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@fbvirginia.com | | | sbell@virginia.com |
News Release
CORRECTING and REPLACING -- First National Corporation Announces Second Quarter Earnings
Strasburg, Virginia (August 3, 2015) --- In a release issued Friday, July 31, 2015 by First National Corporation (OTC: FXNC), please be advised that the “Legal and professional fees” line was omitted from the first table. The complete corrected text follows:
First National Corporation (the “Company”) (OTC: FXNC), the parent company of First Bank (the “Bank”), reported net income of $444 thousand, or $0.03 per basic and diluted share, for the quarter ended June 30, 2015. Net income for the quarter was impacted by $458 thousand of one-time expenses and increased operating costs related to the acquisition of six branch banking operations. The branch acquisition was completed on April 17 and included the assumption of $186 million in deposit liabilities along with certain assets.
Operating Highlights
| · | Total assets increased from $530.4 million to $695.8 million |
| · | The number of bank offices increased from 10 to 16 due to the branch acquisition |
| · | The Bank hired a Regional President to lead its newly formed south region |
| · | Cost of funds improved from 0.39% to 0.21% |
| · | Net interest income increased by 9% to $5.1 million |
| · | Leverage ratio remained over 10.00% |
“During the second quarter, the Company successfully completed the acquisition of six full service branches in the Shenandoah Valley and central Virginia and assumed $186 million in deposits,” said Scott C. Harvard, President and CEO of the Company. Harvard continued, “While total deposits assumed were materially less than originally projected, we believe the transaction represents inexpensive and reliable core funding for the foreseeable future. By acquiring longer term core funding, the Company absorbed significant one-time costs associated with the transaction that impacted financial performance in both the first and second quarter. Management remains confident the transaction is the right strategic move for the Company to build value going forward. We were especially pleased that the cost of funds of the acquired deposits was lower than originally projected, as were the costs associated with the transaction. Because the deposits were materially lower than expected at the closing date, capital levels remained high following the transaction, which positions the Company to be opportunistic either through additional acquisitions or by restructuring capital to enhance future earnings per share. Challenges remain for the Company to enhance efficiency of operations by taking advantage of the larger balance sheet and by improving our use of technology to the benefit of our new and legacy customers. We continue to be impressed with the team of associates who have joined the First Bank team and pleased with the addition of Butch Smiley as the new Regional President of the south region.
"We were disappointed with the loan volume from the First Mortgage division, but were pleased with the volume generated by the Bank’s commercial lenders. Although new loan production from commercial lenders remained fairly robust during the quarter, several large loan relationships paid off, which negatively impacted loan portfolio growth. While loan growth is essential to the success of the recent acquisition, the Bank is committed to high standards of loan underwriting and is unwilling to compromise those standards for the sake of growth alone. We intend to stay committed to those standards and remain optimistic about the ability of our loan team to pick up where they left off in the first quarter.
"Since the acquisition, we have seen a moderate decline for five of the six branches with one branch experiencing increases in deposit balances. Total deposits of the acquired branches decreased by $10 million, or 6%, to $176 million at June 30, 2015 compared to $186 million at the acquisition date. The legacy branches continue to grow low cost core non-time deposit balances built on relationships. The lower cost of all deposits contributed to a higher net interest margin than anticipated for the quarter in spite of lower loan balances.
"Lastly, we continued to see improvement in asset quality metrics. Loan delinquencies over 30 days were at their lowest levels in years as were non-performing assets, and the Bank’s classified asset ratio continued to improve by declining to 27%.”
Second Quarter Earnings
Net income totaled $444 thousand for the second quarter of 2015 compared to $1.5 million for the same period of 2014. The return on average assets was 0.27% for the quarter compared to 1.16% for the same quarter one year ago, and the return on average equity was 2.97% compared to 11.05%. Net income was impacted by one-time acquisition expenses that totaled $458 thousand, as well as increased expenses from higher staffing levels needed to support the growth strategy of the Company and the larger balance sheet. Over the last twelve months, the Company began executing its growth strategy with the branch acquisition, the addition of seasoned community bankers in new markets, and the creation and operation of the First Mortgage division to diversify revenue. The acquisition increased the number of bank offices from 10 to 16 in the Shenandoah Valley and central Virginia, and increased the Bank’s deposit balances by $186 million at closing of the deal. The new mortgage division also added two office locations in the cities of Harrisonburg and Staunton, Virginia. These initiatives had the largest impact on noninterest income and expenses when comparing the second quarter of 2015 to the same period of 2014.
Net interest income increased $429 thousand to $5.1 million for the second quarter compared to $4.6 million for the same period one year ago, which was driven by loan balances that were $24.2 million higher than one year ago. The net interest margin was 3.29% compared to 3.81% for the second quarter of 2014. The lower net interest margin was expected to be impacted by the deposit acquisition and resulted from the significant increase in interest-bearing deposits in banks and securities, which was funded by cash received from the branch acquisition. Total noninterest income was $2.3 million for the period compared to $1.7 million for the same quarter one year ago. Revenue from service charges on deposit accounts increased by $109 thousand, or 17%, ATM and check card fees increased by $132 thousand, or 36%, and other operating income increased by $229 thousand. The increases in revenue from service charges on deposit accounts and ATM and check card fees were driven by the increase in the number of deposit accounts following the branch expansion. Other operating income increased primarily from a $201 thousand gain recorded from the purchase of the six bank branch offices from Bank of America.
Noninterest expense increased to $6.9 million for the quarter compared to $4.5 million for the same period in the prior year. The additional expenses were primarily a result of the execution of the Company’s growth strategy, which included the expansion of its banking franchise into new markets and the creation of new business lines to increase and diversify revenue. One-time acquisition expenses related to the branch expansion totaled $458 thousand during the second quarter of 2015, which included costs for legal and professional fees, supplies, data processing and postage. In addition to the one-time costs, salaries and employee benefit expenses increased by $1.0 million to $3.6 million for the second quarter. The Bank added new positions to accommodate the larger balance sheet and organization, which included a Regional President and two Market Executives for its new south region. Amortization expense increased by $192 thousand to $196 thousand from the new core deposit intangible from the acquired deposits, and expenses from other real estate owned increased by $222 thousand when comparing the periods.
The Bank recorded a recovery of loan losses totaling $100 thousand during the quarter, primarily from a lower required general reserve. The allowance for loan losses was $6.1 million, or 1.56% of total loans at June 30, 2015. This compared to a recovery of loan losses of $400 thousand and an allowance for loan losses of $10.0 million, or 2.72% of total loans, at the end of the second quarter of 2014.
Year-to-Date Earnings
Net income totaled $988 thousand for the six months ended June 30, 2015, compared to $2.7 million for the same period of 2014. The return on average assets was 0.34% for the period compared to 1.03% for the same period one year ago, and the return on average equity was 3.32% compared to 9.81% for the same period in 2014.
Net interest income increased $635 thousand to $9.7 million for the period, compared to $9.1 million for the same period one year ago. The increase was attributable to higher loan balances during the first six months of 2015 compared to the first half of 2014. The net interest margin was 3.58% compared to 3.77% for the same period of 2014. The lower net interest margin resulted from the significant increase in interest-bearing deposits in banks and securities, which was funded by cash received from the branch acquisition. Noninterest income increased by $559 thousand, or 17% when comparing the periods. Revenues from ATM and check card fees increased $146 thousand, or 21%, net gains on sale of loans increased $105 thousand, and other operating income increased by $231 thousand mostly from a gain recorded from the branch acquisition.
Noninterest expense increased $3.2 million, or 35%, to $12.3 million for the period compared to $9.2 million for the same period in the prior year. One-time branch acquisition expenses totaled $877 thousand during the six months ended June 30, 2015. Salaries and employee benefit costs increased by $1.7 million to $6.7 million and equipment expense increased by $104 thousand to $703 thousand for the period in order to accommodate the larger organization. Amortization expense increased $192 thousand related to the core deposit intangible from the deposit acquisition, and expenses from other real estate owned increased $155 thousand compared to the same period one year ago.
The Bank recorded a recovery of loan losses totaling $100 thousand for the period compared to a recovery of loan losses of $600 thousand for the same period one year ago. The recovery of loan losses for the first six months of 2015 was primarily attributable to a lower required general reserve.
Balance Sheet
Assets increased by $165.4 million to $695.8 million at June 30, 2015 compared to March 31, 2015, as a result of the branch acquisition. Interest-bearing deposits in banks increased $97.6 million to $99.3 million, securities available for sale increased by $21.6 million to $112.5 million, securities held to maturity increased by $37.3 million, and premises and equipment increased by $5.0 million to $21.3 million. Although the significant change in the earning asset mix decreased the net interest margin, the balance sheet growth generated higher net interest income when comparing the second quarter of 2015 to the same period in 2014.
Total deposits increased by $182.1 million to $620.9 million at June 30, 2015. Noninterest-bearing demand deposits increased $37.9 million, savings and interest-bearing demand deposits increased $90.4 million, and time deposits increased $53.9 million during the second quarter. The increases in all deposit categories during the quarter resulted from the branch acquisition. As a result of the changes in the funding mix, the Company experienced a lower cost to fund earning assets.
Capital and Asset Quality
Asset quality continued to improve as substandard loans decreased by $9.4 million or 46%, to $10.9 million at the end of the second quarter compared to $20.3 million for the same quarter one year ago. Nonperforming assets, which includes other real estate owned, decreased 33% to $9.1 million at June 30, 2015 compared to $13.4 million one year ago.
Total shareholders’ equity increased $2.8 million to $59.4 million at June 30, 2015, compared to $56.7 million one year ago. The book value per common share was $9.13 at the end of the second quarter. All regulatory capital ratios, except for the leverage ratio, were higher than the same period one year ago. The leverage ratio decreased to 10.06% from asset growth that occurred with the branch acquisition. The total risk-based capital ratio was 18.28% at June 30, 2015.
About the Company
First National Corporation, headquartered in Strasburg, Virginia, is the bank holding company of First Bank, a community bank that first opened for business in 1907. The Bank offers loan, deposit, and wealth management products and services from 18 office locations located throughout the Shenandoah Valley and central regions of Virginia. Banking services are also accessed from the Bank’s website, www.fbvirginia.com, and from a network of ATMs located throughout its market area. The Bank operates divisions under the names First Mortgage and First Bank Wealth Management. First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.
Caution about 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, 2014, and other filings with the Securities and Exchange Commission.
FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
| | (unaudited) For the Quarter Ended | |
| Income Statement | June 30, 2015 | | March 31, 2015 | | December 31, 2014 | | September 30, 2014 | | June 30, 2014 | |
| Interest income | | | | | | | | | | |
| Interest and fees on loans | $ 4,688 | | $ 4,540 | | $ 4,623 | | $ 4,536 | | $ 4,403 | |
| Interest on deposits in banks | 68 | | 5 | | 5 | | 3 | | 14 | |
| Interest on securities | 618 | | 422 | | 566 | | 622 | | 657 | |
| Dividends on restricted securities | 18 | | 21 | | 20 | | 20 | | 21 | |
| Total interest income | $ 5,392 | | $ 4,988 | | $ 5,214 | | $ 5,181 | | $ 5,095 | |
| | | | | | | | | | | |
| Interest expense | | | | | | | | | | |
| Interest on deposits | $ 266 | | $ 300 | | $ 327 | | $ 343 | | $ 372 | |
| Interest on federal funds purchased | 1 | | 1 | | 1 | | 2 | | - | |
| Interest on trust preferred capital notes | 55 | | 54 | | 55 | | 55 | | 54 | |
| Interest on other borrowings | 2 | | 1 | | 26 | | 30 | | 30 | |
| Total interest expense | $ 324 | | $ 356 | | $ 409 | | $ 430 | | $ 456 | |
| | | | | | | | | | | |
| Net interest income | $ 5,068 | | $ 4,632 | | $ 4,805 | | $ 4,751 | | $ 4,639 | |
| Recovery of loan losses | (100) | | - | | (3,150) | | (100) | | (400) | |
| Net interest income after recovery of loan losses | $ 5,168 | | $ 4,632 | | $ 7,955 | | $ 4,851 | | $ 5,039 | |
| | | | | | | | | | | |
| Noninterest income | | | | | | | | | | |
| Service charges on deposit accounts | $ 752 | | $ 547 | | $ 644 | | $ 655 | | $ 643 | |
| ATM and check card fees | 497 | | 349 | | 352 | | 367 | | 365 | |
| Wealth management fees | 499 | | 503 | | 465 | | 494 | | 472 | |
| Fees for other customer services | 183 | | 107 | | 90 | | 94 | | 126 | |
| Income from bank owned life insurance | 91 | | 74 | | 101 | | 103 | | 89 | |
| Net gains (losses) on sale of securities | - | | (52) | | 765 | | (91) | | 22 | |
| Net gains on sale of loans | 50 | | 55 | | 23 | | - | | - | |
| Other operating income | 237 | | 8 | | 9 | | 32 | | 8 | |
| Total noninterest income | $ 2,309 | | $ 1,591 | | $ 2,449 | | $ 1,654 | | $ 1,725 | |
| | | | | | | | | | | |
| Noninterest expense | | | | | | | | | | |
| Salaries and employee benefits | $ 3,597 | | $ 3,125 | | $ 2,855 | | $ 2,668 | | $ 2,554 | |
| Occupancy | 339 | | 317 | | 315 | | 303 | | 278 | |
| Equipment | 422 | | 281 | | 293 | | 299 | | 295 | |
| Marketing | 163 | | 97 | | 77 | | 114 | | 126 | |
Stationery and supplies Legal and professional fees | 229 431 | | 345 212 | | 75 320 | | 84 250 | | 94 247 | |
| ATM and check card fees | 190 | | 155 | | 168 | | 167 | | 163 | |
| FDIC assessment | 64 | | 67 | | 70 | | 90 | | 122 | |
| Bank franchise tax | 130 | | 122 | | 105 | | 106 | | 105 | |
| Telecommunications expense | 100 | | 85 | | 81 | | 75 | | 73 | |
| Data processing expense | 226 | | 187 | | 140 | | 129 | | 134 | |
| Postage expense | 80 | | 117 | | 51 | | 50 | | 49 | |
| Amortization expense | 196 | | 4 | | 4 | | 4 | | 4 | |
| Other real estate owned, net | 152 | | (36) | | (151) | | (23) | | (70) | |
| Other operating expense | 536 | | 409 | | 468 | | 437 | | 374 | |
| Total noninterest expense | $ 6,855 | | $ 5,487 | | $ 4,871 | | $ 4,753 | | $ 4,548 | |
| | | | | | | | | | | |
| Income before income taxes | $ 622 | | $ 736 | | $ 5,533 | | $ 1,752 | | $ 2,216 | |
| Income tax expense | 178 | | 192 | | 1,837 | | 505 | | 674 | |
| Net income | $ 444 | | $ 544 | | $ 3,696 | | $ 1,247 | | $ 1,542 | |
| Effective dividend and accretion on preferred stock | 328 | | 329 | | 328 | | 329 | | 261 | |
| Net income available to common shareholders | $ 116 | | $ 215 | | $ 3,368 | | $ 918 | | $ 1,281 | |
| | | | | | | | | | | |
| Common Share and Per Common Share Data | | | | | | | | | |
| Net income, basic | $ 0.03 | | $ 0.04 | | $ 0.68 | | $ 0.19 | | $ 0.26 | |
| Weighted average shares, basic | 4,909,775 | | 4,906,981 | | 4,903,748 | | 4,902,716 | | 4,901,599 | |
| Net income, diluted | $ 0.03 | | $ 0.04 | | $ 0.68 | | $ 0.19 | | $ 0.26 | |
| Weighted average shares, diluted | 4,911,298 | | 4,911,044 | | 4,903,748 | | 4,902,716 | | 4,901,599 | |
| Shares outstanding at period end | 4,910,826 | | 4,909,714 | | 4,904,577 | | 4,903,612 | | 4,902,582 | |
| Book value at period end | $ 9.13 | | $ 9.31 | | $ 9.17 | | $ 8.77 | | $ 8.58 | |
| Cash dividends | $ 0.025 | | $ 0.025 | | $ 0.025 | | $ 0.025 | | $ 0.025 | |
FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
| | | (unaudited) For the Quarter Ended | |
| | June 30, 2015 | | March 31, 2015 | | December 31, 2014 | | September 30, 2014 | | June 30, 2014 | |
| Key Performance Ratios | | | | | | | | | | |
| Return on average assets | 0.27% | | 0.43% | | 2.81% | | 0.95% | | 1.16% | |
| Return on average equity | 2.97% | | 3.67% | | 25.03% | | 8.64% | | 11.05% | |
| Net interest margin | 3.29% | | 3.96% | | 3.96% | | 3.92% | | 3.81% | |
Efficiency ratio (1) | 92.54% | | 87.20% | | 76.61% | | 72.74% | | 71.94% | |
| | | | | | | | | | | |
| Average Balances | | | | | | | | | | |
| Average assets | $ 671,199 | | $ 516,259 | | $ 521,889 | | $ 521,622 | | $ 531,250 | |
| Average earning assets | 625,197 | | 480,490 | | 487,591 | | 487,541 | | 496,304 | |
| Average shareholders’ equity | 59,957 | | 60,040 | | 58,583 | | 57,217 | | 55,965 | |
| | | | | | | | | | | |
| Asset Quality | | | | | | | | | | |
| Loan charge-offs | $ 671 | | $ 112 | | $ 80 | | $ 302 | | $ 306 | |
| Loan recoveries | 129 | | 165 | | 231 | | 112 | | 429 | |
| Net charge-offs (recoveries) | 542 | | (53) | | (151) | | 190 | | (123) | |
| Non-accrual loans | 6,666 | | 7,170 | | 8,000 | | 8,673 | | 11,221 | |
| Other real estate owned, net | 2,407 | | 1,949 | | 1,888 | | 1,807 | | 2,221 | |
| Nonperforming assets | 9,073 | | 9,119 | | 9,888 | | 10,480 | | 13,443 | |
| Loans over 90 days past due, still accruing | 600 | | 71 | | - | | 2,148 | | 325 | |
| Troubled debt restructurings, accruing | 324 | | 782 | | 790 | | 796 | | 978 | |
| Special mention loans | 21,278 | | 22,550 | | 23,259 | | 18,411 | | 19,807 | |
| Substandard loans, accruing | 10,928 | | 15,741 | | 15,792 | | 20,088 | | 20,315 | |
| Doubtful loans | - | | - | | - | | - | | - | |
| | | | | | | | | | | |
| Capital Ratios | | | | | | | | | | |
| Total capital | $ 72,362 | | $ 72,764 | | $ 71,941 | | $ 66,445 | | $ 64,302 | |
| Tier 1 capital | 67,400 | | 67,918 | | 67,217 | | 61,693 | | 59,586 | |
| Common equity tier 1 capital | 67,400 | | 67,918 | | 67,217 | | 61,693 | | 59,586 | |
| Total capital to risk-weighted assets | 18.28% | | 18.86% | | 19.14% | | 17.71% | | 17.28% | |
| Tier 1 capital to risk-weighted assets | 17.03% | | 17.61% | | 17.88% | | 16.44% | | 16.02% | |
| Common equity tier 1 capital to risk-weighted assets | 17.03% | | 17.61% | | 17.88% | | 16.44% | | 16.02% | |
| Leverage ratio | 10.06% | | 13.17% | | 12.90% | | 11.85% | | 11.26% | |
| | | | | | | | | | |
| Balance Sheet | | | | | | | | | |
| Cash and due from banks | $ 11,870 | | $ 7,529 | | $ 6,043 | | $ 6,862 | | $ 6,587 |
| Interest-bearing deposits in banks | 99,274 | | 1,645 | | 18,802 | | 3,885 | | 12,735 |
| Securities available for sale, at fair value | 112,468 | | 90,855 | | 83,292 | | 104,710 | | 108,884 |
| Securities held to maturity, at carrying value | 37,343 | | - | | - | | - | | - |
| Restricted securities, at cost | 1,391 | | 1,999 | | 1,366 | | 1,636 | | 1,636 |
| Loans held for sale | 1,978 | | - | | 328 | | 181 | | - |
| Loans, net of allowance for loan losses | 385,592 | | 391,746 | | 371,692 | | 364,974 | | 357,484 |
| Other real estate owned, net of valuation allowance | 2,407 | | 1,949 | | 1,888 | | 1,807 | | 2,221 |
| Premises and equipment, net | 21,277 | | 16,298 | | 16,126 | | 16,175 | | 16,305 |
| Accrued interest receivable | 1,423 | | 1,256 | | 1,261 | | 1,327 | | 1,258 |
| Bank owned life insurance | 11,521 | | 11,431 | | 11,357 | | 11,244 | | 11,141 |
| Other assets | 9,283 | | 5,701 | | 6,010 | | 6,609 | | 7,072 |
| Total assets | $ 695,827 | | $ 530,409 | | $ 518,165 | | $ 519,410 | | $ 525,323 |
| | | | | | | | | | |
| Noninterest-bearing demand deposits | $ 147,790 | | $ 109,927 | | $ 104,986 | | $ 103,019 | | $ 99,396 |
| Savings and interest-bearing demand deposits | 322,239 | | 231,885 | | 237,618 | | 224,655 | | 235,929 |
| Time deposits | 150,853 | | 96,974 | | 101,734 | | 111,245 | | 115,873 |
| Total deposits | $ 620,882 | | $ 438,786 | | $ 444,338 | | $ 438,919 | | $ 451,198 |
| Federal funds purchased | - | | 1,955 | | 52 | | 5,325 | | - |
| Other borrowings | 13 | | 15,020 | | 26 | | 6,033 | | 6,039 |
| Trust preferred capital notes | 9,279 | | 9,279 | | 9,279 | | 9,279 | | 9,279 |
Accrued interest payable and other liabilities | 6,214 | | 5,057 | | 4,906 | | 2,232 | | 2,151 |
| Total liabilities | $ 636,388 | | $ 470,097 | | $ 458,601 | | $ 461,788 | | $ 468,667 |
FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data) | | | | | | | | |
| | | | | | | | | | |
| | (unaudited) |
| | For the Quarter Ended |
| | June 30, 2015 | | March 31, 2015 | | December 31, 2014 | | September 30, 2014 | | June 30, 2014 |
| | | | | | | | | | |
Balance Sheet (continued) | | | | | | | | | |
| Preferred stock | $ 14,595 | | $ 14,595 | | $ 14,595 | | $ 14,595 | | $ 14,595 |
| Common stock | 6,139 | | 6,137 | | 6,131 | | 6,130 | | 6,128 |
| Surplus | 6,899 | | 6,881 | | 6,835 | | 6,828 | | 6,821 |
| Retained earnings | 33,642 | | 33,649 | | 33,557 | | 30,312 | | 29,516 |
| Accumulated other comprehensive loss, net | (1,836) | | (950) | | (1,554) | | (243) | | (404) |
| Total shareholders’ equity | $ 59,439 | | $ 60,312 | | $ 59,564 | | $ 57,622 | | $ 56,656 |
| Total liabilities and shareholders’ equity | $ 695,827 | | $ 530,409 | | $ 518,165 | | $ 519,410 | | $ 525,323 |
| | | | | | | | | | |
| Loan Data | | | | | | | | | |
| Mortgage loans on real estate: | | | | | | | | | |
| Construction and land development | $ 32,009 | | $ 33,344 | | $ 29,475 | | $ 29,862 | | $ 32,795 |
| Secured by farm land | 1,025 | | 1,067 | | 1,129 | | 1,193 | | 1,234 |
| Secured by 1-4 family residential | 173,265 | | 172,874 | | 163,727 | | 155,298 | | 151,043 |
| Other real estate loans | 154,371 | | 157,829 | | 150,673 | | 153,576 | | 145,249 |
Loans to farmers (except those secured by real estate) | 2,645 | | 2,760 | | 2,975 | | 2,905 | | 3,067 |
| Commercial and industrial loans (except those secured by real estate) | 16,674 | | 18,660 | | 18,191 | | 20,038 | | 21,730 |
| Consumer installment loans | 4,341 | | 4,713 | | 4,785 | | 4,881 | | 4,859 |
| Deposit overdrafts | 419 | | 194 | | 285 | | 248 | | 229 |
| All other loans | 6,972 | | 7,076 | | 7,170 | | 6,689 | | 7,284 |
Total loans | $ 391,721 | | $ 398,517 | | $ 378,410 | | $ 374,690 | | $ 367,490 |
| Allowance for loan losses | (6,129) | | (6,771) | | (6,718) | | (9,716) | | (10,006) |
| Loans, net | $ 385,592 | | $ 391,746 | | $ 371,692 | | $ 364,974 | | $ 357,484 |
| | | | | | | | | | |
| Reconciliation of Tax-Equivalent Net Interest Income | | | | | | | | |
| GAAP measures: | | | | | | | | | |
| Interest income – loans | $ 4,688 | | $ 4,540 | | $ 4,623 | | $ 4,536 | | $ 4,403 |
| Interest income – investments and other | 704 | | 448 | | 591 | | 645 | | 692 |
| Interest expense – deposits | (266) | | (300) | | (327) | | (343) | | (372) |
| Interest expense – other borrowings | (2) | | (1) | | (26) | | (30) | | (30) |
| Interest expense – trust preferred capital notes | (55) | | (54) | | (55) | | (55) | | (54) |
| Interest expense – other | (1) | | (1) | | (1) | | (2) | | - |
| Total net interest income | $ 5,068 | | $ 4,632 | | $ 4,805 | | $ 4,751 | | $ 4,639 |
| Non-GAAP measures: | | | | | | | | | |
| Tax benefit realized on non-taxable interest income – loans | $ 27 | | $ 26 | | $ 24 | | $ 27 | | $ 28 |
| Tax benefit realized on non-taxable interest income – municipal securities | 40 | | 33 | | 42 | | 44 | | 49 |
| Total tax benefit realized on non-taxable interest income | $ 67 | | $ 59 | | $ 66 | | $ 71 | | $ 77 |
| Total tax-equivalent net interest income | $ 5,135 | | $ 4,691 | | $ 4,871 | | $ 4,822 | | $ 4,716 |
| | | | | | | | |
FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
| | (unaudited) For the Six Months Ended |
| Income Statement | June 30, 2015 | | June 30, 2014 |
| Interest income | | | |
| Interest and fees on loans | $ 9,228 | | $ 8,618 |
| Interest on deposits in banks | 73 | | 30 |
| Interest on securities | 1,040 | | 1,314 |
| Dividends on restricted securities | 39 | | 42 |
| Total interest income | $ 10,380 | | $ 10,004 |
| | | | |
| Interest expense | | | |
| Interest on deposits | $ 566 | | $ 772 |
| Interest on federal funds purchased | 2 | | - |
| Interest on trust preferred capital notes | 109 | | 108 |
| Interest on other borrowings | 3 | | 59 |
| Total interest expense | $ 680 | | $ 939 |
| | | | |
| Net interest income | $ 9,700 | | $ 9,065 |
| Recovery of loan losses | (100) | | (600) |
| Net interest income after recovery of loan losses | $ 9,800 | | $ 9,665 |
| | | | |
| Noninterest income | | | |
| Service charges on deposit accounts | $ 1,299 | | $ 1,273 |
| ATM and check card fees | 846 | | 700 |
| Wealth management fees | 1,002 | | 956 |
| Fees for other customer services | 290 | | 213 |
| Income from bank owned life insurance | 165 | | 163 |
| Net gains (losses) on sale of securities | (52) | | 22 |
| Net gains on sale of loans | 105 | | - |
| Other operating income | 245 | | 14 |
| Total noninterest income | $ 3,900 | | $ 3,341 |
| | | | |
| Noninterest expense | | | |
| Salaries and employee benefits | $ 6,722 | | $ 5,063 |
| Occupancy | 656 | | 593 |
| Equipment | 703 | | 599 |
| Marketing | 260 | | 235 |
Stationery and supplies Legal and professional fees | 574 643 | | 174 449 |
| ATM and check card fees | 345 | | 326 |
| FDIC assessment | 131 | | 294 |
| Bank franchise tax | 252 | | 199 |
| Telecommunications expense | 185 | | 144 |
| Data processing expense | 413 | | 249 |
| Postage expense | 197 | | 89 |
| Amortization expense | 200 | | 8 |
| Other real estate owned, net | 116 | | (39) |
| Net loss on disposal of premises and equipment | - | | 2 |
| Other operating expense | 945 | | 776 |
| Total noninterest expense | $ 12,342 | | $ 9,161 |
| | | | |
| Income before income taxes | $ 1,358 | | $ 3,845 |
| Income tax expense | 370 | | 1,157 |
| Net income | $ 988 | | $ 2,688 |
| Effective dividend and accretion on preferred stock | 657 | | 481 |
| Net income available to common shareholders | $ 331 | | $ 2,207 |
| | | | |
| Common Share and Per Common Share Data | | |
| Net income, basic | $ 0.07 | | $ 0.45 |
| Weighted average shares, basic | 4,908,386 | | 4,901,532 |
| Net income, diluted | $ 0.07 | | $ 0.45 |
| Weighted average shares, diluted | 4,911,148 | | 4,901,532 |
| Shares outstanding at period end | 4,910,826 | | 4,902,582 |
| Book value at period end | $ 9.13 | | $ 8.58 |
| Cash dividends | $ 0.05 | | $ 0.025 |
FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
| | (unaudited) For the Six Months Ended |
| | June 30, 2015 | | June 30, 2014 |
| Key Performance Ratios | | | |
| Return on average assets | 0.34% | | 1.03% |
| Return on average equity | 3.32% | | 9.81% |
| Net interest margin | 3.58% | | 3.77% |
Efficiency ratio (1) | 90.05% | | 73.36% |
| | | | |
| Average Balances | | | |
| Average assets | $ 594,099 | | $ 528,321 |
| Average earning assets | 553,243 | | 493,429 |
| Average shareholders’ equity | 59,954 | | 55,229 |
| | | | |
| Asset Quality | | | |
| Loan charge-offs | $ 783 | | $ 545 |
| Loan recoveries | 294 | | 507 |
| Net charge-offs (recoveries) | 489 | | 38 |
| Reconciliation of Tax-Equivalent Net Interest Income | | |
| GAAP measures: | | | |
| Interest income – loans | $ 9,228 | | $ 8,618 |
| Interest income – investments and other | 1,152 | | 1,386 |
| Interest expense – deposits | (566) | | (772) |
| Interest expense – other borrowings | (3) | | (59) |
| Interest expense – trust preferred capital notes | (109) | | (108) |
| Interest expense – other | (2) | | - |
| Total net interest income | $ 9,700 | | $ 9,065 |
| Non-GAAP measures: | | | |
| Tax benefit realized on non-taxable interest income – loans | $ 53 | | $ 56 |
| Tax benefit realized on non-taxable interest income – municipal securities | 73 | | 98 |
| Total tax benefit realized on non-taxable interest income | $ 126 | | $ 154 |
| Total tax-equivalent net interest income | $ 9,826 | | $ 9,219 |
(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense and net loss 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 table above for the quarterly tax-equivalent net interest income and a reconciliation 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.
