INVESTOR RELATIONS
Contact information
First National Corporation,
112 West King Street
Strasburg, VA 22657
(540) 465-9121

Investor Relations Contact
Mr. M. Shane Bell
(540) 465-6130
sbell@fbvirginia.com

Transfer Agent
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
Phone: 1-800-685-4509
Fax: 215-553-5402
shareholder@broadridge.com

First National Corporation Announces 40% Increase in First Quarter Net Income

Company Release - 4/26/2017 7:30 AM ET

STRASBURG, Va., April 26, 2017 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (OTC:FXNC) today reported net income of $1.5 million and earnings per share of $0.31 for the first quarter ended March 31, 2017. This was a $444 thousand increase when compared to earnings for the first quarter of 2016, which totaled $1.1 million or $0.22 per share. The increase in net income resulted primarily from a $366 thousand decrease in noninterest expenses and a $293 thousand increase in net interest income.

Select highlights for the first quarter of 2017:

  • Net income increased 40% over first quarter of 2016

  • Return on equity of 11.78%

  • Return on average assets of 0.88%

  • The net interest margin increased to 3.70%

  • Compared to first quarter of 2016, the efficiency ratio improved to 69.52%, from 77.32%

  • Noninterest expenses decreased $366 thousand, or 6%

  • Net interest income increased $293 thousand, or 5%

  • Assets-per-employee increased to $4.6 million, compared to $3.8 million at March 31, 2016

“We are pleased with the performance in the first quarter of 2017 as the Company benefited from higher loan balances and expense reductions compared to last year’s first quarter. The results included a 40% increase in net income, a respectable net interest margin of 3.70%, and a significant improvement in the efficiency ratio,” said Scott Harvard, president and chief executive officer of First National. Harvard added, “Loan growth drove a higher net interest margin and higher interest income on loans. Non-maturity deposit growth helped fund loans and we remain focused on deepening relationships to drive continued loan and deposit growth. We are also pleased with the substantial improvements in productivity, as demonstrated by the assets-per-employee ratio, which reached $4.6 million at the end of the quarter.”

BALANCE SHEET

Total assets of First National increased $11.3 million during the quarter to $727.3 million at March 31, 2017, and increased $26.3 million compared to one year ago.  Loans, net of the allowance for loan losses, increased $11.6 million during the quarter to $492.3 million, and increased $43.8 million, or 10%, compared to March 31, 2016. The total of securities and interest-bearing deposits in banks was unchanged during the quarter at $180.9 million, and decreased $13.9 million compared to one year ago. 

Total deposits increased $9.2 million during the quarter to $654.8 million, and were $21.7 million higher than total deposits at March 31, 2016. When comparing the composition of the deposit portfolio at March 31, 2017 to one year ago, noninterest-bearing demand deposits increased from 26% to 27% of total deposits, while time deposits decreased from 22% to 19%. 

Shareholders’ equity totaled $54.0 million at March 31, 2017 compared to $47.7 million one year ago. Tangible common equity totaled $52.6 million at the end of the first quarter, compared to $45.6 million at March 31, 2016. The Company exceeded its target regulatory capital ratios at the end of the quarter. 

NET INTEREST INCOME

Net interest income increased $293 thousand, or 5%, to $6.0 million for the quarter, compared to $5.7 million for the same period of 2016. 

Total interest income increased $341 thousand, or 6%, to $6.5 million for the quarter, compared to the same period of 2016. The increase resulted from higher average earning asset balances and a higher yield on total earning assets. Earning asset yields increased 10 basis points, primarily from a change in asset composition as average loan balances increased to 74% of average earning assets for the first quarter, up from 69% for the same period of 2016. While loan balances increased, the average balance of securities decreased to 22% of average earning assets, down from 26%, comparing the periods.

Total interest expense increased $48 thousand, or 10%, to $540 thousand for the quarter, compared to the same period of 2016.  The increase in interest expense resulted primarily from a 4 basis point increase in the cost of interest-bearing deposits. 

NONINTEREST INCOME

Noninterest income was unchanged at $1.9 million for the quarter, compared to the same period of 2016. There were no significant changes in the noninterest income categories when comparing the periods.

NONINTEREST EXPENSE

Noninterest expense decreased $366 thousand, or 6%, to $5.8 million for the quarter, compared to the same period of 2016. Salaries and employee benefits expense decreased $202 thousand, or 6%, legal and professional fees decreased $114 thousand, or 37%, and occupancy expense decreased $57 thousand, or 13%.

Salaries and employee benefits decreased primarily from a decrease in salaries and wages, insurance expense, and retirement plan costs. A reduction in the number of employees had a favorable impact on each of these expense categories. Legal and professional fees decreased primarily from consulting expenses that were incurred from an efficiency initiative that occurred during the first quarter of 2016. The decrease in occupancy expense resulted primarily from lower repairs and maintenance expense when comparing the periods. 

ASSET QUALITY/LOAN LOSS PROVISION

There was no provision for loan loss during the quarter. Net recoveries on loans previously charged-off offset the impact of loan growth on the general reserve during the period. Asset quality improved as nonperforming assets totaled $1.8 million, or 0.25% of total assets at March 31, 2017, which was an improvement when compared to $6.4 million, or 0.91% of total assets, one year ago. The allowance for loan losses totaled $5.5 million at March 31, 2017 and $5.5 million at March 31, 2016, representing 1.10% and 1.22% of total loans, respectively. 

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, 2016, and other filings with the Securities and Exchange Commission.

ABOUT FIRST NATIONAL CORPORATION

First National Corporation (OTC:FXNC) is the parent company and bank holding company of First Bank, a community bank that first opened for business in 1907 in Strasburg, Virginia. The Bank offers loan and deposit products and services through its website, www.fbvirginia.com, its mobile banking platform, a network of ATMs located throughout its market area, two loan production offices, a customer service center in a retirement community, and 14 bank branch office locations located throughout the Shenandoah Valley and central regions of Virginia. In addition to providing traditional banking services, the Bank operates a wealth management division under the name First Bank Wealth Management.  First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.


FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

 (unaudited)
For the Quarter Ended
Income StatementMarch 31,
2017
 December 31,
 2016
 September 30,
 2016
 June 30,
 2016
 March 31,
 2016
Interest income         
  Interest and fees on loans$5,646 $5,556  $5,500 $5,370  $5,236 
  Interest on deposits in banks 61  55   73  62   48 
  Interest on securities 805  794   749  825   888 
  Dividends on restricted securities 20  21   20  21   19 
Total interest income $6,532 $6,426  $6,342 $6,278  $6,191 
Interest expense                 
  Interest on deposits$383 $353  $338 $329  $333 
  Interest on federal funds purchased -  -   -  -   3 
  Interest on subordinated debt 89  91   91  89   90 
  Interest on junior subordinated debt 68  69   65  64   61 
  Interest on other borrowings -  -   1  -   5 
Total interest expense$540 $513  $495 $482  $492 
Net interest income$5,992 $5,913  $5,847 $5,796  $5,699 
Provision for loan losses -  -   -  -   - 
Net interest income after provision for loan losses$5,992 $5,913  $5,847 $5,796  $5,699 
Noninterest income                 
  Service charges on deposit accounts$755 $877  $941 $914  $780 
  ATM and check card fees 501  505   529  515   488 
  Wealth management fees 347  353   339  334   336 
  Fees for other customer services 140  154   143  137   147 
  Income from bank owned life insurance 85  109   123  107   86 
  Net gains (losses) on sales of securities -  (2)  4  -   6 
  Net gains on sale of loans 33  42   50  31   21 
  Other operating income 80  89   182  74   79 
Total noninterest income$1,941 $2,127  $2,311 $2,112  $1,943 
Noninterest expense                 
  Salaries and employee benefits$3,242 $2,897  $3,183 $3,415  $3,444 
  Occupancy 367  364   380  365   424 
  Equipment  408  402   406  394   432 
  Marketing 136  210   125  120   107 
  Supplies 91  138   108  103   101 
  Legal and professional fees 197  238   179  156   311 
  ATM and check card fees 162  211   229  221   205 
  FDIC assessment 79  72   106  126   122 
  Bank franchise tax 104  90   89  90   103 
  Telecommunications expense 110  112   110  115   114 
  Data processing expense 150  159   160  146   128 
  Postage expense 61  56   56  57   69 
  Amortization expense 169  179   187  198   207 
  Other real estate owned expense (income), net 2  -   1  (49)  (72)
  Net loss on disposal of premises and equipment -  -   8  -   - 
  Other operating expense 473  507   526  426   422 
Total noninterest expense$5,751 $5,635  $5,853 $5,883  $6,117 
Income before income taxes$2,182 $2,405  $2,305 $2,025  $1,525 
Income tax expense 639  724   611  592   426 
Net income$1,543 $1,681  $1,694 $1,433  $1,099 
                  
Common Share and Per Common Share Data         
Net income, basic$0.31 $0.34  $0.34 $0.29  $0.22 
Weighted average shares, basic 4,935,421  4,927,728   4,925,753  4,924,702   4,920,315 
Net income, diluted$0.31 $0.34  $0.34 $0.29  $0.22 
Weighted average shares, diluted 4,937,625  4,933,572   4,929,922  4,926,859   4,923,117 
Shares outstanding at period end 4,940,766  4,929,403   4,926,546  4,925,599   4,924,539 
Tangible book value at period end$10.64 $10.26  $9.99 $9.61  $9.25 
Cash dividends$0.035 $0.03  $0.03 $0.03  $0.03 
                  

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

   (unaudited)
  For the Quarter Ended 
 March 31,
2017
 December 31,
 2016
 September 30,
 2016
 June 30,
 2016
 March 31,
 2016
Key Performance Ratios         
Return on average assets 0.88%  0.94%  0.95%  0.82%  0.64%
Return on average equity 11.78%  13.04%  13.44%  11.90%  9.39%
Net interest margin 3.70%  3.60%  3.57%  3.62%  3.62%
Efficiency ratio (1) 69.52%  67.05%  68.57%  71.62%  77.32%
          
Average Balances         
Average assets$714,714  $711,834  $710,005  $705,707  $693,783 
Average earning assets 667,358   664,156   661,798   654,709   643,531 
Average shareholders’ equity 53,132   51,295   50,160   48,443   47,066 
          
Asset Quality         
Loan charge-offs$106  $337  $195  $136  $120 
Loan recoveries 236   48   71   350   116 
Net charge-offs (recoveries) (130)  289   124   (214)  4 
Non-accrual loans 1,596   1,520   3,521   4,057   4,258 
Other real estate owned, net 250   250   250   442   2,112 
Nonperforming assets 1,846   1,770   3,771   4,499   6,370 
Loans 30 to 89 days past due, accruing 2,606   2,583   2,036   1,979   1,743 
Loans over 90 days past due, accruing 119   116   59   11   124 
Troubled debt restructurings, accruing 296   300   392   308   313 
Special mention loans 12,896   13,073   14,238   13,392   13,796 
Substandard loans, accruing 7,877   8,056   8,273   9,610   10,068 
          
Capital Ratios (2)         
Total capital$67,264  $65,590  $65,759  $64,375  $62,440 
Tier 1 capital 61,813   60,269   60,149   58,641   56,920 
Common equity tier 1 capital 61,813   60,269   60,149   58,641   56,920 
Total capital to risk-weighted assets 13.51%  13.47%  13.90%  13.66%  13.50%
Tier 1 capital to risk-weighted assets 12.41%  12.38%  12.72%  12.45%  12.30%
Common equity tier 1 capital to risk-weighted assets 12.41%  12.38%  12.72%  12.45%  12.30%
Leverage ratio 8.66%  8.48%  8.48%  8.33%  8.22%
          
Balance Sheet         
Cash and due from banks$10,593  $10,106  $8,955  $10,518  $10,250 
Interest-bearing deposits in banks 35,246   30,986   47,902   40,225   29,077 
Securities available for sale, at fair value 92,081   94,976   88,497   94,740   99,193 
Securities held to maturity, at carrying value 51,999   53,398   55,263   57,401   64,963 
Restricted securities, at cost 1,570   1,548   1,548   2,058   1,548 
Loans held for sale -   337   1,053   1,819   523 
Loans, net of allowance for loan losses 492,319   480,746   465,224   459,812   448,556 
Other real estate owned, net of valuation allowance 250   250   250   442   2,112 
Premises and equipment, net 20,709   20,785   20,852   21,126   21,366 
Accrued interest receivable 1,753   1,746   1,631   1,612   1,741 
Bank owned life insurance 14,013   13,928   13,808   13,935   13,828 
Core deposit intangibles, net 1,382   1,551   1,730   1,917   2,115 
Other assets 5,381   5,643   5,959   5,743   5,771 
  Total assets$727,296  $716,000  $712,672  $711,348  $701,043 
                     
Noninterest-bearing demand deposits$173,963  $168,076  $168,204  $159,278  $161,783 
Savings and interest-bearing demand deposits 353,958   349,067   340,884   337,589   334,599 
Time deposits 126,848   128,427   131,654   133,479   136,736 
  Total deposits$654,769  $645,570  $640,742  $630,346  $633,118 
Other borrowings -   -   -   12,000   - 
Subordinated debt 4,934   4,930   4,926   4,921   4,917 
Junior subordinated debt 9,279   9,279   9,279   9,279   9,279 
Accrued interest payable and other liabilities 4,336   4,070   6,742   5,544   6,029 
Total liabilities$673,318  $663,849  $661,689  $662,090  $653,343 
                    

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

   (unaudited)
 For the Quarter Ended
 March 31,
2017
 December 31,
 2016
 September 30,
 2016
 June 30,
 2016
 March 31,
 2016
          
Balance Sheet (continued)         
Preferred stock$-  $-  $-  $-  $- 
Common stock 6,176   6,162   6,158   6,157   6,156 
Surplus 7,155   7,093   7,046   7,021   6,996 
Retained earnings 41,126   39,756   38,223   36,676   35,391 
Accumulated other comprehensive loss, net   (479)    (860)    (444)    (596)    (843)
Total shareholders’ equity$  53,978  $  52,151  $   50,983  $  49,258  $  47,700 
  Total liabilities and shareholders’ equity$  727,296  $  716,000  $  712,672  $  711,348  $  701,043 
                                 
Loan Data         
Mortgage loans on real estate:         
  Construction and land development$36,024  $34,699  $34,518  $33,232  $31,505 
  Secured by farm land 676   688   695   706   931 
  Secured by 1-4 family residential 205,623   198,763   196,492   196,295   196,165 
  Other real estate loans 215,915   210,522   202,148   199,456   190,375 
Loans to farmers (except those secured by real estate) 461   1,316   737   492   473 
Commercial and industrial loans (except those secured by real estate) 28,731   28,665   25,114   24,229   23,742 
Consumer installment loans 5,279   4,611   4,283   4,083   3,854 
Deposit overdrafts 199   264   260   334   312 
All other loans   4,862      6,539       6,587     6,719     6,719 
  Total loans$497,770  $486,067  $470,834  $465,546  $454,076 
Allowance for loan losses   (5,451)    (5,321)     (5,610)    (5,734)    (5,520)
Loans, net$  492,319   $  480,746   $   465,224  $  459,812  $  448,556 
                                 
Reconciliation of Tax-Equivalent Net Interest Income        
GAAP measures:         
  Interest income – loans$5,646  $5,556  $5,500  $5,370  $5,236 
  Interest income – investments and other 886   870   842   908   955 
  Interest expense – deposits (383)  (353)  (338)  (329)  (333)
  Interest expense – other borrowings -   -   (1)  -   (5)
  Interest expense – subordinated debt (89)  (91)  (91)  (89)  (90)
  Interest expense – junior subordinated debt (68)  (69)  (65)  (64)  (61)
  Interest expense – federal funds purchased -   -   -   -   (3)
Total net interest income$5,992  $5,913  $5,847  $5,796  $5,699 
Non-GAAP measures:         
Tax benefit realized on non-taxable interest income – loans$19  $25  $26  $25  $25 
Tax benefit realized on non-taxable interest income – municipal securities 74   71   70   73   76 
Total tax benefit realized on non-taxable interest income$93  $96  $96  $98  $101 
Total tax-equivalent net interest income$6,085  $6,009  $5,943  $5,894  $5,800 
                                 

 (1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, and gains and losses 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.  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 tables above for tax-equivalent net interest income and reconciliations 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.

(2) All capital ratios reported are for the Bank.


CONTACTS

Scott C. Harvard
President and CEO
(540) 465-9121
sharvard@fbvirginia.comM. Shane Bell
Executive Vice President and CFO
(540) 465-9121
sbell@fbvirginia.com

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Source: First National Corporation