Exhibit 13.1
FIRST NATIONAL CORPORATION
Strasburg, Virginia
FINANCIAL REPORT
DECEMBER 31, 2000
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of income 3 and 4
Consolidated statements of cash flows 5 and 6
Consolidated statements of changes in
stockholders' equity 7
Notes to consolidated financial statements 8-25
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors
First National Corporation
Strasburg, Virginia
We have audited the accompanying consolidated balance sheets of First National
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the three years ended December 31, 2000. These financial statements
are the responsibility of the Corporation's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First National
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for the three years ended December 31,
2000, in conformity with generally accepted accounting principles.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
January 25, 2001
FIRST NATIONAL CORPORATION
Consolidated Balance Sheets
December 31, 2000 and 1999
Assets 2000 1999
----------- -----------
Cash and due from banks $ 6,307,375 $ 4,107,951
Federal funds sold 5,315,000 - -
Securities, available for sale, at fair value 44,830,909 45,129,197
Loans, net of allowance for loan losses, 2000, $1,702,856;
1999, $1,447,011 165,145,316 149,313,459
Bank premises and equipment 4,312,905 4,699,847
Interest receivable 1,371,943 1,165,602
Other real estate - - 343,181
Other assets 2,045,399 1,858,810
------------- -------------
Total assets $ 229,328,847 $ 206,618,047
============= =============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest-bearing demand deposits $ 22,058,868 $ 18,656,217
Savings and interest-bearing demand deposits 81,117,814 79,937,401
Time deposits 72,017,682 54,828,086
------------- -------------
Total deposits $ 175,194,364 $ 153,421,704
Federal funds purchased - - 1,547,000
Long-term debt 33,523,164 33,622,072
Accrued expenses and other liabilities 1,281,870 850,917
Commitments and contingent liabilities - - - -
------------- -------------
Total liabilities $ 209,999,398 $ 189,441,693
------------- -------------
Stockholders' Equity
Common stock, par value $5 per share; authorized
2,000,000 shares; issued and outstanding 790,031
and 793,991 shares $ 3,950,155 $ 3,969,955
Surplus 1,464,642 1,531,634
Retained earnings 14,201,406 13,016,843
Accumulated other comprehensive (loss) (286,754) (1,342,078)
------------- -------------
Total stockholders' equity $ 19,329,449 $ 17,176,354
------------- -------------
Total liabilities and stockholders' equity $ 229,328,847 $ 206,618,047
============= =============
See Notes to Consolidated Financial Statements.
FIRST NATIONAL CORPORATION
Consolidated Statements of Income
Three Years Ended December 31, 2000
2000 1999 1998
------------ ------------ ------------
Interest and Dividend Income:
Interest and fees on loans $ 14,022,946 $ 12,018,276 $ 11,032,938
Interest on federal funds sold 175,993 60,874 85,556
Interest on deposits in banks 59,191 31,007 28,121
Interest on investment securities,
taxable - - - - 31,061
Interest and dividends on securities
available for sale:
Taxable 2,215,327 2,611,409 2,385,641
Nontaxable 328,000 399,140 357,030
Dividends 149,924 96,152 73,050
------------ ------------ ------------
Total interest and dividend income $ 16,951,381 $ 15,216,858 $ 13,993,397
------------ ------------ ------------
Interest Expense:
Interest on deposits $ 7,131,017 $ 6,273,697 $ 6,202,042
Interest on federal funds purchased 62,648 104,447 29,462
Interest on long-term debt 2,138,546 1,304,924 878,732
------------ ------------ ------------
Total interest expense $ 9,332,211 $ 7,683,068 $ 7,110,236
------------ ------------ ------------
Net interest income $ 7,619,170 $ 7,533,790 $ 6,883,161
Provision for loan losses 369,000 495,000 330,000
------------ ------------ ------------
Net interest income after
provision for loan losses $ 7,250,170 $ 7,038,790 $ 6,553,161
------------ ------------ ------------
See Notes to Consolidated Financial Statements.
FIRST NATIONAL CORPORATION
(Continued)
Consolidated Statements of Income
Three Years Ended December 31, 2000
2000 1999 1998
------------ ----------- -----------
Noninterest Income:
Service charges $ 834,377 $ 674,458 $ 620,479
Fees for other customer services 385,537 227,250 156,336
Profits on securities available for sale - - 1,383 198,325
Gain on sale of assets and other real estate - - - - 9,216
Other 182,038 216,531 265,209
------------ ----------- -----------
Total noninterest income $ 1,401,952 $ 1,119,622 $ 1,249,565
------------ ----------- -----------
Noninterest Expenses:
Salaries and employee benefits $ 2,954,438 $ 2,694,501 $ 2,608,261
Occupancy expense 338,617 317,518 273,930
Equipment expense 496,314 511,038 514,828
Advertising 184,806 189,630 218,121
Other 1,636,674 1,558,096 1,491,020
------------ ----------- -----------
Total noninterest expenses $ 5,610,849 $ 5,270,783 $ 5,106,160
------------ ----------- -----------
Income before income taxes $ 3,041,273 $ 2,887,629 $ 2,696,566
------------ ----------- -----------
Provision for income taxes 904,486 853,341 791,884
------------ ----------- -----------
Net income $ 2,136,787 $ 2,034,288 $ 1,904,682
============ =========== ===========
Earnings Per Common Share,
basic $ 2.69 $ 2.57 $ 2.43
============ =========== ===========
Earnings Per Common Share,
diluted $ 2.69 $ 2.57 $ 2.42
============ =========== ===========
See Notes to Consolidated Financial Statements.
FIRST NATIONAL CORPORATION
Consolidated Statements of Cash Flows
Three Years Ended December 31, 2000
2000 1999 1998
------------- ------------- -------------
Cash Flows from Operating Activities
Net income $ 2,136,787 $ 2,034,288 $ 1,904,682
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 406,045 447,081 428,114
Provision for loan losses 369,000 495,000 330,000
(Gain) on sale of assets and other
real estate - - - - (9,216)
(Profits) on securities available for sale - - (1,383) (198,325)
Accretion of security discounts (12,322) (33,037) (53,129)
Amortization of security premiums 88,334 171,476 188,545
Deferred tax (benefit) (58,521) (77,398) (69,254)
Changes in assets and liabilities:
(Increase) in accrued interest receivable (206,341) (14,651) (2,489)
(Increase) decrease in other assets (604,420) (385,471) 12,500
(Increase) in other real estate - - - - (39,225)
Increase in accrued expenses and other liabilities 430,953 33,852 67,733
------------- ------------- -------------
Net cash provided by
operating activities $ 2,549,515 $ 2,669,757 $ 2,559,936
------------- ------------- -------------
Cash Flows from Investing Activities
Proceeds from sale of securities available
for sale $ - - $ 8,983,346 $ 11,529,144
Proceeds from maturities, calls, and principal
payments of investment securities - - 19,487 1,640,428
Proceeds from maturities, calls, and principal
payments of securities available for sale 2,281,976 7,275,640 17,842,596
Purchase of securities available for sale (460,723) (15,841,279) (37,495,168)
(Increase) decrease in federal funds sold (5,315,000) 2,859,000 (2,859,000)
Proceeds on sale of equipment - - - - 23,725
Purchases of bank premises and equipment (86,404) (549,754) (834,415)
Net (increase) in loans (15,871,676) (21,437,052) (16,322,706)
Proceeds on sale of other real estate 14,000 - - 738,031
------------- ------------- -------------
Net cash used in
investing activities $(19,437,827) $(18,690,612) $(25,737,365)
------------- ------------- -------------
See Notes to Consolidated Financial Statements.
2000 1999 1998
------------ ------------ ------------
Cash Flows from Financing Activities
Net increase in demand deposits,
NOW accounts, and savings accounts $ 4,583,064 $ 4,047,772 $ 9,287,430
Net increase (decrease) in certificates of deposit 17,189,596 (5,633,852) 5,958,502
Proceeds from long-term debt 29,500,000 24,000,000 11,300,000
Principal payments on long-term debt (29,598,908) (8,087,755) (51,409)
Net proceeds from issuance of common stock 132,481 139,794 287,037
Cash dividends paid (952,224) (909,743) (784,927)
Acquistion of common stock (219,273) - - - -
Increase (decrease) in federal funds purchased (1,547,000) 1,547,000 (1,417,000)
------------ ------------ ------------
Net cash provided by
financing activities $ 19,087,736 $ 15,103,216 $ 24,579,633
------------ ------------ ------------
Increase (decrease) in cash
and cash equivalents $ 2,199,424 $ (917,639) $ 1,402,204
Cash and Cash Equivalents
Beginning 4,107,951 5,025,590 3,623,386
------------ ------------ ------------
Ending $ 6,307,375 $ 4,107,951 $ 5,025,590
============ ============ ============
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest $ 9,186,638 $ 7,697,721 $ 7,073,034
============ ============ ============
Income taxes $ 975,293 $ 910,863 $ 906,157
============ ============ ============
Supplemental Disclosures of Noncash
Investing and Financing Activities
Other real estate acquired in
settlement of loans $ - - $ - - $ 115,000
============ ============ ============
Unrealized gain (loss) on securities
available for sale $ 1,598,977 $ (2,559,080) $ 18,093
============ ============ ============
Loan originated on settlement
of other real estate $ 329,181 $ - - $ - -
============ ============ ============
See Notes to Consolidated Financial Statements.
FIRST NATIONAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
Three Years Ended December 31, 2000
Common Retained
Stock Surplus Earnings
----------- ----------- ------------
Balance, December 31, 1997 $ 3,887,735 $ 1,187,023 $ 10,772,543
Comprehensive income:
Net income - - - - 1,904,682
Other comprehensive income net of tax:
Unrealized holding gains arising during the
period (net of tax, $73,583) - - - - - -
Reclassification adjustment (net of tax, $67,431) - - - - - -
Other comprehensive income (net of tax, $6,152) - - - - - -
Total comprehensive income - - - - - -
Cash dividends - $1.00 per share - - - - (784,927)
Issuance of 8,542 shares of common stock, employee
stock options 42,710 158,680 - -
Issuance of 2,814 shares of common stock, dividend
reinvestment plan 14,070 71,577 - -
----------- ----------- ------------
Balance, December 31, 1998 $ 3,944,515 $ 1,417,280 $ 11,892,298
Comprehensive income:
Net income - - - - 2,034,288
Other comprehensive income net of tax:
Unrealized holding losses arising during the
period (net of tax, $869,617) - - - - - -
Reclassification adjustment (net of tax, $470) - - - - - -
Other comprehensive income (net of tax, $870,087) - - - - - -
Total comprehensive income - - - - - -
Cash dividends - $1.15 per share - - - - (909,743)
Issuance of 1,553 shares of common stock, employee
stock options 7,765 30,042
Issuance of 3,535 shares of common stock, dividend
reinvestment plan 17,675 84,312 - -
----------- ----------- ------------
Balance, December 31, 1999 $ 3,969,955 $ 1,531,634 $ 13,016,843
Comprehensive income:
Net income - - - - 2,136,787
Other comprehensive income net of tax, unrealized
holding gains arising during the period (net of tax,
$543,653) - - - - - -
Total comprehensive income - - - - - -
Cash dividends - $1.20 per share - - - - (952,224)
Issuance of 640 shares of common stock, employee
stock options 3,200 11,520 - -
Issuance of 5,233 shares of common stock,
dividend reinvestment plan 26,165 91,596 - -
Acquisition of 9,833 shares of common stock (49,165) (170,108) - -
----------- ----------- ------------
Balance, December 31, 2000 $ 3,950,155 $ 1,464,642 $ 14,201,406
----------- ----------- ------------
FIRST NATIONAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity (continued)
Three Years Ended December 31, 2000
Accumulated
Other
Comprehensive Comprehensive
Income (Loss) Income Total
------------ ------------- ------------
Balance, December 31, 1997 $ 334,974 $ 16,182,275
Comprehensive income:
Net income - - $ 1,904,682 1,904,682
Other comprehensive income net of tax:
Unrealized holding gains arising during the
period (net of tax, $73,583) - - 142,835 - -
Reclassification adjustment (net of tax, $67,431) - - (130,894) - -
-----------
Other comprehensive income (net of tax, $6,152) 11,941 $ 11,941 11,941
-----------
Total comprehensive income - - $ 1,916,623 - -
-----------
Cash dividends - $1.00 per share - - (784,927)
Issuance of 8,542 shares of common stock, employee
stock options - - 201,390
Issuance of 2,814 shares of common stock, dividend
reinvestment plan - - 85,647
------------ ------------
Balance, December 31, 1998 $ 346,915 $ 17,601,008
Comprehensive income:
Net income - - $ 2,034,288 2,034,288
Other comprehensive income net of tax:
Unrealized holding losses arising during the
period (net of tax, $869,617) - - (1,688,080) - -
Reclassification adjustment (net of tax, $470) - - (913) - -
-----------
Other comprehensive income (net of tax, $870,087) (1,688,993) $(1,688,993) (1,688,993)
-----------
Total comprehensive income - - $ 345,295 - -
-----------
Cash dividends - $1.15 per share - - (909,743)
Issuance of 1,553 shares of common stock, employee
stock options 37,807
Issuance of 3,535 shares of common stock, dividend
reinvestment plan - - 101,987
------------ ------------
Balance, December 31, 1999 $ (1,342,078) $ 17,176,354
Comprehensive income:
Net income - - $ 2,136,787 2,136,787
Other comprehensive income net of tax, unrealized
holding gains arising during the period (net of tax,
$543,653) 1,055,324 1,055,324 1,055,324
-----------
Total comprehensive income - - $ 3,192,111
-----------
Cash dividends - $1.20 per share - - (952,224)
Issuance of 640 shares of common stock, employee
stock options - - 14,720
Issuance of 5,233 shares of common stock,
dividend reinvestment plan - - 117,761
Acquisition of 9,833 shares of common stock - - (219,273)
------------ ------------
Balance, December 31, 2000 $ (286,754) $ 19,329,449
------------ ------------
See Notes to Consolidated Financial Statements.
FIRST NATIONAL CORPORATION
Notes to Consolidated Financial Statements
Note 1. Nature of Banking Activities and Significant Accounting Policies
First National Corporation is a bank holding company, which owns First Bank (the
Bank) and First Bank Financial Corporation. The Bank provides commercial,
residential and consumer loans, and a variety of deposit products to its
customers in the Shenandoah Valley Region of Virginia.
The accounting and reporting policies of the Corporation conform to generally
accepted accounting principles and to accepted practices within the banking
industry.
Principles of Consolidation
The consolidated financial statements of First National Corporation and its
wholly-owned subsidiaries, First Bank and First Bank Financial Corporation,
include the accounts of all three companies. All material intercompany balances
and transactions have been eliminated in consolidation.
Securities
Securities classified as held to maturity are those debt securities the
Corporation has both the intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method over their
contractual lives.
Securities classified as available for sale are those debt and equity securities
that the Corporation intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Corporation's
assets and liabilities, liquidity needs, regulatory capital considerations, and
other similar factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings.
Declines in the fair value of individual securities classified as either held to
maturity or available for sale below their amortized cost that are determined to
be other than temporary result in write-downs of the individual securities to
their fair value with the resulting write-downs included in current earnings as
realized losses.
Notes to Consolidated Financial Statements
Loans
The Corporation grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by mortgage loans
throughout the Shenandoah Valley Region of Virginia. The ability of the
Corporation's debtors to honor their contracts is dependent upon the real estate
and general economic conditions in this area.
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances less the allowance for loan losses and any deferred
fees or costs on originated loans. Interest income is accrued on the unpaid
principal balance. Loan origination fees, net of certain origination costs, are
deferred and recognized as an adjustment of the related loan yield using the
interest method.
The accrual of interest on mortgage and commercial loans is discontinued at the
time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. Credit card loans and other personal loans are typically
charged off no later than 180 days past due. In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged off is reversed against interest income. The interest on these loans
is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it
is probable that the Corporation will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial and construction
loans by either the present value of expected future cash flows discounted at
the loan's effective interest rate, the loan's obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
Notes to Consolidated Financial Statements
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Corporation does not separately identify individual
consumer and residential loans for impairment disclosures.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
For financial reporting, depreciation is computed using the straight-line method
over the estimated useful lives of the assets, which range from five to forty
years. Gains and losses on routine dispositions are reflected in current
operations.
Other Real Estate
Assets acquired through or in lieu of, foreclosure are held for sale and are
initially recorded at fair value at the date of foreclosure, establishing a new
cost basis. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and changes in
the valuation allowance are included in net expenses from foreclosed assets.
Income Taxes
Deferred income tax assets and liabilities are determined using the balance
sheet method. Under this method, the net deferred tax asset or liability is
determined based on the tax effects of the temporary differences between the
book and tax bases of the various balance sheet assets and liabilities and gives
current recognition to changes in tax rates and laws.
Earnings Per Share
Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Corporation relate solely to
outstanding stock options, and are determined using the treasury stock method.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Corporation has
defined cash equivalents as those amounts included in the balance sheet caption
"Cash and Due from Banks".
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses, the
valuation of foreclosed real estate and deferred tax assets.
Notes to Consolidated Financial Statements
Advertising Costs
The Corporation follows the policy of charging the production costs of
advertising to expense as incurred. Total advertising expense incurred for
2000, 1999 and 1998 was $184,806, $189,630 and $218,121, respectively.
Emerging Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement 133,
"Accounting for Derivative Instruments and Hedging Activities," which, as
amended, requires adoption in years beginning after June 15, 2000. The
Statement requires the Corporation to recognize all derivatives on the balance
sheet at fair value. This statement was adopted as of January 1, 2001 and had
no effect on the Corporation's earnings or financial position.
Note 2. Securities
Amortized costs and fair values of securities available for sale as of December
31, 2000 and 1999, are as follows:
2000
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------- --------- ----------- ------------
Obligations of U.S.
government corporations
and agencies $ 35,977,702 $ 9,820 $ (485,782) $ 35,501,740
Obligations of states and
political subdivisions 6,827,133 81,814 (86,541) 6,822,406
Corporate securities 816 46,214 - - 47,030
Other 2,459,733 - - - - 2,459,733
------------- --------- ----------- ------------
$ 45,265,384 $ 137,848 $ (572,323) $ 44,830,909
============= ========= =========== ============
1999
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------- --------- ----------- ------------
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 38,336,732 $ 6,519 $(1,707,906) $ 36,635,345
Obligations of states and
political subdivisions 6,826,091 23,515 (404,172) 6,445,434
Corporate securities 816 48,592 - - 49,408
Other 1,999,010 - - - - 1,999,010
------------- --------- ----------- ------------
$ 47,162,649 $ 78,626 $(2,112,078) $ 45,129,197
============= ========= =========== ============
Notes to Consolidated Financial Statements
The Corporation had no securities classified as held to maturity at December 31,
2000 or 1999.
The amortized cost and fair value of securities available for sale as of
December 31, 2000, by contractual maturity, are shown below. Maturities may
differ from contractual maturities in corporate securities because they may be
called or repaid without any penalties. Therefore, these securities are not
included in the maturity categories in the following maturity summary.
Amortized Fair
Cost Value
------------ ------------
Due after one year through five years $ 16,659,683 $ 16,452,114
Due after five years through ten years 3,203,206 3,205,472
Due after ten years 22,941,946 22,666,560
Corporate securities 816 47,030
Other 2,459,733 2,459,733
------------ ------------
$ 45,265,384 $ 44,830,909
============ ============
There were no sales of securities available for sale during 2000. Proceeds from
sales of securities available for sale during 1999 and 1998 were $8,983,346 and
$11,529,144, respectively. Gross gains of $58,652 and $199,657 and gross losses
of $57,269 and $1,332 were realized on those sales.
Securities having a book value of $19,011,159 and $8,388,918 at December 31,
2000 and 1999, were pledged to secure public deposits and for other purposes
required by law.
Note 3. Loans
Loans at December 31, 2000 and 1999, are summarized as follows:
2000 1999
------------ -----------
(Thousands)
Mortgage loans on real estate:
Construction and land development $ 8,836 $ 10,205
Secured by farm land 1,791 1,489
Secured by 1-4 family residential 37,588 58,712
Other real estate loans 46,124 20,971
Loans to farmers (except those
secured by real estate) 529 466
Commercial and industrial loans
(except those secured by real estate) 35,971 26,441
Consumer installment loans 34,024 31,829
All other loans 1,990 670
------------ ------------
Total loans $ 166,853 $ 150,783
Less: Unearned income 5 23
Allowance for loan losses 1,703 1,447
------------ ------------
Loans, net $ 165,145 $ 149,313
============ ============
Notes to Consolidated Financial Statements
Note 4. Allowance for Loan Losses
Transactions in the allowance for loan losses for the years ended December 31,
2000, 1999 and 1998, were as follows:
2000 1999 1998
----------- ----------- -----------
Balance at beginning of year $ 1,447,011 $ 1,226,196 $ 1,112,318
Provision charged to operating
expense 369,000 495,000 330,000
Loan recoveries 51,980 64,712 17,184
Loan charge-offs (165,135) (338,897) (233,306
----------- ----------- -----------
Balance at end of year $ 1,702,856 $ 1,447,011 $ 1,226,196
=========== =========== ===========
Impairment of loans having recorded investments of $181,559 at December 31, 2000
and $303,479 at December 31, 1999 has been recognized in conformity with SFAS
Statement No. 114. All of these loans had a related allowance for loan losses.
The total allowance for loan losses related to these loans was $39,610 and
$45,522. The average recorded investment in impaired loans during 2000, 1999
and 1998 was $335,839, $234,024, and $195,574. There was no interest income on
impaired loan recognized for cash payments received in 2000, 1999 and 1998.
Nonaccrual loans excluded from impaired loan disclosure under SFAS 114 amounted
to $207,989 and $34,125 at December 31, 2000 and 1999, respectively. If
interest on these loans had been accrued, such income would have approximated
$2,679 and $374 for 2000 and 1999.
Note 5. Bank Premises and Equipment
Bank premises and equipment are summarized as follows at December 31, 2000 and
1999:
2000 1999
---------- ----------
Land $ 676,566 $ 676,566
Buildings and leasehold improvements 3,879,565 3,846,468
Furniture and equipment 4,700,097 4,409,616
Construction in process 82,710 387,185
---------- ----------
$9,338,938 $9,319,835
Less accumulated depreciation 5,026,033 4,619,988
---------- ----------
$4,312,905 $4,699,847
========== ==========
Depreciation expense included in operating expenses for 2000, 1999 and 1998 was
$406,045, $447,081 and $428,114, respectively.
Note 6. Deposits
The aggregate amount of time deposits, in denominations of $100,000 or more, was
$17,927,635 and $12,993,309 at December 31, 2000 and 1999, respectively.
Notes to Consolidated Financial Statements
At December 31, 2000, the scheduled maturities of time deposits are as follows:
2001 $34,633,939
2002 15,554,283
2003 18,666,159
2004 1,937,707
2005 1,225,594
-----------
$72,017,682
===========
Note 7. Short-Term Borrowings
The Corporation had unused lines of credit totaling $23,733,349 available with
non-affiliated banks at December 31, 2000.
Note 8. Long-Term Debt
At December 31, 2000, the Corporation had borrowings from the Federal Home Loan
Bank system totaling $33,523,164 which mature through February 11, 2019. The
interest rate on these notes payable ranges from 5.34% to 6.25%. The
Corporation has pledged real estate loans and Federal Home Loan Bank stock as
collateral on these borrowings. Principal payments on these notes are due as
follows:
2001 $ 5,107,609
2002 15,117,074
2003 10,127,374
2004 138,579
2005 1,372,856
Later years 1,659,672
-----------
$33,523,164
===========
Note 9. Income Taxes
Net deferred tax assets consist of the following components as of December 31,
2000 and 1999:
2000 1999
---------- ----------
Deferred tax assets:
Allowance for loan losses $ 492,579 $ 405,592
Pension payable 155,809 97,694
Interest on nonaccrual loans 911 127
Securities available for sale 147,722 691,374
---------- ----------
$ 797,021 $1,194,787
---------- ----------
Deferred tax liabilities:
Depreciation $ 93,800 $ 85,072
Bond accretion 3,139 2,044
Loan origination costs 77,542 --
---------- ----------
$ 174,481 $ 87,116
---------- ----------
$ 622,540 $1,107,671
========== ==========
Notes to Consolidated Financial Statements
The provision for income taxes charged to operations for the years ended
December 31, 2000, 1999 and 1998, consists of the following:
2000 1999 1998 1997
--------- --------- --------- ---------
Current tax expense $ 963,007 $ 930,739 $ 861,138 $ 706,516
Deferred tax (benefit) (58,521) (77,398) (69,254) (70,181)
--------- --------- --------- ---------
$ 904,486 $ 853,341 $ 791,884 $ 636,335
========= ========= ========= =========
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the years ended
December 31, 2000, 1999 and 1998, due to the following:
2000 1999 1998
----------- --------- ---------
Computed "expected" tax expense $ 1,034,416 $ 981,794 $ 916,832
(Decrease) in income taxes
resulting from:
Tax-exempt interest income (111,323) (116,413) (106,451)
Other (18,607) (12,040) (18,497)
----------- --------- ---------
$ 904,486 $ 853,341 $ 791,884
=========== ========= =========
Low income housing credits totaled $31,923 for the years ended December 31,
2000, 1999 and 1998, respectively.
Note 10. Fund Restrictions and Reserve Balance
Transfers of funds from the banking subsidiary to the parent corporation in the
form of loans, advances and cash dividends are restricted by federal and state
regulatory authorities. As of December 31, 2000, the aggregate amount of
unrestricted funds which could be transferred from the banking subsidiary to the
parent corporation, without prior regulatory approval, totaled $3,802,075.
The Bank must maintain a reserve against its deposits in accordance with
Regulation D of the Federal Reserve Act. For the final weekly reporting period
in the years ended December 31, 2000 and 1999, the aggregate amounts of daily
average required balances were approximately $818,000 and $740,000,
respectively.
Note 11. Benefit Plans
The Bank has a noncontributory, defined benefit pension plan for all full-time
employees over 21 years of age with one year of service. Benefits are generally
based upon years of service and average compensation for the five highest-paid
consecutive years of service. The Bank funds pension costs in accordance with
the funding provisions of the Employee Retirement Income Security Act.
Information about the plan follows:
Notes to Consolidated Financial Statements
2000 1999 1998
----------- ----------- -----------
Change in Benefit Obligation
Benefit obligation, beginning of year $ 1,689,449 $ 1,559,147 $ 1,822,867
Service cost 168,658 150,965 156,069
Interest cost 126,575 116,936 136,715
Actuarial loss 111,787 (72,350) 36,572
Benefits paid (141,052) (65,249) (593,076)
----------- ----------- -----------
Benefit obligation, end of year $ 1,955,417 $ 1,689,449 $ 1,559,147
----------- ----------- -----------
Changes in Plan Assets
Fair value of plan assets,
beginning of year $ 1,537,774 $ 1,262,632 $ 1,689,889
Actual return on plan assets 219,082 159,395 26,745
Employer contributions - - 180,996 139,074
Benefits paid (141,052) (65,249) (593,076)
----------- ----------- -----------
Fair value of assets, end of year $ 1,615,804 $ 1,537,774 $ 1,262,632
----------- ----------- -----------
Funded status $ (339,613) $ (151,675) $ (296,515)
Unrecognized net actuarial (gain) loss (102,485) (117,140) 13,485
Unrecognized net obligation at transition (56,255) (61,881) (67,507)
Unrecognized prior service cost 39,231 42,501 45,771
----------- ----------- -----------
Accrued cost included in other liabilities $ (459,122) $ (288,195) $ (304,766)
=========== =========== ===========
2000 1999 1998
----------- ----------- -----------
Components of Net Periodic Benefit Cost
Service cost $ 168,658 $ 150,965 $ 156,069
Interest cost 126,575 116,936 136,715
Expected return on plan assets (121,950) (101,120) (152,090)
Amortization of prior service cost 3,270 3,270 3,270
Amortization of net obligation at
transition (5,626) (5,626) (5,626)
----------- ----------- -----------
Net periodic benefit cost $ 170,927 $ 164,425 $ 138,338
----------- ----------- -----------
Weighted-Average Assumptions as
of December 31
Discount rate 7.50% 7.50% 7.50%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 5.00% 5.00% 5.00%
Notes to Consolidatd Financial Statements
The Corporation provides a 401(k) profit sharing thrift plan for all eligible
employees. Participating employees may elect to contribute up to 6% of their
salaries. The Corporation contributes an amount equal to one-half of the
employees' contributions. The Corporation's contributions in 2000, 1999 and
1998 were $57,978, $48,572 and $50,187, respectively.
Effective January 1, 2000, the Corporation established an employee stock
ownership plan (ESOP). The purpose of the ESOP is to match 50 percent of the
employee contributions to the 401(k) profit sharing thrift plan with the
Corporation's common stock. The ESOP had no activity during the year ended
December 31, 2000 and no contributions were made to the ESOP during the year.
On January 6, 1999, the Bank adopted a Director Split Dollar Life Insurance
Plan. This Plan provides life insurance coverage to insurable directors of the
Bank. The Bank owns the policies and is entitled to all values and proceeds.
The Plan provides retirement benefits and the payment of benefits at the death
of the insured director. The amount of benefits will be determined by the
performance of the policies over the director's life.
Note 12. Commitments and Contingencies
In the normal course of business, there are outstanding various commitments and
contingent liabilities, such as guarantees, commitments to extend credit, etc.,
which are not reflected in the accompanying financial statements. The
Corporation does not anticipate losses as a result of these transactions.
The Corporation has cash accounts in other commercial banks. The amount on
deposit at these banks at December 31, 2000, exceeded the insurance limits of
the Federal Deposit Insurance Corporation by approximately $153,303.
See Note 16 with respect to financial instruments with off-balance-sheet risk.
Note 13. Transactions With Related Parties
During the year, employees, executive officers and directors (and companies
controlled by them) were customers of and had transactions with the Corporation
in the normal course of business. These transactions were made on substantially
the same terms as those prevailing for other customers.
At December 31, 2000 and 1999, these loans totaled $3,238,564 and $2,574,020,
respectively. During 2000, total principal additions were $1,937,249 and total
principal payments were $1,272,705.
Note 14. Lease Commitments
The Corporation was obligated under noncancelable leases for the banking
premises. Total rental expense for operating leases for 2000, 1999 and 1998 was
$51,099, $43,259 and $33,839, respectively. Minimum rental commitments under
noncancelable leases with terms in excess of one year as of December 31, 2000
were as follows:
Operating
Year Leases
---------------------- ---------
2001 $ 35,319
2002 6,730
---------
Total minimum payments $ 42,049
=========
Notes to Consolidated Financial Statements
Note 15. Dividend Reinvestment Plan
The Company has in effect a Dividend Reinvestment Plan which provides an
automatic conversion of dividends into common stock for enrolled shareholders.
Stock is issued at 100% of fair market value on each dividend record date.
Note 16. Financial Instruments With Off-Balance-Sheet Risk
The Corporation is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The contract
or notional amounts of those instruments reflect the extent of involvement the
Corporation has in particular classes of financial instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
A summary of the contract or notional amount of the Corporation's exposure to
off-balance-sheet risk as of December 31, 2000 and 1999, is as follows:
2000 1999
----------- -----------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $25,221,000 $19,137,000
Standby letters of credit $ 1,080,266 $ 553,525
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property and equipment, and income-
producing commercial properties.
Unfunded commitments under commercial lines of credit, revolving credit lines
and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines of credit are
uncollateralized and usually do not contain a specified maturity date and may
not be drawn upon to the total extent to which the Corporation is committed.
Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Corporation holds
security agreements on accounts receivable, inventory and equipment as
collateral supporting those commitments for which collateral is deemed
necessary. The extent of collateral held for those commitments at December 31,
2000, varies from 0 percent to 100 percent; the average amount collateralized is
37.7 percent.
Notes to Consolidated Financial Statements
Note 17. Fair Value of Financial Instruments and Interest Rate Risk
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Securities
For securities held for investment purposes, fair values are based on quoted
market prices or dealer quotes.
Loan Receivables
For certain homogeneous categories of loans, such as some residential mortgages,
and other consumer loans, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
Borrowings
The carrying amounts of federal funds purchased, borrowings under repurchase
agreements, and other short-term borrowings under repurchase agreements, and
other short-term borrowings maturing within 90 days approximate their fair
values. Fair values of other borrowings are estimated using discounted cash
flow analyses based on the Corporation's current incremental borrowing rates for
similar types of borrowing arrangements.
Off-Balance-Sheet Financial Instruments
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter similar agreements, taking into account the remaining
terms of the agreements and the present credit worthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
Notes to Consolidated Financial Statements
The fair value of stand-by letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
At December 31, 2000 and 1999, the carrying amounts of loan commitments and
stand-by letters of credit were deemed to approximate fair value.
The estimated fair values of the Corporation's financial instruments are as
follows:
2000 1999
----------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(in thousands) (in thousands)
Financial assets:
Cash and short-term investments $ 11,622 $ 11,622 $ 4,108 $ 4,108
Securities 44,831 44,831 45,129 45,129
Loans 165,145 170,129 149,313 149,710
Accrued interest receivable 1,372 1,372 1,166 1,166
Financial liabilities:
Deposits $175,194 $176,504 $153,422 $152,962
Federal funds purchased - - - - 1,547 1,547
Accrued interest payable 556 556 411 411
Long-term debt 33,523 34,852 33,622 31,883
The Corporation assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, the fair
values of the Corporation's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Corporation. Management attempts to match maturities of assets and liabilities
to the extent believed necessary to minimize interest rate risk. However,
borrowers with fixed rate obligations are less likely to prepay in a rising rate
environment and more likely to prepay in a falling rate environment.
Conversely, depositors who are receiving fixed rates are more likely to withdraw
funds before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets
and liabilities and attempts to minimize interest rate risk by adjusting terms
of new loans and deposits and by investing in securities with terms that
mitigate the Corporation's overall interest rate risk.
Note 18. Regulatory Matters
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - possibly additional discretionary
- - actions by regulators that, if undertaken, could have a direct material effect
on the Corporation's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Corporation must
meet specific capital guidelines that involve quantitative measures of the
Corporation's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Corporation's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding companies.
Notes to Consolidated Financial Statements
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 2000, that the Corporation meets all capital
adequacy requirements to which it is subject.
As of December 31, 2000, the most recent notification from the Federal Reserve
Bank categorized the Corporation as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Corporation must maintain minimum total risk-based, Tier 1 risk-based, and
Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Corporation's actual capital amounts and ratios are also presented in the
table.
Minimum
To Be Well
Capitalized Under
Minimum Capital Prompt Corrective
Actual Requirement Action Provisions
--------------------- --------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- -------- ------ ----- ------- -------
(Amount in Thousands)
As of December 31, 2000:
Total Capital (to Risk
Weighted Assets):
Consolidated $21,319 12.26% $13,917 8.0% N/A N/A
First Bank $21,093 12.13% $13,907 8.0% $17,384 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $19,616 11.28% $ 6,959 4.0% N/A N/A
First Bank $19,390 11.15% $ 6,954 4.0% $10,430 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated $19,616 8.67% $ 9,054 4.0% N/A N/A
First Bank $19,390 8.58% $ 9,044 4.0% $11,305 5.0%
As of December 31, 1999:
Total Capital (to Risk
Weighted Assets):
Consolidated $19,966 13.7% $11,631 8.0% N/A N/A
First Bank $19,732 13.6% $11,622 8.0% $14,527 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $18,519 12.7% $ 5,815 4.0% N/A N/A
First Bank $18,285 12.6% $ 5,811 4.0% $ 8,716 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated $18,519 8.9% $ 8,311 4.0% N/A N/A
First Bank $18,285 8.8% $ 8,313 4.0% $10,391 5.0%
Notes to Consolidated Financial Statements
Note 19. Incentive Stock Option Plan
The Corporation had an incentive stock option plan for all full-time employees,
which expired in 1995. Options previously granted may be exercised by the
participants until the options expire, which is five years after the date of the
original option grant. All options have expired as of December 31, 2000.
The status of the stock option plan during 2000, 1999 and 1998 is as follows:
2000 1999 1998
------------------------ --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at
January 1 3,560 $ 23.00 6,555 $ 23.43 15,780 $ 23.51
Exercised (640) 23.00 (1,553) 23.93 (8,542) 23.58
Forfeited (2,920) 23.00 (1,442) 23.95 (683) 23.58
--------- ------- -------
Outstanding and
exercisable at
year end - - - - 3,560 23.00 6,555 23.43
========= ======= =======
At December 31, 2000, there were no options outstanding.
Note 20. Earnings Per Share
The following table presents the weighted average number of shares used in
computing earnings per share and the effect on the weighted average number of
shares of dilutive potential common stock. Potential dilutive common stock has
no effect on income available to common stockholders.
2000 1999 1998
--------------------- ------------------- --------------------
Per Share Per Share Per Share
Shares Amount Shares Amount Shares Amount
------- --------- ------ --------- ------- ---------
Basic EPS 793,724 $ 2.69 790,947 $ 2.57 783,897 $ 2.43
====== ====== ======
Effect of dilutive
securities, stock
options 34 935 3,006
------- ------- -------
Diluted EPS 793,758 $ 2.69 791,882 $ 2.57 786,903 $ 2.42
======= ====== ======= ====== ======= ======
Notes to Consolidated Financial Statements
Note 21. Parent Corporation Only Financial Statements
FIRST NATIONAL CORPORATION
(Parent Corporation Only)
Balance Sheets
December 31, 2000 and 1999
Assets 2000 1999
------------- ------------
Cash $ 27,659 $ 62,715
Investment in subsidiaries, at cost, plus
undistributed net income 19,103,387 16,943,287
Other assets
198,403 170,352
------------- ------------
Total assets $ 19,329,449 $ 17,176,354
============= ============
Liabilities and Stockholders' Equity
Liabilities $ - - $ - -
------------- ------------
Stockholders' Equity
Common stock $ 3,950,155 $ 3,969,955
Surplus 1,531,634
1,464,642
Retained earnings 14,201,406 13,016,843
Accumulated other comprehensive (loss) (1,342,078)
(286,754)
------------- ------------
Total stockholders' equity $ 19,329,449 $ 17,176,354
------------- ------------
Total liabilities and stockholders' equity $ 19,329,449 $ 17,176,354
============= ============
Notes to Consolidated Financial Statements
FIRST NATIONAL CORPORATION
(Parent Corporation Only)
Statements of Income
Three Years Ended December 31, 2000
2000 1999 1998
----------- ----------- -----------
Income, dividends from subsidiary $ 1,076,513 $ 800,000 $ 464,000
----------- ----------- -----------
Expenses:
Registration fees $ 850 $ 850 $ 850
Stationery and supplies 19,218 15,599 11,290
Legal and professional fees 60,191 22,121 14,487
Other 34,883 22,333 42,215
----------- ----------- -----------
Total expenses $ 115,142 $ 60,903 $ 68,842
----------- ----------- -----------
Income before allocated tax
benefits and undistributed
income of subsidiary $ 961,371 $ 739,097 $ 395,158
Allocated income tax benefits 70,642 52,886 54,528
----------- ----------- -----------
Income before equity in
undistributed income
of subsidiary $ 1,032,013 $ 791,983 $ 449,686
Equity in undistributed income of
subsidiary 1,104,774 1,242,305 1,454,996
----------- ----------- -----------
Net income $ 2,136,787 $ 2,034,288 $ 1,904,682
=========== =========== ===========
Notes to Consolidated Financial Statements
FIRST NATIONAL CORPORATION
(Parent Corporation Only)
Statements of Cash Flows
Three Years Ended December 31, 2000
2000 1999 1998
------------ ------------- -------------
Cash Flows from Operating Activities
Net income $ 2,136,787 $ 2,034,288 $ 1,904,682
Adjustments to reconcile net income
to net cash provided by operating
activities:
Undistributed earnings of subsidiary (1,104,774) (1,242,305) (1,454,996)
(Increase) decrease in other assets (28,053) 1,640 16,752
------------ ------------- -------------
Net cash provided by operating
activities $ 1,003,960 $ 793,623 $ 466,438
------------ ------------- -------------
Cash Flows from Financing Activities
Net proceeds from issuance of common
stock $ 132,481 $ 139,794 $ 287,037
Cash dividends paid (952,224) (909,743) (784,927)
Acquisition of common stock (219,273) - - - -
------------ ------------- -------------
Net cash used in financing
activities $ (1,039,016) $ (769,949) $ (497,890)
------------ ------------- -------------
Increase (decrease) in cash and
cash equivalents $ (35,056) $ 23,674 $ (31,452)
Cash and Cash Equivalents
Beginning 62,715 39,041 70,493
------------ ------------- -------------
Ending $ 27,659 $ 62,715 $ 39,041
============ ============= =============