UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23976
FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1232965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
112 West King Street, Strasburg, Virginia 22657
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 465-9121
NONE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 Months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class: Common stock, $5.00 par value
Outstanding as of November 14, 2001: 790,031
FIRST NATIONAL CORPORATION
INDEX
Part I. Financial Information
Item 1. Financial Statements Page No.
Consolidated Statements of Income 3,4
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Consolidated Statements of Changes in Stockholders' Equity 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Part II. Other Information 13
Signature 14
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
(Unaudited)
Three Months Ended
September 30, 2001 September 30, 2000
Interest Income
Interest and Fees on Loans $ 3,738 $ 3,589
Interest on Federal Funds Sold 13 66
Interest on Deposits in Banks 17 30
Interest and Dividends on Investment Securities
Available for Sale:
Taxable 478 459
Non Taxable 82 209
-------- --------
Total Interest Income 4,328 4,353
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 486 898
Interest on Time Deposits of $100,000 or more 315 270
Interest on All Other Time Deposits 818 767
Interest on Federal Funds Purchased 3 1
Interest on Long-term Debt 451 549
-------- --------
Total Interest Expense 2,073 2,485
-------- --------
Net Interest Income 2,255 1,868
-------- --------
Provision for Loan Losses 105 123
-------- --------
Net Interest Income After Provision
for Loan Losses 2,150 1,745
Other Operating Income
Service Charges 218 231
Profits (losses) on Securities Available for Sale 0 0
Other Operating Income 163 138
-------- --------
Total Operating Income 381 369
Other Operating Expenses:
Salaries and Employee Benefits 739 732
Occupancy Expense 106 82
Equipment Expense 139 124
Other 530 422
-------- --------
Total Operating Expenses 1,514 1,360
Income Before Income taxes 1,017 754
Income Taxes 321 230
-------- --------
Net Income $ 696 $ 524
======== ========
Per Share Data
Earnings Per Common Share, basic $ 0.88 $ 0.66
======== ========
Earnings Per Common Share, diluted $ 0.88 $ 0.66
======== ========
Cash Dividends $ 0.32 $ 0.29
======== ========
The Accompanying Notes Are An Integral Part Of These Statements
3
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
(Unaudited)
Nine Months Ended
September 30, 2001 September 30, 2000
Interest Income
Interest and Fees on Loans $ 11,109 $ 10,271
Interest on Federal Funds Sold 145 86
Interest on Deposits in Banks 60 38
Interest and Dividends on Investment Securities
Available for Sale:
Taxable 1,537 1,654
Non Taxable 246 373
-------- --------
Total Interest Income 13,097 12,422
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 1,914 2,501
Interest on Time Deposits of $100,000 or more 908 686
Interest on All Other Time Deposits 2,379 1,939
Interest on Federal Funds Purchased 4 63
Interest on Long-term Debt 1,413 1,607
-------- --------
Total Interest Expense 6,618 6,796
-------- --------
Net Interest Income 6,479 5,626
-------- --------
Provision for Loan Losses 285 369
-------- --------
Net Interest Income After Provision
For Loan Losses 6,194 5,257
Other Operating Income
Service Charges 667 604
Profits (losses) on Securities Available for Sale (4) 0
Other Operating Income 457 420
-------- --------
Total Operating Income 1,120 1,024
Other Operating Expenses:
Salaries and Employee Benefits 2,268 2,214
Occupancy Expense 292 256
Equipment Expense 385 361
Other 1,534 1,339
-------- --------
Total Operating Expenses 4,479 4,170
Income Before Income taxes 2,835 2,111
Income Taxes 890 632
-------- --------
Net Income $ 1,945 $ 1,479
======== ========
Per Share Data
Earnings Per Common Share, basic $ 2.46 $ 1.86
======== ========
Earnings Per Common Share, diluted $ 2.46 $ 1.86
======== ========
Cash Dividends $ 0.96 $ 0.87
======== ========
The Accompanying Notes Are An Integral Part Of These Statements
4
FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
(Unaudited)
September 30, 2001 December 31, 2000
ASSETS
Cash and due from banks $ 5,617 $ 6,307
Federal Funds Sold 1,977 5,315
Securities Available for Sale 40,690 44,831
Loans Net of Unearned Discount 186,300 166,849
Less: Allowance for Loan Losses 1,871 1,703
--------- ---------
Net Loans 184,429 165,146
Bank Premises and Equipment 5,287 4,313
Interest Receivable 1,295 1,372
Other Assets 1,749 2,045
--------- ---------
Total Assets $ 241,044 $ 229,329
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand Deposits
Non-Interest Bearing $ 24,228 $ 22,059
Interest Bearing 20,744 18,803
Savings Deposits 57,845 62,315
Certificates of Deposit of $100,000 and over 25,106 18,052
All Other Time Deposits 60,988 53,965
--------- ---------
Total Deposits $ 188,911 $ 175,194
Federal Funds Purchased 0 0
Federal Home Loan Bank Advances 28,735 33,523
Accrued Expenses and other liabilities 1,944 1,283
--------- ---------
Total Liabilities $ 219,590 $ 210,000
--------- ---------
Stockholders' Equity
Common Stock, Par Value $5 per Share;
Authorized 2,000,000 Shares, 790,031
Shares Issued and Outstanding $ 3,950 $ 3,950
Surplus 1,465 1,465
Accumulated Other Comprehensive Income (Loss) 651 (287)
Retained Earnings 15,388 14,201
--------- ---------
Total Stockholders' Equity $ 21,454 $ 19,329
--------- ---------
Total Liabilities and Stockholders' Equity $ 241,044 $ 229,329
========= =========
The Accompanying Notes Are An Integral Part Of These Statements
5
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Nine Months Ended
September 30, September 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,945 $ 1,479
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 240 298
Provision for loan losses 285 369
Change in assets and liabilities
Decrease in interest receivable 77 (141)
Decrease (increase) in other assets 296 (323)
Increase in accrued expenses (178) 516
-------- --------
Net Cash Provided by Operating Activities $ 3,021 $ 2,198
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of Other Real Estate Owned $ 0 $ 343
Proceeds from maturities and principal payments on securities- AFS 5,562 1,407
Purchases of bank premises and equipment (1,214) (200)
Net (increase) in loans (19,568) (13,100)
(Increase) decrease in federal funds sold 3,338 (3,045)
-------- --------
Net Cash (Used in) Investing Activities ($11,882) ($14,595)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
and savings accounts $ (360) $ (348)
Net increase in certificates of deposit 14,077 16,944
Net increase (decrease) in long-term borrowings (4,788) (73)
Net proceeds from issuance of common stock 0 15
Cash dividends paid (758) (691)
Net increase (decrease) in federal funds purchased 0 (1,547)
-------- --------
Net Cash Provided by Financing Activities $ 8,171 $ 14,300
-------- --------
Increase (decrease) in Cash and Cash Equivalents $ (690) $ 1,903
CASH AND CASH EQUIVALENTS:
Beginning 6,307 4,108
-------- --------
Ending $ 5,617 $ 6,011
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 6,359 $ 6,666
======== ========
Income Taxes $ 871 $ 686
======== ========
The Accompanying Notes Are An Integral Part Of These Statements
6
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands Of Dollars)
Nine Months Ended September 30, 2001 and 2000
(Unaudited)
Accumulated
Other
Common Capital Comprehensive Retained Comprehensive
Stock Surplus Income (Loss) Earnings Income Total
Balances, December 31, 1999 $ 3,970 $ 1,531 ($1,342) $13,017 $17,176
Comprehensive Income:
Net income 1,479 1,479 1,479
Other comprehensive income
net of tax:
Unrealized gain on securities
available for sale 430 430 430
-------
Total comprehensive income, net tax 1,909
=======
Issuance of authorized common stock
exercised options 3 12 15
Cash dividends declared (691) (691)
------- ------- ------- ------- -------
Balances, September 30, 2000 $ 3,973 $ 1,543 ($ 912) $13,805 $18,409
======= ======= ======= ======= =======
Balances, December 31, 2000 3,950 $ 1,465 ($ 287) $14,201 $19,329
Comprehensive income:
Net Income 1,945 1,945 1,945
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 938 938 938
-------
Total comprehensive income,
net of tax 2,883
=======
Cash dividends declared (758) (758)
------- ------- ------- ------- -------
Balances, September 30, 2001 $ 3,950 $ 1,465 $ 651 $15,388 $21,454
======= ======= ======= ======= =======
The Accompanying Notes Are An Integral Part Of These Statements
7
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying consolidated financial statements of First National
Corporation and its subsidiaries have not been audited by independent
accountants, except for the balance sheet at December 31, 2000. In the opinion
of the company's management, the financial statements reflect all adjustments
necessary to present fairly the results of operations for the three and nine
month periods ended September 30, 2001 and 2000, the company's financial
position at September 30, 2001 and December 31, 2000, and the cash flows for the
nine month periods ended September 30, 2001 and 2000. These adjustments are of a
normal recurring nature.
Note 2. Securities as of September 30, 2001 and December 31, 2000 are summarized
below:
(000 Omitted)
September 30, 2001 December 31, 2000
Unrealized Unrealized
Cost Market Gain (Loss) Cost Market Gain (Loss)
---- ------ ----------- ---- ------ -----------
Securities Available For Sale
Obligations of US Government
Corporations and Agencies 30,231 30,984 753 35,978 35,502 (476)
Obligation of State and Political
Subdivisions 6,828 7,020 192 6,827 6,822 (5)
Corporate Securities 1 42 41 1 47 46
Other Securities 2,644 2,644 0 2,460 2,460 0
------- ------- ------- ------- ------- -------
Total Securities Available for Sale $39,704 $40,690 $ 986 $45,266 $44,831 ($ 435)
8
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
(000 Omitted)
September 30, 2001 December 31, 2000
Real estate loans:
Construction and land development $ 10,328 8,836
Secured by farm land 1,723 1,791
Secured by 1-4 family residential 35,687 37,588
Other real estate loans 55,933 46,124
Loans to farmers (except those secured by real estate) 568 529
Commercial and industrial loans
(except those secured by real estate) 42,754 35,971
Loans to individuals for personal expenditures 36,039 34,024
All other loans 3,268 1,991
Total loans $ 186,300 $ 166,854
Less unearned income reflected in loans 0 5
Loans, net of unearned income $ 186,300 $ 166,849
The Bank had loans in a Nonaccrual category of $207,989 on December 31, 2000 and
$145,171 on September 30, 2001.
Note 4. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses
(000 Omitted)
For the Nine Months Ended
September 30, 2001 September 30, 2000
Balance at Beginning of Period $1,703 $1,447
Charge-Offs (149) (121)
Recoveries 32 46
Net Charge-Offs (117) (75)
Provision for Loan Losses 285 369
Balance at End of Period $1,871 $1,741
9
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. New Accounting Pronouncements
In July, 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142, Goodwill
and Other Intangible Assets, which will potentially impact the accounting for
goodwill and other intangible assets. Statement 141 eliminates the pooling
method of accounting for business combinations and requires that intangible
assets that meet certain criteria be reported separately from goodwill. The
Statement also requires negative goodwill arising from a business combination to
be recorded as an extraordinary gain. Statement 142 eliminates the amortization
of goodwill and other intangibles that are determined to have an indefinite
life. The Statement requires, at a minimum, annual impairment tests for goodwill
and other intangible assets that are determined to have an indefinite life.
Upon adoption of these Statements, an organization is required to
re-evaluate goodwill and other intangible assets that arose from business
combinations entered into before July 1, 2001. If the recorded other intangibles
assets do not meet the criteria for recognition, they should be classified as
goodwill. Similarly, if there are other intangible assets that meet the criteria
for recognition but were not separately recorded from goodwill, they should be
reclassified from goodwill. An organization also must reassess the useful lives
of intangible assets and adjust the remaining amortization periods accordingly.
Any negative goodwill must be written-off.
The standards generally are required to be implemented by the Bank in
its 2002 financial statements. The adoption of these standards will not have a
material impact on the financial statements.
10
FIRST NATIONAL CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Overview
- --------
Net income for the first three quarters of 2001 was $1.95 million
compared to $1.48 million in the first three quarters of 2000. This represents
an increase of 32% and is attributable to an increase of $853 thousand or 15.2%
in "net interest income" and an increase of $96 thousand or 9.4% in "total
operating income" while "non-interest expense" increased $309 thousand or 7.4%
over the prior year. Interest and fees on loans, the largest component of
interest income, increased $675 thousand during the period, while interest on
deposits, the largest component of interest expense, decreased $178 thousand
resulting in an increase in net interest income of $853 thousand. The provision
to the allowance for loan losses was reduced from the previous period to $285
thousand.
Yields, Rates and Net Interest Margin
- -------------------------------------
The New York prime rate has changed nine (9) times since the first of
2001, declining a total of 400 basis points. During the first three quarters of
the year, the yield on the loan portfolio declined from 8.74% in 2000 to 8.47%
in 2001. At the same time the cost of interest bearing deposits decreased from
4.91% in the first three quarters of 2000 to 4.42% in the same period of 2001.
While the yield on earning assets decreased 27 basis points from 8.23% in 2000
to 7.96% in 2001, the cost of interest bearing liabilities decreased 44 basis
points from 5.16% in 2000 to 4.72% in 2001. This resulted in an increase in
First National Corporation's interest rate spread from 3.07% in 2000 to 3.24% in
2001. Interest expense as a percentage of average earning assets decreased from
4.45% in 2000 to 3.98% in 2001. First National Corporation's net interest margin
increased from 3.78% in 2000 to 3.98% in 2001.
Recent Developments
- -------------------
First National Corporation has withdrawn its membership in the Virginia
Bankers Insurance Center and entered into a contractual relationship with First
Insurance and Financial Services, L.L.C. for its insurance needs. First
Insurance and Financial Services, L.L.C. is a Winchester-based insurance agency
in which First National Corporation has invested. First Bank, through its
wholly-owned subsidiary, purchased an interest in Banker's Title Shenandoah, a
title insurance company and also subscribed to an interest in an investment
firm, which may be established by the Virginia Bankers Association in 2002.
First Bank entered into an agreement to lease property for expansion.
First Bank agreed to loan the lessor $880 thousand at 8% interest payable
monthly with a three-year maturity, secured by a first deed of trust on the
property. Additionally, First Bank is to lease the property from the lessor for
a thirteen-month period with the monthly lease amount to equal the lessor's
interest payment. At the end of lease period, First Bank will have the right to
purchase the property for $975 thousand.
11
FIRST NATIONAL CORPORATION
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
Nine Months Ended September 30,
2001 2000
---- ----
Annual Annual
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(3) Balance Expense Rate(3)
------- ------- ------- ------- ------- -------
ASSETS
Balances at correspondent banks - interest $ 1,293,847 $ 59,978 6.18% $ 341,451 $ 37,448 14.62%
bearing
Securities:
Taxable 35,077,824 1,537,427 5.84% 37,555,831 1,780,636 6.32%
Tax-exempt (1) 6,827,495 372,698 7.28% 6,823,394 372,759 7.28%
------------ ------------ ------------ ----------- -----
Total Securities 41,905,319 1,910,125 6.08% 44,379,225 2,153,395 6.47%
Loans (net of earned income): (2)
Taxable 174,272,705 11,066,260 8.47% 156,661,616 10,219,804 8.70%
Tax-exempt (1) 1,012,686 65,886 8.67% 459,095 78,267 22.73%
------------ ------------ ------------ ----------- -----
Total Loans 175,285,391 11,132,146 8.47% 157,120,711 10,298,071 8.74%
Fed funds sold and repurchase agreements 3,395,206 144,628 5.68% 1,810,168 86,285 6.36%
------------ ------------ ------------ ----------- -----
Total earning assets 221,879,763 13,246,877 7.96% 203,651,555 12,575,199 8.23%
Less: allowance for Loan Losses (1,784,429) (1,577,382)
Total nonearning assets 12,372,170 12,361,443
------------ ------------
Total Assets $232,467,504 $214,435,616
============ ============
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits:
Checking $ 12,318,529 $ 119,148 1.29% $ 11,899,158 $ 111,874 1.25%
Money market savings 6,414,667 124,580 2.59% 5,983,399 138,792 3.09%
Regular savings 62,011,837 1,670,011 3.59% 57,945,068 2,250,518 5.18%
Certificates of deposit:
Less than $100,000 55,160,903 2,380,739 5.75% 47,882,962 1,939,064 5.40%
$100,000 and more 20,916,689 907,816 5.79% 15,574,754 685,583 5.87%
------------ ------------ ----------- -----
Total interest bearing deposits 156,822,625 5,202,294 4.42% 139,285,341 5,125,831 4.91%
Fed funds purchased 121,276 3,981 4.38% 1,295,084 62,648 6.45%
Long term borrowings 30,214,795 1,412,684 6.23% 34,908,761 1,607,206 6.14%
------------ ------------ ----------- -----
Total interest bearing liabilities 187,158,696 6,618,959 4.72% 175,489,186 6,795,685 5.16%
Noninterest bearing liabilities
Demand deposits 23,062,030 19,787,414
Other liabilities 1,903,200 1,486,910
------------ ------------
Total liabilities 212,123,926 196,763,510
Stockholders' equity 20,343,578 17,672,106
------------ ------------
Total liabilities and stockholders' equity $232,467,504 $214,435,616
============ ============
Net Interest income $ 6,627,918 5,779,514
============ ===========
Interest rate spread 3.24% 3.07%
Interest expense as a percent of average
earning assets 3.98% 4.45%
Net interest margin 3.98% 3.78%
(1) Income and yields are reported on a taxable-equivalent basis assuming a
federal tax rate of 34% in 2000 and 2001.
(2) Loans placed on a nonaccrual status are reflected in the balances.
(3) Annualized
12
FIRST NATIONAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of September 30, 2001 neither the Corporation nor the Bank was a
party to any legal proceedings other than routine litigation that is incidental
to its business.
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First National Corporation
(Registrant)
Date December 31, 2001 /s/ Stephen C. Pettit
---------------------------- ------------------------------------
Stephen C. Pettit, Controller
(Chief Financial Officer and
Duly Authorized Officer)
14