income. Noninterest expense was relatively unchanged at $4.5 million for the second quarter of 2011, compared to the same quarter of 2010, resulting in an efficiency ratio of 67.58% compared to 67.22% for the prior year period.
Net charge-offs were $2.9 million for the second quarter of 2011 compared to $531 thousand for the same quarter of 2010. The allowance for loan losses totaled $13.8 million or 3.32% of total loans at June 30, 2011, compared to $7.6 million or 1.73% of total loans at June 30, 2010. The loan loss provision totaled $3.6 million for the second quarter of 2011 compared to $1.0 million for the same period in 2010. The higher provision was related to lower collateral values and an increase in charge-offs.
Year-to-Date Performance
For the six months ended June 30, 2011, net income totaled $58 thousand compared to $1.8 million for the same period in 2010. After the effective dividend on preferred stock, net loss available to common shareholders was $388 thousand, or $0.13 per basic and diluted share, compared to net income available to common shareholders of $1.3 million, or $0.45 per basic and diluted share, for the same period in 2010. Return on assets was 0.02% for the six months ended June 30, 2011 compared to 0.65% for the same period in 2010, and return on equity was 0.24% for the six months ended June 30, 2011 compared to 6.42% for the same period in 2010.
Net interest income was relatively unchanged at $10.0 million for the six months ended June 30, 2011 compared to $10.1 million for same period in 2010. The net interest margin was 12 basis points lower and average interest-earning assets were $10.8 million higher when comparing the two periods. The net interest margin was 3.94% for the six months ended June 30, 2011, compared to 4.06% for the same period in 2010. The provision for loan losses totaled $3.8 million for the six months ended June 30, 2011 compared to $1.4 million for the same period in 2010.
Noninterest income totaled $2.8 million for the six months ended June 30, 2011, which was a slight decrease compared to $2.9 million for the same period in 2010. A decrease in overdraft fee income was offset by increases in ATM, check card and trust and investment advisory fees. Noninterest expense was relatively unchanged for the six months ended June 30, 2011, compared to the same period in 2010, when excluding the provision for other real estate owned. The provision for other real estate owned totaled $176 thousand for the six months ended June 30, 2011 compared to $40 thousand for the same period in 2010.
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, 2010, 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 10 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, 2011 | | | June 30, 2010 | | | June 30, 2011 | | | June 30, 2010 | |
| Interest and dividend income | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 5,818 | | | $ | 6,229 | | | $ | 11,651 | | | $ | 12,489 | |
| Interest on federal funds sold | | | 4 | | | | - | | | | 11 | | | | - | |
| Interest on deposits in banks | | | 5 | | | | 2 | | | | 12 | | | | 4 | |
| Interest and dividends on securities available for sale: | | | | | | | | | | | | | | | | |
| Taxable interest | | | 572 | | | | 432 | | | | 1,023 | | | | 900 | |
| Tax-exempt interest | | | 121 | | | | 142 | | | | 244 | | | | 287 | |
| Dividends | | | 17 | | | | 16 | | | | 34 | | | | 28 | |
| Total interest and dividend income | | $ | 6,537 | | | $ | 6,821 | | | $ | 12,975 | | | $ | 13,708 | |
| | | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | | | | | |
| Interest on deposits | | $ | 1,303 | | | $ | 1,501 | | | $ | 2,606 | | | $ | 3,177 | |
| Interest on federal funds purchased | | | - | | | | 6 | | | | - | | | | 11 | |
| Interest on company obligated mandatorily redeemable capital securities | | | 109 | | | | 109 | | | | 218 | | | | 217 | |
| Interest on other borrowings | | | 42 | | | | 103 | | | | 133 | | | | 252 | |
| Total interest expense | | $ | 1,454 | | | $ | 1,719 | | | $ | 2,957 | | | $ | 3,657 | |
| | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 5,083 | | | $ | 5,102 | | | $ | 10,018 | | | $ | 10,051 | |
| Provision for loan losses | | | 3,550 | | | | 1,000 | | | | 3,820 | | | | 1,411 | |
| Net interest income after provision for loan losses | | $ | 1,533 | | | $ | 4,102 | | | $ | 6,198 | | | $ | 8,640 | |
| | | | | | | | | | | | | | | | | |
| Noninterest income | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | $ | 535 | | | $ | 682 | | | $ | 1,036 | | | $ | 1,291 | |
| ATM and check card fees | | | 410 | | | | 366 | | | | 781 | | | | 680 | |
| Trust and investment advisory fees | | | 384 | | | | 294 | | | | 726 | | | | 604 | |
| Fees for other customer services | | | 74 | | | | 91 | | | | 147 | | | | 164 | |
| Gains on sale of loans | | | 22 | | | | 25 | | | | 69 | | | | 65 | |
| Gains on sale of securities available for sale | | | 41 | | | | - | | | | 41 | | | | 2 | |
| Other operating income | | | 19 | | | | 31 | | | | 25 | | | | 56 | |
| Total noninterest income | | $ | 1,485 | | | $ | 1,489 | | | $ | 2,825 | | | $ | 2,862 | |
| | | | | | | | | | | | | | | | | |
| Noninterest expense | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | | $ | 2,280 | | | $ | 2,290 | | | $ | 4,568 | | | $ | 4,517 | |
| Occupancy | | | 331 | | | | 351 | | | | 672 | | | | 695 | |
| Equipment | | | 323 | | | | 343 | | | | 648 | | | | 691 | |
| Marketing | | | 100 | | | | 128 | | | | 205 | | | | 252 | |
Stationery and supplies Legal and professional fees | | | 87269 | | | | 85194 | | | | 166470 | | | | 182420 | |
| ATM and check card fees | | | 159 | | | | 209 | | | | 330 | | | | 386 | |
| FDIC assessment | | | 217 | | | | 184 | | | | 407 | | | | 371 | |
| Provision for other real estate owned | | | 46 | | | | 40 | | | | 176 | | | | 40 | |
| Losses on sale of other real estate owned, net | | | 8 | | | | - | | | | 8 | | | | 52 | |
| Other operating expense | | | 696 | | | | 701 | | | | 1,421 | | | | 1,368 | |
| Total noninterest expense | | $ | 4,516 | | | $ | 4,525 | | | $ | 9,071 | | | $ | 8,974 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | $ | (1,498 | ) | | $ | 1,066 | | | $ | (48 | ) | | $ | 2,528 | |
| Income tax provision (benefit) | | | (553 | ) | | | 313 | | | | (106 | ) | | | 760 | |
| Net income (loss) | | $ | (945 | ) | | $ | 753 | | | $ | 58 | | | $ | 1,768 | |
| Effective dividend and accretion on preferred stock | | | 223 | | | | 221 | | | | 446 | | | | 443 | |
| Net income (loss) available to common shareholders | | $ | (1,168 | ) | | $ | 532 | | | $ | (388 | ) | | $ | 1,325 | |
| | | | | | | | | | | | | | | | | |
| Common Share and Per Common Share Data | | | | | | | | | | | | | | | | |
| Net income (loss), basic and diluted | | $ | (0.40 | ) | | $ | 0.18 | | | $ | (0.13 | ) | | $ | 0.45 | |
| Shares outstanding at period end | | | 2,955,649 | | | | 2,940,776 | | | | 2,955,649 | | | | 2,940,776 | |
| Weighted average shares, basic and diluted | | | 2,952,818 | | | | 2,937,480 | | | | 2,951,002 | | | | 2,935,192 | |
| Book value at period end | | $ | 11.64 | | | $ | 14.18 | | | $ | 11.64 | | | $ | 14.18 | |
| Cash Dividends | | $ | 0.10 | | | $ | 0.14 | | | $ | 0.20 | | | $ | 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, 2011 | | | June 30, 2010 | | | June 30, 2011 | | | June 30, 2010 | |
| Key Performance Ratios | | | | | | | | | | | | |
| Return on average assets | | | (0.69 | %) | | | 0.55 | % | | | 0.02 | % | | | 0.65 | % |
| Return on average equity | | | (7.68 | %) | | | 5.41 | % | | | 0.24 | % | | | 6.42 | % |
| Net interest margin | | | 4.00 | % | | | 4.11 | % | | | 3.94 | % | | | 4.06 | % |
Efficiency ratio (1) | | | 67.58 | % | | | 67.22 | % | | | 68.60 | % | | | 67.91 | % |
| | | | | | | | | | | | | | | | | |
| Asset Quality | | | | | | | | | | | | | | | | |
| Loan charge-offs | | $ | 3,008 | | | $ | 585 | | | $ | 6,233 | | | $ | 1,017 | |
| Loan recoveries | | | 69 | | | | 54 | | | | 156 | | | | 134 | |
| Net charge-offs | | | 2,939 | | | | 531 | | | | 6,077 | | | | 883 | |
| Non-accrual loans | | | 13,642 | | | | 7,006 | | | | 13,642 | | | | 7,006 | |
| Other real estate owned, net | | | 5,696 | | | | 7,253 | | | | 5,696 | | | | 7,253 | |
Repossessed assets | | | 37 | | | | 3 | | | | 37 | | | | 3 | |
| Nonperforming assets | | | 19,375 | | | | 14,262 | | | | 19,375 | | | | 14,262 | |
| | | | | | | | | | | | | | | | | |
| Average Balances | | | | | | | | | | | | | | | | |
| Average assets | | $ | 549,326 | | | $ | 544,443 | | | $ | 551,130 | | | $ | 545,660 | |
| Average earning assets | | | 517,609 | | | | 506,574 | | | | 520,100 | | | | 507,870 | |
| Average shareholders’ equity | | | 49,366 | | | | 55,772 | | | | 49,144 | | | | 55,513 | |
| | | | |
| | | (unaudited) | |
| | | June 30, 2011 | | | June 30, 2010 | |
| Capital Ratios | | | | | | |
| Tier 1 capital | | $ | 55,844 | | | $ | 63,777 | |
| Total capital | | | 61,301 | | | | 69,557 | |
| Total capital to risk-weighted assets | | | 14.33 | % | | | 15.10 | % |
| Tier 1 capital to risk-weighted assets | | | 13.06 | % | | | 13.85 | % |
| Leverage ratio | | | 10.18 | % | | | 11.72 | % |
| | | | | | | | | |
| Balance Sheet | | | | | | | | |
| Cash and due from banks | | $ | 8,431 | | | $ | 6,852 | |
| Interest-bearing deposits in banks | | | 21,098 | | | | 5,231 | |
| Securities available for sale, at fair value | | | 82,780 | | | | 54,757 | |
| Restricted securities, at cost | | | 2,859 | | | | 3,426 | |
| Loans, net of allowance for loan losses | | | 401,724 | | | | 434,860 | |
| Premises and equipment, net | | | 19,804 | | | | 20,157 | |
| Interest receivable | | | 1,706 | | | | 1,697 | |
| Other assets | | | 16,847 | | | | 16,741 | |
| Total assets | | $ | 555,249 | | | $ | 543,721 | |
| | | | | | | | | |
| Noninterest-bearing demand deposits | | $ | 82,727 | | | $ | 82,665 | |
| Savings and interest-bearing demand deposits | | | 189,270 | | | | 156,914 | |
| Time deposits | | | 204,497 | | | | 202,536 | |
| Total deposits | | $ | 476,494 | | | $ | 442,115 | |
| Federal funds purchased | | | - | | | | 13,304 | |
| Other borrowings | | | 18,111 | | | | 20,133 | |
Company obligated mandatorily redeemable capital securities | | | 9,279 | | | | 9,279 | |
| Accrued expenses and other liabilities | | | 2,768 | | | | 3,126 | |
| Total liabilities | | $ | 506,652 | | | $ | 487,957 | |
| | | | | | | | | |
FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) | | | | | |
| | | (unaudited) | |
| | | June 30, 2011 | | | June 30, 2010 | |
Balance Sheet (continued) | | | | | | |
| Preferred stock | | $ | 14,194 | | | $ | 14,062 | |
| Common stock | | | 3,695 | | | | 3,676 | |
| Surplus | | | 1,644 | | | | 1,487 | |
| Retained earnings | | | 27,991 | | | | 35,607 | |
| Accumulated other comprehensive income, net | | | 1,073 | | | | 932 | |
| Total shareholders’ equity | | $ | 48,597 | | | $ | 55,764 | |
| | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 555,249 | | | $ | 543,721 | |
| | | | | | | | | |
| Loan Data | | | | | | | | |
| Mortgage loans on real estate: | | | | | | | | |
| Construction | | $ | 50,741 | | | $ | 52,785 | |
| Secured by farm land | | | 6,016 | | | | 6,128 | |
| Secured by 1-4 family residential | | | 120,575 | | | | 122,612 | |
| Other real estate loans | | | 189,750 | | | | 203,800 | |
| Loans to farmers (except those secured by real estate) | | | 2,362 | | | | 3,478 | |
| Commercial and industrial loans (except those secured by real estate) | | | 33,151 | | | | 39,717 | |
| Consumer installment loans | | | 11,307 | | | | 12,737 | |
| Deposit overdrafts | | | 279 | | | | 290 | |
| All other loans | | | 1,321 | | | | 947 | |
Total loans | | $ | 415,502 | | | $ | 442,494 | |
| Allowance for loan losses | | | 13,778 | | | | 7,634 | |
| Loans, net | | $ | 401,724 | | | $ | 434,860 | |
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(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 2011 and 2010 was 34%. Net interest income on a tax equivalent basis was $5,160 and $5,185 for the three months ended June 30, 2011 and 2010, respectively, and $10,170 and $10,218 for the six months ended June 30, 2011 and 2010, respectively. Noninterest income excluding securities, premises and equipment and other real estate owned gains and losses was $1,444 and $1,489 for the three months ended June 30, 2011 and 2010, respectively, and $2,784 and $2,860 for the six months ended June 30, 2011 and 2010, 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. |
